Most vacation rental owners not paying taxes

Airbnb shows vacation rentals in the Kailua-Kona area. (Image capture from Airbnb.com/Special to West Hawaii Today)

HILO — Owners of more than 6,000 vacation homes on Hawaii Island are collecting money from short-term renters without registering with the state or paying the required taxes.

That’s according to data compiled by Ross Birch, executive director of the Island of Hawaii Visitors Bureau for a presentation last week to the Hawaii County Council.

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“It’s almost been a free-for-all,” Birch said, “where there is no reason for someone not to put a secondary home or piece of property or speculation purchase into a vacation rental because there is no penalty.”

There were 8,647 Big Island units advertised on platforms such as Airbnb and VRBO in 2017, a 16.7 percent increase over 2016, according to Birch. In contrast, only 2,037 are registered with the state.

The county and the state are working on several measures to get a handle on short-term vacation rentals, an important first step to ensuring those who rent out their homes are paying both transient accommodations and general excise taxes to the state.

The county’s Bill 108 would require existing transient vacation rentals outside of the Vacation District, the General Commercial District or Resort Nodes to apply for a nonconforming use certificate in order to be grandfathered in. Those in the allowed districts would be required to register with the county, but they don’t have to apply to the Planning Department for a nonconforming use permit.

The county bill is on hold until after the Board of Ethics rules on whether North Kona Councilwoman Karen Eoff, one of the co-sponsors, has a conflict of interest because she owns a vacation condo in the Vacation District along Alii Drive. The board next meets March 19.

Matt Middlebrook, Airbnb head of public policy for Hawaii, said he’s met with a few council members as well as Airbnb hosts on the island. Airbnb has not taken a stance on the bill, he said Monday.

“We’re hopeful that county government listens to those members of the community as well, and their concerns are included in any legislation,” Middlebrook said.

In the state Legislature, Senate Bill 2963 would provide a mechanism for transient accommodations brokers such as Airbnb and VRBO to collect taxes on behalf of the state. It’s passed the Senate and is now being considered in the House.

Gov. David Ige in 2016 vetoed a similar, but weaker, bill. The latest bill contains enforcement measures that require the internet booking platforms to verify the legality of a vacation rental before doing business with it.

The bill is supported by hotel and lodging associations and tourism agencies.

Three Hawaii County Council members and the county Planning Department supported the bill in testimony.

“While Hawaii County considers its own efforts to address the impacts of short-term rentals, the proposed (bill) provides another tool for the counties to ensure that our residential communities will remain residential and not become single family resorts, and that real property tax rates will be fair and based on actual use,” said Hilo Councilwoman Sue Lee Loy.

It’s opposed by real estate agents, Airbnb and HomeAway/VBRO, which said in testimony that requiring it to disclose the names and license numbers of rental units without a subpoena is contrary to federal law. Over-regulation could result in a loss of tax revenue to the state, they said.

“Instead of trying to eliminate an essential part of the hospitality industry that is woven into the fabric of our economy, the focus should be on finding balance, to create substantial revenue for the state and counties (to fund affordable housing, public facilities, park maintenance, roads, and the like), and protection for communities that host visitors,” Amanda Pedigo, vice president, Government and Corporate Affairs for Expedia Inc., said in testimony.

Another bill, House Bill 2605, sponsored by state Rep. Richard Onishi, D-Hilo, and others, would give each county $1 million to set up a registration, property taxation and tracking system for vacation rentals. It’s scheduled to be heard Wednesday by the House Finance Committee.

“We support efforts in Hawaii at the state, and particularly at the county level, to update its laws concerning alternative accommodations in order to adapt to today’s marketplace, while putting in place fair laws that will protect housing stock and neighborhood integrity,” Middlebrook said in testimony.

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