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Vacation Rental Tax Collection Bill

Updated: Sep 21, 2020

The Senate is moving two bills related to tax collection of vacation rental income. SB 2999 would provide amnesty for vacation rental operators who have not been paying the taxes required by law. SB 2963 creates a process for a host company, like Airbnb, to collect GET and TAT taxes from online bookings and pass them on to the State.

I vigorously opposed previous attempts to allow Airbnb to collect and submit these taxes, because the authorizing legislation would have provided a defensive shield and appearance of legality for the vacation rental owners, most of whom operate outside the law. One version of the bill made it all the way to Governor Ige's desk, but he vetoed it.

Last year, we learned the Department of Taxation (DoTax) had agreed, in principal, to allow Airbnb to become a tax collection agent, presumably with the same objectionable language that we had fought so hard against. Many people quickly pointed fingers at the Governor for engaging in secret negotiations with this company. Thankfully, the Governor again held firm against the recommendation from DoTax and refused to sign the agreement.

This year, I am pleased to report that key legislators in the Senate, particularly Ways and Means Committee Chair Dela Cruz and Economic Development Chair Wakai, have crafted a comprehensive bill to address the tax collections, while requiring activity reports to DoTax and the county planning departments, who oversee compliance of county ordinances.

SB2963 is tough, but appropriate, because it creates a viable plan to allow tax collection without impeding county ability to enforce their zoning and land use laws. It includes a provision to require deletion of illegal operators from the hosting platform. Thus, it is unlikely Airbnb would accept the terms of this legislation until the counties resolve the long-standing impasse over how to manage, permit, and enforce against illegal activity.

It is important to remember that GET and TAT collections are the responsibility of the state, while zoning and land use decisions are made at the county level. The City and County of Honolulu working group on vacation rentals has held several meetings and may be making progress towards a workable way forward. This is the year that all parties must come together to resolve this contentious problem.

The status quo cannot stand; we all see the growing anger and controversy as this issue remains unresolved and people openly ignore residential zoning laws. Meanwhile, more than 10 percent of the housing units in our district are now used by tourists instead of residents. It is terrible that our communities are splitting into two hostile camps, one wanting unfettered vacation rentals, and the other wanting to eliminate them all. Neither camp can possibly be satisfied; there must be a compromise.

I support owner occupants inviting visitors into their home to help offset their high cost of living, but I am very concerned about investors buying and turning whole houses into visitor accommodations at the expense of housing for local residents. There is potential to permit bed-and-breakfasts and vacation rentals, while controlling the numbers and improving legal compliance. I know we can get through this if we treat each other with respect and courtesy. We can agree to disagree on specific details, but let's agree to get this done.

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