Update on the 2015 Hawaii Legislative Session
In January, we faced almost a dozen bills which could have impacted our transient vacation rentals. In the end, only one survived. SB519 became Act 204 and is discussed below.
SB519 SD2 HD3 CD1 (“SB519”) is now Act 204
On July 2, Governor Ige signed SB519 into law and is now known as Act 204. Generally, this bill covers Local Contacts, Advertising and Tax Compliance for Transient Rentals. The latest version of the bill was posted on the legislative website Saturday, May 2, and can be accessed through this link: SB519 CD1.htm
This is a very good outcome for RBOAA members and all those who own or own and operate rental accommodations in Hawaii. There is no doubt that we would be in a very different place, and a very disadvantageous place, had it not been for all the efforts of the RBOAA membership. We banded together and made strong, passionate and logical arguments to the Legislators.
Please note that this bill replaces Act 326 which ceases to have force on December 31, 2015. SB519/Act 204 negates the need to extend Act 326 as certain key provisions of Act 326 are carried forward indefinitely within the Transient Accommodations Tax Act.
Act 204 at-a-glance:
If you don’t live on the same island as your vacation rental, you need to name a Local Contact. The Local Contact is a person or a company resident on the island (when companies are local contacts they must have someone who resides on the island). The Local Contact is not necessarily a real estate agent and is not necessarily an employee of the owner.
You must post your Hawaii Tax ID (your TAT ID number) number conspicuously in all advertisements and in your rental (note: we have always had to post our GET number in our rental);
You must identify your local contact by name, phone number and email address to your guests before they check in and within the rental property;
There is no longer any requirement for the HOA to collect and remit tax ID and local contact information annually;
Your online advertising system, i.e., VRBO, FlipKey, AirBnB, must ensure you have posted your Hawaii Tax ID (your TAT ID number) in your advertisement;
The same rules now apply to time shares and homes as to other transient accommodations; and,
The fines for non-compliance are very steep and include a monetary fine and a prohibition against operation.
What do you need to do?
Make sure that your Hawaii tax identification number (your TAT number) is posted on all of your websites and advertisements. (Hint: check that it is still there. Sometimes your advertiser updates their site and information is lost)
Make sure your Hawaii tax identification (both TAT & GET) certificates are posted conspicuously in your rental. If you have lost your certificates, contact the Department of Taxation for a replacement copy.
Make sure your local contact’s name, email and phone number are posted conspicuously in your rental and that this information is sent to your guests before they arrive.
Failure to comply with any of these could result in heavy fines and a cease and desist order. We have every reason to believe that the DoT is getting ready to very actively enforce these rules this year.
MORE DETAILS of ACT 204:
This Act shall take effect on January 1, 2016.
The preamble sees the legislature declare, per Section 521-43(f) of the Hawaii Revised Statutes, (the Landlord Tenant Code) that as a consumer-protection measure, an owner who lives out of state or on a different island than the rental unit shall designate an agent who resides on the same island to act on the owner’s behalf. The preamble explains that designating a “local contact” is essential in the case of an emergency or natural disaster, and for dealing with any questions, concerns, or property issues that might arise regarding the transient accommodation.
The bill amends section 237D-1 of the Hawaii Revised Statutes (the Transient Accommodation Tax Act) to add a new definition — “Local Contact” — which it defines as: ““Local contact” means an individual residing on the same island as the transient accommodation or resort time share vacation unit or an entity with a place of business and at least one employee, officer, partner, member, or other person working on behalf of the company who is residing on the same island as the transient accommodation or resort time share vacation unit.”
The bill amends section 237D-1 of the Hawaii Revised Statutes to add a new definition — “Transient Accommodations Broker” — which it defines as: “Transient accommodations broker” means any person or entity, including but not limited to persons who operate online websites, online travel agencies, or online booking agencies, that offers, lists, advertises, or accepts reservations or collects whole or partial payment for transient accommodations or resort time share vacation interests, units, or plans.”
The bill amends the definition of “transient accommodations” in section 237D-1 of the Hawaii Revised Statutes to include single family dwelling and dwelling unit (Chapter 514B), so as to affirm that when such defined spaces are used for less than 180 consecutive days by a transient, the spaces are “transient accommodations” and fall subject to compliance with applicable statutes.
The bill amends section 237D-4 of the Hawaii Revised Statutes relating to the display of the Hawaii Tax ID, i.e., the “Certificate of Registration,” (your TAT number) adding that, “The name, phone number, and electronic mail address of the local contact shall at all times be conspicuously displayed in the same place as the registration or the same place as the notice stating where the registration may be inspected and examined. Failure to meet the requirements of this subsection shall be unlawful.” [Note: RBOAA recommends that the information be displayed in the rental property.]
