It is a rare occasion when government decides to delay a plan to gather in more revenue now being left on the table. But the governor’s decision to veto House Bill 1850, which would accomplish that, was the right decision.
That said, this is not an end in itself but only another step toward a more rational and fair system of regulating and taxing vacation rentals.
Tuesday’s ultimate rejection of HB 1850 merely buys a finite window of time for government to get its house in order on the oversight of the visitor industry’s most controversial sector.
The measure would have authorized online vacation-rental platforms to collect the state taxes owed. These include websites such as Airbnb, VRBO, HomeAway and others. Having this authorized role would benefit the brokers because taking care of the tax liability for the largely small-scale landlords helps to attracts new business.
In announcing his decision, Gov. David Ige said his chief concern about the measure was that “the use of an intermediary as a tax accommodations broker also provided a shield for owners who choose not to comply with county laws.”
He’s right about that, particularly given that a state law enacted the previous year, Act 204, has not yet been fully implemented.
The law would require the brokers to check advertisements submitted and ensure that they include the business’ tax identification number. This ID helps counties check to see that businesses fulfill their various requirements.
But so far, final administrative rules to carry out the law are not in place. Critics of HB 1850 are rightly concerned that once the newer law goes into effect and tax revenue starts rolling in, the impetus to finalize the enforcement mechanism will be lost.
When Ige began to signal that he could veto what’s been dubbed the “Airbnb bill,” advocates protested the loss of significant state revenue and a level of normalization for the vacation rental industry.
However, there have been legal arguments for the bill as well. David Louie, the former state attorney general, has said in a commentary published in the Honolulu Star-Advertiser that Act 204 itself is problematic.
The issue is that the 2015 law was enacted but is pre-empted by a federal statute, the Communications Decency Act. Act 204 includes penalties for brokers that allow rental advertisements without the required ID posting, Louie wrote, but the federal law gives internet sites liability protection against the content of what website users post there.
This could be a wrinkle in the state act that should be resolved with the next legislative session.
However, even if the penalties section undergoes review, there’s nothing to stop the state in the meantime from exploring the option to require brokers to check for compliance in the advertisements, in exchange for being authorized as a tax collector.
Vacation rental income could mean tens of millions of dollars each year for the state, in the form of general excise tax and transient accommodations tax revenue.
But the rentals, most of which are located in communities not zoned for hotel operations, must be carefully regulated to keep the residential nature of the neighborhoods in balance. Rentals that exceed restrictions can cause disturbances with noise and traffic that long-term residents can find difficult to tolerate.
In addition, clear rulemaking is essential if enforcement of county regulations governing the short-term rentals is to be rational — and legally defensible. Already an industry group called the Kokua Coalition has sued in federal court, charging that the city’s Department of Planning and Permitting is violating the U.S. Constitution in the way it enforces its vacation-rental ban.
The state has come to the correct conclusion that the vacation rentals market is here to stay and that clarity needs to be brought to its regulation. That process begins with the implementation of Act 204. Cashing in on the tax revenue must follow afterward.