Collecting the tax revenue that’s due is the duty of the government. When that’s jobbed out to a private entity, it’s time to examine whether that serves the public interest or, what is more likely, it benefits a private concern.
That’s the issue behind Senate Bill 1292, which now sits on Gov. David Ige’s desk.
It would allow privately owned online vacation rental booking agents — Airbnb, Expedia, VRBO and the like — to collect the required transient accommodations tax (TAT) from the short-term rental business and pass the payment along to the state.
The fact that the bill makes the websites unaccountable for the legality of the rentals should convince Ige he should veto it, as he did with a similar measure three years ago.
On Monday, Ige is due to release his list of bills under consideration for his veto pen — a list that should include SB 1292. Some of its advocates have pointed to the $46 million tax yield as incentive, but more recently the state’s finances have recovered, easing fiscal pressures.
A better reason to spike it: Having an intermediary collect taxes would give cover to rental hosts, but provide no enforcement data to counties. And that will never help Hawaii clean up its unregulated vacation-rental mess.
The rentals became a particular problem on crowded Oahu after, three decades ago, the City Council stopped approving nonconforming use certificates for short-term rentals in residential zones. These included shared bed-and-breakfast accommodations as well as entire homes; only 816 rentals have the required legal certificates.
Any other rentals for terms of less than 30 days are illegal, but because documenting the violation was difficult, the city essentially looked the other way while unpermitted rental businesses proliferated into the thousands; at least 8,000 are estimated on Oahu.
The business was fueled further by the popularity of social media and websites such as Airbnb, HomeAway and numerous others. These provided an advertising and booking platform for property owners hoping to connect with paying guests.
Battle lines were drawn between annoyed neighbors and the rental owners and others who had built businesses around this burgeoning tourism sector. The Honolulu City Council contemplated various regulatory schemes to rein them in, but each time bills were shelved.
A week ago, however, the Council finally passed a measure, Bill 89, which represents a good start by enabling the permitting of up to 1,715 new rentals in the “bed-and-breakfast” model, with the host living on premises. No more “whole home” rentals, called transient vacation units, will be added to the stock.
Assuming Mayor Kirk Caldwell signs the bill, as is expected, there is much yet for the city to do to process permit applications that will flood in and, most importantly, to make sure enforcement is strict and efficient. Scofflaws must be deterred by seeing that the city is willing and able to hand out those stiff fines that the new ordinance would enable.
The absence of workable regulations and enforcement on Oahu had been one reason for the governor’s hesitation to enact a similar tax-collection law in 2016, House Bill 1850. Once the tax revenues come in, the incentive to crack down on unpermitted rentals would fade and the activity likely would accelerate even further.
The governor then argued that “the use of an intermediary system such as ‘tax accommodations brokers’ as tax collection agents also provided a shield for owners who do not currently comply with county laws.”
He was right about that then, and should be guided again by that logic. Passage of Bill 89, encouraging as that is, should not now flash a green light for SB 1292, as some of its advocates would attest.
The problem is that there is still a shield, practically speaking, because of language underscoring the confidential nature of the tax information. Current law generally does restrict tax information but allows release of data to “persons duly authorized by the state.”
The original Senate bill required the booking platform collecting the tax to disclose tax information to county planning directors or designees. But no such language authorizing county access to the data is in SB 1292, which will make it more difficult for the counties to confirm that a rental is permitted.
Under Bill 89, the city will be able to mandate that advertisements include the permit registration and will be able to investigate the ones that do not. Deputizing the online companies as agents of the state will not help the counties get vacation rentals under control, which should be the primary objective.
In fact, the ones best served by establishing booking platforms as collection agents are the platforms, which could market the service as a convenience to the rental hosts advertising with them.
Instead, the counties and the state tax collectors should simply do their respective jobs themselves — and leave the middle-man out. A veto of SB 1292 will put Hawaii on that course.