The bill amends section 237D-4 of the Hawaii Revised Statutes to advise that, “The department [Department of Taxation] may issue citations to any person who fails to conspicuously display the registration or notice, or the local contact’s name, phone number, or electronic mail address as required. A citation issued pursuant to this subsection for each transient accommodation or resort time share vacation interest, plan, or unit in violation of this subsection shall include a monetary fine of not less than: (1) $500 per day, for a first violation for which a citation is issued; (2) $1,000 per day, for a second violation for which a citation is issued; and, (3) $5,000 per day, for a third and any subsequent violation for which a citation is issued. Any monetary fine assessed under this section shall be due and payable thirty days after issuance of the citation, subject to appeal rights provided under this subsection. Citations may be appealed to the director of taxation or the director’s designee.”
The bill amends section 237D-4 of the Hawaii Revised Statutes relating to the advertisements for transient accommodations, to advise that “Any advertisement, including an online advertisement, for any transient accommodation or resort time share vacation interest, plan, or unit shall conspicuously provide: (1) The registration identification number (your TAT number) or an electronic link to the registration identification number of the operator or plan manager issued pursuant to this section; and, (2) The local contact’s name, phone number, and electronic mail address, provided that this paragraph shall be considered satisfied if this information is provided to the transient or occupant prior to the furnishing of the transient accommodation or resort time share vacation unit. Failure to meet the requirements shall be unlawful.” [Note: RBOAA recommends that owner operators include the Tax ID in every advertisement.]
The bill amends section 237D-4 to advise that, “The department [Department of Taxation] may issue citations to any person, including operators, plan managers, and transient accommodations brokers, who violates [the ‘advertisement’] subsection. The penalties are the same as for operators, as noted above.
If you have any questions, we recommend you contact the Hawaii Department of Taxation.
The following is an email sent to all Hawaiian Senators and Representatives offering to work together to resolve the challenges posed by TVR and the unsubstantiated claims being made:
Dear Hawaii Senators and State Representatives:
I’m writing to you in the hope that we might work together to put in place a consistent, effective approach to the state’s array of accommodation offerings including owner-operated transient accommodations and agency-managed transient accommodations.
This legislative session — and the four legislative sessions prior — have witnessed a number of bills introduced that offer widely disparate statements as to the definition, quantity, and legality of these types of transient accommodations. Whether the description is Individual Visitor Units (IVUs), Individually Advertised Units (IAUs), Transient Vacation Rentals (TVRs), or Transient Vacation Units (TVUs), we do not believe that Hawaii wishes to put an end to this type of accommodation, nor do we believe Hawaii wants to send a message that such options are to be denied to consumers. But the attacks on this popular vacation option has seen Hawaii legislators criticized for advancing bills that create monopolies for hotels or property managers.
We think this annual legislative ritual is unfair to everyone involved, including the legislature and the Hawaii Department of Taxation. It undermines the image of the legislature when it is used by special-interest groups to further their interests at the expense of others. It’s time all stakeholders started working together to identify the real issues that affect Hawaii. We all need to understand the problems and their causes and identify solutions to improve the entire State, rather than proposing bills intended to aid one stakeholder at the expense of others. Such solutions should adhere to the underlying principles of our State and country.
From the bills that have been introduced this session, we make four observations:
First, Hawaii hoteliers want to deny consumer access to vacation condos and homes, and restrict the free market.
Second, Hawaii condo-rental agencies want to deny consumers’ ability and preference to book directly with the owner. The Internet has dramatically impacted a business model set in the 1980s.
Third, unscrupulous individuals, recognizing that state agencies have not been enforcing current law, are not complying with vacation-rental and tax requirements. We cannot attempt to address this problem by punishing those who are compliant with current law by stripping them of their opportunities and freedoms. It doesn’t matter where the property owner resides, the property is in Hawaii and therefore the existing laws of the state that admirably uphold constitutional and trade-agreement provisions must be enforced.
Fourth, Hawaii residents would like their neighborhoods to be places where they can expect enjoyment of their free time. They’d like their communities, and those of their friends and families, to have the services and support that make them good places to live, work, and explore. Owners of legal vacation-rental properties share these values, but we recognize there are some owners who do not. Rather than penalize all, we need to identify and address the owners who do not operate within their social license.
Owners of legal Hawaii vacation rental property contribute to the state’s ability to offer the accommodation choices of any globally significant tourist destination in the competitive tourism marketplace. We would appreciate an end to the special-interest lobby-based bills that arise each year. Such bills harm what Hawaii stands for and threatens its economic future.
So, we’re suggesting something that has been sorely missing in all the bills advanced in this and previous sessions on transient accommodations: Let’s work together. Let’s work together to identify issues. Let’s work together to generate valid and reliable data. And let’s work together to enable informed and effective policy development.
