After years of debating how to get a handle on oversight of an exploding inventory of vacation rental operations, it’s encouraging to see a bill advancing at the state Capitol that has potential to lay a foundation for effective legislation.
House Bill 2605 would allow home-sharing platforms such as Airbnb to collect state taxes generated by short-term rentals. Also, in cases in which a vacation rental is tagged as out of compliance with state or county laws, brokers would be required to pull client advertising.
By some tallies there are well over 20,000 illegal short-term rentals in Hawaii, mostly on Oahu, even though the city stopped issuing permits for bed-and-breakfasts and transient vacation units — except in hotel-resort zones — nearly 30 years ago. Spurred on, in part, by the easy online advertising, the underground inventory is gaming a weak system.
The needed fix requires tougher county ordinances and enforcement. In a reasonable move to push forward that effort, HB 2605 allocates up to $1 million in transient accommodations tax (hotel tax) revenues to each county that establishes a process for clearly tracking compliance matters.
Honolulu Mayor Kirk Caldwell appears eager to snap up such an offer as the city preps for its latest bid to tackle this thorny issue. In his State of the City speech delivered earlier this month, Caldwell outlined a plan that makes room for more legal B&Bs and TVUs, if operators abide by more stringent guidelines and pay higher property taxes.
Key to the plan, which is somewhat similar to others the City Council is already sizing up, is a requirement for all short-term rentals to include a city-assigned registration number in all advertising materials. Eligibility should be limited to owner-occupants — property owners who also hold homeowners’ exemptions.
That’s a welcome proposal, in part, because it could phase out the absentee-host operation — the culprit in nearly all complaints to the city about vacation rental-related noise and traffic.
In recent years, Airbnb has offered to handle the tax collection and remittance statewide, but has balked at the prospect of being held liable for law enforcement tasks. That’s not a surprising take, of course, given that client listings would tumble — initially, at least — if limited to legitimate operators.
The company and other brokers have pointed to the Communications Decency Act, which says Internet platforms cannot be held responsible for the illegal activity of third parties that use them to do business.
But that defense is not iron-clad, it seems. For example, when San Francisco passed laws in 2015 to slap brokers with penalties if they arranged stays in illegal rentals, platform companies sued. A federal judge rejected their claims and ordered them to work with the city to meet a January 2018 deadline for registering rental hosts in local government rolls.
That upshot appears to support enforcement tied to HB 2605. It would make it illegal for hosting platforms to do business with clients that are not “lawfully certified, registered, or permitted” under county ordinance. Violations would carry a $25,000 fine. Caldwell’s plan, meanwhile, targets the rental operator. Anyone caught advertising illegally would be hit with a penalty starting at $25,000 per day.
Both tactics could quickly put a dent in our underground inventory. However, success will be closely linked with swift and consistent enforcement of county and state law.
It’s entirely possible that if state lawmakers pass the bill, Airbnb will decide against taking on the role of tax collection and remittance. That would touch off a fresh set of challenges. Regardless, state lawmakers should support the bill.
State and county leaders should seize the opportunity offered through HB 2605 to work toward striking a much-needed balance between collecting taxes owed and deterring proliferation of illegal vacation rentals.