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March 16, 2026

Ms. Kim Tollefson Community Development Director City of Mequon, WI 11333 North Cedarburg Road Mequon, WI 53092

Email: ktollefson@cityofmequonwi.gov

Re: Occupancy/Bed Tax Analysis, Mequon, WI

HOSPITALITY ADVISORY & ASSET MANAGEMENT WASHINGTON, DC | MIAMI | DENVER

1020 N. Fairfax Street Suite 320 Alexandria, VA 22314 Phone: (703) 838-9707

Dear Ms. Tollefson:

In accordance with our proposal, REVPAR International, Inc. was retained by the City of Mequon to conduct desktop research related to the development of an appropriate occupancy/bed tax rate on lodging revenues generated by the three existing hotels and short-term rentals within the City of Mequon, as well as any future lodging units added at a future date.

In response, the following memo summarizes our findings, conclusions, and recommendations relative to the creation of an occupancy/bed tax in Mequon, Wisconsin. These findings and conclusions are based on the market feasibility study completed in November 2025 for the City of Mequon, as well as additional desktop research and analysis on occupancy/bed tax completed in February and March 2026.

Following a review of Wisconsin state law as pertains to sales, use, and lodging taxes for hotels, motels, and other lodging providers, as well as the local taxes paid by area hotels, the following table summarizes the actual taxes paid on hotel stays in Mequon and the surrounding municipalities that offer a variety of lodging products.

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All lodging guests are required to pay the Wisconsin sales and use tax, which is a 5.0 percent tax imposed on the sales price of retailers who sell, license, lease, or rent tangible personal property, certain coins and stamps, certain leased property affixed to realty, or certain digital goods, or sell, license, perform, or furnish taxable services in Wisconsin, including hotels and short-term rentals.

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Likewise, county and city sales tax, which varies by municipality, is paid on all rooms related revenue generated by a hotel. All Wisconsin counties have a 0.5 percent sales tax rate except Waukesha (included in our analysis) and Winnebago Counties, which have no sales tax, and Milwaukee County (included in our analysis), which has a 0.9 percent sales tax. The City of Milwaukee also has a 2.0 percent city sales and use tax.

As demonstrated in the preceding table, all seven municipalities around the City of Mequon where hotels are located have lodging taxes ranging from 5.0 to 8.0 percent.

Exposition tax is imposed on lodging, food and beverage sales, and automobile rentals in municipalities located wholly or partially within Milwaukee County. The exposition tax on lodging in Milwaukee County is currently 3.0 percent.

As the following graph illustrates, the taxes charged by the City of Mequon are the lowest of all surrounding jurisdictions because Mequon does not charge any dedicated lodging tax. The surrounding municipalities all charge a lodging tax rate ranging from 5.0 to 8.0 percent, which results in higher rates compared to Mequon.

REVPAR International Hospitality Advisory & Asset Management Page 109 of 1 www.revpaniti.com

Specific to the City of Mequon lodging sector, there are currently three traditional hotels offering 136 total rooms, as summarized in the table to the right. There are also 10 short-term rentals registered with the City of Mequon that range in size from one to five bedrooms and offer a total of 32 bedrooms. These units are also subject to current and future sales and lodging taxes for rentals of less

than 30 consecutive days. The following map illustrates the location of the three hotels and the 10 short-term rentals. Please note that Short-Term Rental #3 (the “12112 N Wauwatosa Road” address) has two short-term rentals.

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The rooms revenue for the three Mequon hotels and the short-term rentals was not publicly available. Therefore, we reviewed CoStar data available for the North Milwaukee submarket. The CoStar Group is the leading provider of commercial real estate information and analytics, including aggregate operating data on hotels that participate in their survey. With only three hotels, the City of Mequon's hotel market does not meet CoStar's minimum requirement of four hotels for us to pull a market report, and, often, independent hotels such as those in Mequon do not participate.

Based on our interviews with management of the Mequon hotels, as well as those in the surrounding market area, we assumed that the historic occupancy, average room rate, and rooms revenue for the midscale, economy, and independent hotels in the North Milwaukee submarket are representative of the performance levels of the three Mequon hotels. Please note that CoStar does not track the performance of short-term rentals. There are other commercial services that estimate short-term rental performance; however, given

the limited number of short-term rental units in Mequon at 32 bedrooms, we have chosen to apply the North Milwaukee submarket from CoStar data to the short-term rental market, as well.

