There are two kinds of legitimacy, as far as vacation rentals are concerned: complying with taxpaying duties, and abiding by land use laws.
Once again, when the Legislature convenes this week, members are expected to confront whether or not the state will enable the collection of tax money — revenue that will be sorely needed this session — when there is still so little land-use control of this growing sector of the visitor industry.
Last session, Gov. David Ige vetoed a measure, House Bill 1850, that would have made it easier for the state to collect taxes from vacation rentals by delegating that task to businesses that act as portals for many of the rental operators.
These are the online platforms many use to advertise their accommodations, make the bookings and collect the payment. The additional task, under the measure, would have been to remit the tax owed by the operator directly to the state.
There are numerous websites, but AirBnB, Home Away and VRBO (Vacation Rental By Owner) are the best known. And of these, AirBnB has had the highest profile in this debate, so HB 1850 was dubbed “the AirBnB bill.”
Company representatives were in Honolulu last week, in preparation for a second try at the measure. Last session, it was estimated that some $15 million in underground accommodations taxes was left uncollected in Hawaii; AirBnB now claims that sum to be about $26 million.
The battle is about property rights. Proponents say vacation rentals allow local families to pay bills by occasionally letting out parts of their home. The opposition counters that the activity disturbs residential neighborhoods and siphons off units that are badly needed for long-term rentals.
For its part, AirBnB argues the impact on the housing shortage here is a misperception. Citing a new study it commissioned by Hawaii researcher Paul Richard Cassiday Jr., the company maintains that much of the housing stock employed in short-term rentals here would not otherwise be available for rent.
“More than half of our hosts share less than 30 days a year,” said Cynthia Wang, public policy manager for AirBnB. “So that reflects that very infrequent behavior — housing that would not otherwise be on the market but that local families use to supplement their income as housing costs go up.”
At least as of last summer, Ige was not persuaded of this. In his veto message, the governor said the proposed arrangement would “encourage owner-occupants to choose transient accommodation renters at a time when affordable rental housing within our state is severely stressed and homelessness remains a critical statewide concern.”
In addition, Ige said that the online broker services provide a “shield” behind which operators can continue while their legal status — from a land-use perspective — is in doubt.
This is because on Oahu in particular, the overwhelming majority of vacation rentals lack the City and County of Honolulu’s stamp of approval. Since 1989, the city has had a moratorium on issuing further certificates of use for operating a bed-and-breakfast or transient vacation unit (TVU) in a residential zone, so virtually all of the business is done in violation of its land use ordinance.
Act 204 aims for info
Various attempts to regulate the industry — by strengthening enforcement mechanisms for the existing ban or by legalizing a limited number of the operations — have been attempted.
One actually made it to the books but its implementation has been stalled. In 2015 the governor signed Act 204, which aimed at regulating at least the tax registration of the vacation rental businesses.
The law requires that operators of vacation rentals designate an on-island local contact for the unit and post contact information inside the unit and in online advertising. This is meant to have more accountability about the behavior of guests and resolve complaints from neighbors.
But more pertinent to the tax issue: The law also would compel the posting of the transient accommodations tax (TAT) license in the unit and online ads.
The Department of Taxation adopted temporary rules to enforce the law last April, said Mallory Fujitani, department spokeswoman. These will expire in October, she said, but the plan was to have hearings and establish permanent rules by then.
In May, the department sent notification letters to dozens of website operators that enforcement would begin last November, Fujitani added, but a lawsuit over a similar law in San Francisco put that on hold until the legal landscape became clearer (see sidebar story).
More than lodging?
In the meantime, there’s some expectation among lawmakers that a new HB 1850 is in the works, especially given recent reports about state revenue projections being revised downward.
And, said state Sen. Laura Thielen, there may be less willingness to wait for the permanent enforcement rules of Act 204 to be in place before the state moves ahead with tax collection. Thielen represents Kailua, one of the communities with the most conflicts over vacation rentals.
“I think we’re going to have the fight again because there are people who would like to make Act 204 go away,” she said.
Thielen is concerned that the internet has fueled the cottage-industry type of tourism businesses, bringing an increasing number of visitors to Hawaii but a diminishing value. These tourists spend less, she said.
She added that AirBnB is venturing into a new category of business, too — allowing entrepreneurial businesses running tours, hikes and other activities to advertise. This will further expand the tourism impact, she said.
Wang acknowledged that her company has branched into this area in other cities, but Honolulu is not yet among them. And she said allowing tax collection does not preclude the counties from continuing to study ways of enforcing land-use restrictions on vacation rentals.
Being held liable for law enforcement, though, should not be the role of the vacation rental broker, she said.
“When it comes to having AirBnB assume what the law enforcement responsibilities are, we’re in 34,000 cities, each of which has its own individual legal requirements,” Wang said. “So we feel our best role is to educate our community on what the law is, and then work with policymakers on a solution.
“When it comes to tax, we believe the best solution is to allow AirBnB to handle the collection and remittance.”