Let’s put a stop to those who try to use the Hawaii State Legislature to serve the wants of the few at the expense of all. This is in no one’s best interest and compromises the state.
We offer to work with you and any who seek to demonstrate the better nature of Hawaii. Too much time and energy have been spent on divisive tactics that only seek to tear down what honest property owners have built. It’s time for us all to work together.
We look forward to receiving your individual and collective support for this offer.
Regulated Industries Complaints Office
State of Hawaii
In Hawaii, it’s your choice whether you manage your vacation rental yourself or hire a property manager. There are important requirements in vacation rental management, and the State of Hawaii Department of Consumer and Corporate Affairs has provided information to assist property owners who rent or lease property in Hawaii. The following Question and Answer information (Q&A) is drawn from this helpful Department of Consumer and Corporate Affairs resource and expanded upon to provide further clarification – click here.
When is a real estate license required?
In the State of Hawaii, a real estate license is required to sell, buy, lease, and manage real property.
Can a property owner manage his/her own property without a license?
Yes. A property owner can sell, buy, lease, and manage his/her own property without a real estate license, regardless of the owner’s place of residence.
Can a property owner hire a custodian or caretaker to manage their property?
Yes. A property owner can hire a custodian or caretaker to manage or care for his/her property. The “custodian” or “caretaker” doesn’t need a real estate license so long as he/she is employed by the owner. The exemption is limited to managing property for one owner. There is a deemed employer-employee relationship between the owner and the custodian / caretaker.
Must a property owner comply with Hawaii’s Residential Landlord-Tenant Code?
Yes. A property owner who rents or leases their own property must comply with Hawaii’s Residential Landlord-Tenant Code. Among other things, the Code requires owners and landlords who reside outside of the state or on another island to designate an on-island agent to act on the owner’s behalf. The designated on-island agent must be licensed if engaging in any activity for which a real estate license is required.
Must a property owner comply with state and county tax laws?
Yes. A property owner must comply with applicable state and county tax laws. State tax law requires persons who operate transient accommodations to designate a local contact or agent who resides on-island, in case of an emergency or natural disaster, or to answer any questions, concerns, or property issues that arise about the transient accommodation. The on-island local contact or agent must be licensed if engaging in any activity for which a real estate license is required.
For questions about when a real estate license may be required, contact the Hawaii Real Estate Commission’s Real Estate Branch at: (808) 586-2645.
To report unlicensed real estate activity, call the Regulated Industries Complains Office’s Consumer Resource Center at (808) 587-4272. To check licensing status or for information about hiring a licensed professional, call or visit the RICO website at cca.hawaii.gov/rico.
To obtain a copy of the Office of Consumer Protection’s Handbook for the Hawaii Residential Landlord-Tenant Code, contact the Office of Consumer Protection at (808) 586-2634 or download it online. This informative guide covers rental agreements, security deposits, repairs, prohibited practices, termination of tenancy, landlord obligations, tenant obligations, and remedies.
Hawaii State Tax
What Hawaii taxes must be collected from guests and remitted to the State?
- General Excise Tax. This is a tax assessed on all business activities. It is 4.5% on Oahu and 4% on all other islands. For more information: http://tax.hawaii.gov/faq/#get
- Transient Accommodations Tax. The TAT is imposed on gross rental income derived from renting transient accommodations in Hawaii. It is 9.25% for most rentals, 7.25% for time shares. For more information (note: the rates in this link are outdated): http://files.hawaii.gov/tax/legal/taxfacts/tf96-02.htm
What Hawaii forms do I need to file?
- File your Hawaii non-resident N-15 State Tax Return.
- File GE-45 taxes quarterly or monthly as well as your Annual GE-49 form. This is required by both Act 326 (which expires on December 31, 2015) and Act 204 (which takes force on January 1, 2016) [download document].
- File TA-1 taxes quarterly or monthly. This is required by both Act 326 (which expires on December 31, 2015) and Act 204 (which takes force on January 1, 2016). [download document]
- File your Annual TA-2 form. This is required by both Act 326 (which expires on December 31, 2015) and Act 204 (which takes force on January 1, 2016). [download document]
To access these forms and their instructions visit the State of Hawaii Department of Taxation page providing the “Alphabetical list of Hawaii Forms and Publications” [view site].
What other requirements arise from the Hawaii Department of Tax?
Act 204, effective January 1, 2016, continues the following requirements of Act 326.
Operators of transient accommodations are required to do the following, for which there are steep penalties for failure to comply, including the possibility of being found guilty of a misdemeanor:
- Designate a local contact residing on the same island as the transient
- Include the local contact’s name and phone number in any contract or written rental agreement and post clearly in the vacation rental property.
- Include the TAT registration identification number (also called the TAT license number) on all websites and advertisements. Please note that for some taxpayers the TAT license number may contain a different suffix from the taxpayer’s GET license number, so make sure you post the TAT number.