During the course of our research and analysis, which included discussions with representatives from major hotel brands and local individuals knowledgeable about the hotel market, we did not identify any hotels currently proposed for development in Mequon.

Based on the foregoing, the adjacent table provides a summary of the estimated historical and projected operating performance for the Mequon lodging market, which is comprised of the three traditional hotels with 136 rooms and the 10 short-term rentals with 32 bedrooms. We have assumed that no new supply will be added to the Mequon lodging market, therefore the occupancy is projected to stabilize at 52.0 percent. Furthermore, we have assumed that the average daily rate will increase at the rate of inflation, or by 3.0 percent.

Next, in accordance with our proposal, we reviewed the allowed uses of the local lodging tax. As demonstrated in the adjacent graphic, the state of Wisconsin law allows municipalities to impose a local lodging tax but requires that at least 70 percent be

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spent on tourism promotion or tourism development, with no greater than 30 percent entering the municipality's general fund.

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With the foregoing in mind, the following table provides 10 years of estimated lodging tax revenue that could be generated from the lodging (rooms) revenue of the existing lodging supply in the City of Mequon at two levels - 5.0 percent and 8.0 percent - based on the range of lodging taxes being assessed in the surrounding municipalities (as presented in our earlier table.) We then estimated the allocation of the lodging tax revenue for tourism development and the city's general fund.

Estimated Lodging Tax Revenue City of Mequon, WI

Year Rooms Revenue Scenario 1: 5.0% Lodging Tax Scenario 2: 8.0% Lodging Tax

Total $ Amount (at 5.0%) 70% to Tourism Development 30% to General Fund Total $ Amount (at 8.0%) 70% to Tourism Development 30% to General Fund

Hypothetical Lodging Tax Revenues Using Historical Lodging (Rooms) Revenue Performance

2023 $2,869,776 $143,489 $100,442 $43,047 $229,582 $160,707 $68,875

2024 $2,667,420 $133,371 $93,360 $40,011 $213,394 $149,376 $64,018

2025 $2,742,230 $137,112 $95,978 $41,133 $219,378 $153,565 $65,814

Hypothetical Lodging Tax Revenues Using Estimated Future Lodging (Rooms) Revenue Performance

2026 $2,824,497 $141,225 $98,857 $42,367 $225,960 $158,172 $67,788

2027 $2,909,232 $145,462 $101,823 $43,638 $232,739 $162,917 $69,822

2028 $2,996,509 $149,825 $104,878 $44,948 $239,721 $167,805 $71,916

2029 $3,086,404 $154,320 $108,024 $46,296 $246,912 $172,839 $74,074

2030 $3,178,997 $158,950 $111,265 $47,685 $254,320 $178,024 $76,296

2031 $3,274,367 $163,718 $114,603 $49,115 $261,949 $183,365 $78,585

2032 $3,372,598 $168,630 $118,041 $50,589 $269,808 $188,865 $80,942

2033 $3,473,775 $173,689 $121,582 $52,107 $277,902 $194,531 $83,371

2034 $3,577,989 $178,899 $125,230 $53,670 $286,239 $200,367 $85,872

2035 $3,685,328 $184,266 $128,986 $55,280 $294,826 $206,378 $88,448

Four of the seven municipalities have a 7.0 percent lodging tax, and the average lodging tax rate of the municipalities is 6.7 percent. A 5.0 percent lodging tax rate would yield the same combined lodging and sales tax rate as Cedarburg and would be the lowest in the area. An 8.0 percent lodging tax rate would position the combined lodging and sales tax just below the Milwaukee County hotels, which are the highest in the area.

Please note that there are other significant assumptions underlying these estimates. As such, this letter is subject to change pending receipt of new or additional information and should be primarily for internal use only.

We would be pleased to hear from you should you need further interpretation or amplification of the following findings.

Sincerely,

REVPAR International, Inc.

REVPAR International, Inc