In this edition:
- Legislature Update
- County Update – Big Island
- Legislature Update
The legislature is all but over for the year. There are three main bills we were dealing with at the end. The bill to require local contacts to be real estate agents fortunately was defeated quickly.
SB2963 / HB 2605
This is the latest incarnation of the AirBnB bill, allowing the advertising platform to collect and remit taxes on the owners’ behalf. It has been around for 3 or 4 years now, always failing to pass. This year however, the bill took on a lot of additional provisions, including the right of counties to obtain your personal tax information, the right for counties to change the zoning to declare a property to be ineligible for vacation rentals and then seize the property, and requiring AirBnB & HomeAway to immediately cease doing business with any owner who isn’t compliant with all regulations. The bill originally had language creating a felony for non-compliance, but that has changed to a $25,000 fine.
It essentially assumed all vacation rental operators were criminal until proven otherwise.
We learned yesterday that this bill has been deferred indefinitely. This is the best possible outcome.
The Senate was very supportive of this draconian bill, however, in the House, reason prevailed and the two houses ultimately could not agree. The House of Representatives recognized this bill as being over the top and stopped it. The House also recognized what the Senate did not – zoning compliance is a county issue, not a state issue.
AirBnB had already backed away from the bill, so even if it had passed, no advertising platform was going to voluntarily subscribe to the tax collection work.
Here is why we were concerned about this bill:
- The advertising broker (i.e. AirBnB) may collect and remit tax on behalf of all advertisers. However, if they mess up, AirBnB and the owner are jointly and severally liable for all taxes. So, if AirBnB collects TAT and doesn’t remit it, you are potentially on the hook.
- The bill also requires AirBnB to provide details of how many nights were rented, the rates per night, the address and name and number of the local contact – and this information can be made available to the Counties. The County of Honolulu has been asking for this for years to help with compliance with their complex permitting requirements. No other tax payer is required to provide this level of information without a subpoena.
- The advertising broker is required to share your 1099 information with the county. The State Department of Tax is, by federal law, strictly forbidden to release this information to anyone. The bill requires all operators to waive their right of privacy and permit the advertising platform to share all of their information.
- All operators must provide proof of compliance with all zoning, land use and tax laws. Our concern here is in providing positive proof of compliance – how do you prove you are legal in every regard. The Counties have no system to accommodate this. Most counties don’t even have current regulations
- Failure to comply with any tax or zoning law – or commit any act which the county doesn’t like - may result in a fine of $25000. Failure to respond within 7 days results in a second $25,000 fine. This is better than the earlier draft which was a Class C Felony (more than one year in prison). The bill also provides for not only seizure of the property but also all income earned from operating a vacation rental.
- The bill also allows counties to phase out all transient accommodation in any zone for any reason. This is concerning as county councils and the state legislators are very prone to pressure from unions, neighborhood groups, and anyone else who might vote.
The Hawaii Teachers union has once again brought forward the Constitutional Amendment to require the TAT to be increased in order to fund education in the State of Hawaii. We saw this one go right to the bitter end last year before ultimately failing so that the TAT could be increased to pay for the Honolulu rail system.
This year, the bill morphed into a proposed property tax on “investment real property”. The legislators didn’t define any rates and didn’t determine if any properties would be excluded from the definition. The referendum will go to a vote of the electorate, probably this November. After that, it will be up to the legislature to iron out the details.
One other bill will change the way properties owned by non-residents are taxed upon sale. When you sell a property, a percentage of the sales proceeds is withheld until you file your tax returns or other required forms. The withholding rate will go up to 7.25%.
Another bill clarifies that all amounts charged to transient vacation rental guests are subject to TAT. t seems some hotels are charging a resort fee but not collecting tax on the resort fee. RBOAA supports the hotels being required to play on a level playing field with vacation rental owners, however the Senate showed their support to the hotel industry and deferred this measure..
Speaking of hotels, they have had seven consecutive years of increased occupancies and increased room rates. Each of the past seven years has broken all historical records. Yet they are very concerned that we are providing competition to them.
- County Update
At RBOAA, we are focused on the state legislature. We would love to be able to be involved at the county level as well, but, simply put, we need volunteers to take that on.
This isn’t just our normal plea for volunteers. As we have been saying for many years now, the fight is going to move from the state to the counties. We are seeing this increasingly become true. The state is going to be taking some of the TAT revenues it gets and giving it to the counties to enforce their regulations. So, more and more, the counties are going to play a significant role.
Here is what some our eagle-eyed members have shared with us recently
On the Big Island, the county council was considering a regulatory framework around vacation rentals on the island. The original proposal seemed fair, but those watching Bill 108 are quite concerned. This bill goes back to County Council on May 8. There is a Facebook group called “Hawaii TVR Alliance” involved on this, as are three of our members fortunate enough to have property on Hawaii.
Maui recently passed a bylaw which requires a property to be owned for five years before it can be turned into a vacation rental. We think this only applies to properties which have never been legal vacation rentals in the past and is primarily focused on restricting growth of vacation rentals in residential areas. Most vacation rentals on Maui are in “resort zones” and would be unaffected by the new rules.
Maui is also creating a new property classification for vacation rentals. The rate hasn’t been set, but as my place is on Maui, I know that I already pay significantly higher property taxes than an identical property which is not a vacation rental. [On Maui, one of the lowest property tax rates is actually reserved for hotels.]
We expect all counties will come up with a new property tax classification for short term rentals.
On Honolulu, there are numerous proposals around to update their 30 year old set of regulations.
Please remember that everyone at RBOAA is a volunteer and is donating their time on top of working regular paying jobs and whatever else they have going on. These people dedicate countless hours of their personal time to help protect our - and your – investments in Hawaii.
Special thanks to Leslie F who put in countless hours on your behalf. She is truly amazing
Have a wonderful summer!
Mahalo and Aloha