After many false starts, the state last year passed Act 204, a law that represented the first effort to take some control of the vacation rental marketplace that continues to expand in residential communities.
Now, with the law at the brink of full implementation, a legal conflict threatens to scuttle the regula-
tory enforcement plan.
This impediment is unfortunate; nonetheless, the state still bears the responsibility to enforce its tax laws, even without the added muscle of Act 204.
The proliferation of vacation rentals, most of them lacking county permits, has disrupted some neighborhoods, especially in popular shoreline communities on crowded Oahu.
The controversy spurred the Honolulu City Council to enact a moratorium on new permits that is now well into its third decade.
Even so, in the absence of a practical means of detecting illicit operations in residential zones, the number of unpermitted short-term visitor rentals has multiplied.
There should be a greater allowance for bed-and-breakfast accommodations and other transient vacation units beyond the limit set by the moratorium. But for such arrangements to fit comfortably within neighborhoods, there needs to be controls in place. And for years, neither the city nor the state did anything meaningful to control growth.
Among other elements, Act 204 requires that internet broker websites accept only vacation rental advertisements that include the business’ tax ID number.
This would ensure, for one thing, that property owners reaping income from the rentals pay the transient accommodations tax that is owed the state.
Once the state cracked down on tax scofflaws, it could move on to Step 2: empowering the rental brokerage sites to collect the tax.
Gov. David Ige in July vetoed a bill that moved immediately to Step 2, rightly finding that enforcement has to come before the tax collections.
Beyond the question of tax revenue, having the ID number posted online simplifies the challenge counties face enforcing their own zoning regulations.
The number will help in identifying a property owner conducting business that is not permitted in a residential zone.
However, the Internet Association, a consortium of the brokerage sites — including web portals such as Airbnb, Vacation Rentals by Owner, HomeAway and others — has opposed Act 204.
David Louie, the former state attorney general who is representing the association, has said that the law is preempted by a provision of the federal 1995 Communications Decency Act.
Some of the original language, aimed at protecting children from “indecent” materials on the web, was struck down years ago. But Section 230, a provision added to the original bill, shields online service providers and users from liability for the content posted by third parties.
Louie wrote a letter to Ige in July, pointing out that the Hawaii statute would fine a broker for failing to require a tax ID, effectively a violation of Section 230.
Although Act 204 hasn’t been challenged yet in court, Louie cited a lawsuit filed by Airbnb challenging a similar law in San Francisco.
That suit seeks to strike down an ordinance holding a website liable for accepting listings without a valid registration number.
How that case will be resolved is not known. Nor is it clear that the same arguments could be lodged against the Hawaii law, which doesn’t require the site to check the validity of the tax number.
The state Department of the Attorney General is still reviewing the Internet Association’s position.
State Department of Taxation officials have said that even if the AG advises a halt to carrying out the law, the agency intends to ask the rental brokers to voluntarily comply with its intent.
That’s fine, but it’s not enough. Whether a business is paying taxes may not now be obvious in the posting, but there are ways to track the owner and its tax status through investigation.
The state should enforce its tax laws as much as possible, with or without the aid of Act 204.
It’s also time, on the federal level, for the Communications Decency Act to be updated, allowing local authorities to impose some reasonable regulation on commercial sites that profit from local businesses that may or may not be following the law.