A legal battle unfolding between Traverse City Tourism and Golden Swan Management – a local company that manages short-term vacation rentals on behalf of private property owners – could help answer a key question: Are private vacation rentals subject to the same assessments as hotels, motels, and other lodging facilities in Michigan?

Michigan Public Act 395 of 1980 authorizes convention and visitor bureaus (CVBs) to levy up to a five percent tax on local hotel bookings. Those assessments – typically passed on to the guest – make up the bulk of Traverse City Tourism’s annual budget. Funds collected go toward tourism promotion and regional economic development. According to state law, businesses required to collect the assessment are called transient facilities, defined as “a building or combination of buildings under common ownership, operation, or management that contains 10 or more rooms used in the business of providing dwelling, lodging, or sleeping to transient guests.”

In May 2021, Traverse City Tourism notified Golden Swan – which manages more than 50 short-term rental units across northern Michigan – that it was obligated to collect assessments on its rentals since it manages more than 10 rooms. Golden Swan challenged that claim, noting its units are all privately owned by different individuals and spread across numerous locations. No property meets the threshold of having 10 or more rooms, Golden Swan argued. Golden Swan also pointed to a manual co-prepared by Travel Michigan – the state’s official agency for tourism promotion – that explains hotel assessment rules. Though not a legally binding document, the manual advises that “private home rentals are not subject to local assessments” and in fact “compete for transient lodging guests.”

Following the email exchange between Traverse City Tourism and Golden Swan, Rep. John Roth introduced legislation last fall to amend Public Act 395 to allow CVBs to collect a five percent tax on Airbnbs, VRBOs, and other short-term rentals. The bill was publicly supported by Traverse City Tourism. Enrico Schaefer, attorney for Golden Swan, says the bill makes it “clear” that the current assessment doesn’t apply to private vacation rentals – otherwise the legislation would be moot. Traverse City Tourism Chief Operating Officer Whitney Waara, however, says the bill is intended to provide “parity” by making sure all vacation rental operators – regardless of how many units they manage or own – pay the assessment. “Instead of dealing with constant questions of whether this (property) qualifies or not, it makes it much easier and consistent,” she says.

Following the introduction of the bill – which has since stalled – Traverse City Tourism filed a lawsuit earlier this year against Golden Swan seeking damages dating back to May 2021. Golden Swan has since countersued, seeking a declaratory judgment – or a ruling from the court – on whether the assessment applies to private homes. “We don’t have any problem with charging the tax…but the issue is does the statute allow for that?” Schaefer says. “Because Golden Swan doesn’t pay the fee. The guest pays the fee. If property managers are telling guests they’re obligated to pay a five percent tax, and they’re not, that could be fraud.”

The two lawsuits have since been consolidated into one case, which is now in the discovery phase in Thirteenth Circuit Court. Schaefer says that Golden Swan is also preparing to file a separate defamation lawsuit against Traverse City Tourism, arguing that executives within the organization have stated in meetings that Golden Swan is operating illegally, costing the company business. The defamation lawsuit will seek both damages and a retraction from Traverse City Tourism of its statements, according to Schaefer. Waara says Traverse City Tourism is “unaware of any grounds for (Golden Swan) to file such a suit” and doesn't “recall any statements that would lead to such charges.”

According to Waara, Traverse City Tourism is “working hard to try and bring the industry together,” noting that tourism promotion and economic development benefits all lodging facilities – including vacation rentals – and that everyone should fairly contribute accordingly. In some Michigan communities, like South Haven and Saugatuck, short-term rentals make up to 50 percent of the total assessments collected, according to Waara. She says other local rental management groups similar to Golden Swan are paying the assessment fee (Golden Swan is the only operator Traverse City Tourism is suing, though the organization acknowledges other operators may exist that aren’t paying the assessment given how rapidly the market is growing). “We have long-term companies that have been doing this work for years and are very happy being part of this,” Waara says.

While a court ruling could soon make explicit whether or not the assessment applies to private home rentals, another issue could be looming: how funds should be spent if and when Airbnbs and other vacation rentals are uniformly assessed. Golden Swan is working with legislators and staff at Traverse Connect to introduce legislation that would create short-term rental assessment districts in Michigan. Rather than passing on collected assessments to CVBs, however, the five percent tax on vacation rentals would go into a dedicated fund for developing workforce housing. Each assessment district – which would be regulated by Michigan’s Department of Licensing and Regulatory Affairs (LARA) – would have its own local authority comprised of the owners within its boundaries who would help determine how the revenue is spent, so long as it’s spent on workforce housing initiatives.

With many states already assessing Airbnbs, Golden Swan’s Katy Bertodatto says vacation rental operators in Michigan know some kind of uniform assessment is likely coming. “This would satisfy the call for parity, but in a way that leverages our industry to help the community,” she says. “We understand regulation. We’re OK with getting licensed. We’re happy to pay our fair share. We attend public meetings and conferences and hear the concerns about short-term rentals. Instead of paying for even more tourism marketing, is there an option to use that money for something else that’s more sustainable for the community?”

Bertodatto points as an example to Dare County, North Carolina, where a six percent occupancy tax is divided into covering local emergency services and garbage collection (three percent), beach nourishment and rehabilitation projects (two percent), and tourism promotion and education (one percent). She’s hopeful Michigan could also take a proactive approach by using short-term rental assessments to help address the state's housing shortage. “The goal is to get more people involved in recognizing this as a good solution to an active problem that we've been trying to solve for a very long time,” she says.