When do I file my GE (General Excise) and TA (Transient Accommodations) taxes?
This depends on how much rental income you collect. Please see the Hawaii Department of Taxation outline on how to determine the measure and rate of taxes due. Includes when reports of taxes due are to be filed. [download document]
Who must file an N-15
As a nonresident or part-year resident of the State of Hawaii, the taxpayer is required to file a Hawaii income tax return if any of the following apply:
- The taxpayer or spouse is doing business in Hawaii during the taxable year regardless of whether the taxpayer or spouse derives any taxable income from that business. “Doing business” includes all activities engaged in or caused to be engaged in with the object of gain or economic benefit, direct or indirect, except personal services performed as an employee under the direction and control of an employer. Example: Every person receiving rents from property owned in Hawaii is “doing business” and must file a return whether or not the person’s expenses exceed the gross rental income.
Who do I contact in Hawaii to get registered to pay taxes?
You can register by going to the following website and follow the Wizard for step-by-step instructions hbe.ehawaii.gov
Where do I find information on the rental of residential real property?
Please refer to the Hawaii Department of Taxation document “Information on the Rental of Residential Real Property” available for download at [download document].
What is a 1099 — MISC
Form 1099-MISC is used to report certain types of payments made in the course of a trade or business. If you’re in business or self-employed, you may need to submit this report to both the Internal Revenue Service and the person or business whom you paid.
When is Form 1099-MISC required?
Businesses will need to fill out a Form 1099-MISC for persons, vendors, subcontractors, independent contractors, and others to whom $600 or more per year is paid for services (including parts and materials). Reporting such payments is required if the recipient of the payment is not a corporation — for example, when the recipient is an individual, partnership, a limited liability company treated as a partnership or sole proprietorship. Payments made to corporations are required in the case of legal fees paid to attorneys.
Tax liabilities for unreported rental income:
“The State of Hawaii Department of Taxation has long considered non-filing rental property owners and vacation rental operators as a potential source of additional tax revenue.
At a recent workshop, the Department described its efforts to identify non-filing rental real property landlords and vacation rental operators. In addition to on-going data sorting, the Department is availing itself of third-party information generated (from the AOAO) by Act 326 of 2012 and is collaborating with Hawaii’s county governments.
Hawaii’s Department of Taxation is following a national trend of actively developing information to identify additional sources of tax revenue. Computer data sorting techniques applied to federal and state tax data should be readily able to identify potential non-compliant taxpayers for audit and investigation.
There is no statute of limitations for unfiled general excise and transient accommodations tax returns. This makes the identification of delinquent General Excise Tax (GET) and Transient Accommodations Tax (TAT) revenue particularly productive as an audit could look back a considerable period. Typical penalties for failure to file and failure to pay are 50% along with interest at 8%.
Persons with past or on-going rental activity in Hawaii and unfiled returns (or unreported income) should strongly consider seeking professional advice as soon as possible. The potential for criminal prosecution and/or the imposition of substantial civil penalties can be mitigated or reduced through appropriate and timely actions, potentially including a “voluntary disclosure.”
- A detailed discussion of Act 204 relating to transient accommodation taxes can be found here.
What is a transient vacation rental (TVR)?
A TVR is any rental of a housing unit for less than 180 days.
Is there a difference between a transient vacation rental (TVR) and a bed and breakfast (B&B)?
Yes. A Bed and Breakfast business involves the rental of rooms in the same house in which the owner or manager lives. A transient vacation rental involves all other types of short-term (less than 180 days) rentals, including ohana units. The County Council is considering amending the definition of a B&B to require that the owner live on-site but allow the renting an ohana unit.
What laws affect the operating of a Transient Vacation Rental and a Bed and Breakfast?
The Maui County Code Chapter 19.27 prohibits transient vacation rentals outside the hotel district. The Maui County Code Chapter 19.64 allows for Bed and Breakfast operations within the business district as well as the residential districts with a permit. The conditional permit process is used by owner/operators to establish either a TVR or B&B outside of these allowed districts.
What is the penalty for operating an illegal TVR or Bed and Breakfast?
Operating an illegal TVR is subject to an initial fine of $1,000 along with a daily fine that can progress up to $1,000 per day. A trial is not necessary. There is an appeal process that could include the court system to resolve the appeal.
What is the definition of HOTEL RESORT classification for property Tax?
On Maui, the hotel/resort class means that “Units occupied by transient tenants for periods of less than six consecutive months . . . shall be classified as hotel resort” (Maui County Code 3.48.305 C(4)). If you are not in the rental pool or do not rent for six months or less, you should submit a Condominium Classification Declaration attesting to the actual use of your unit.
Do I need a Business or Tax license if I collect money for renting my property as a TVR?
Yes, you need a business license. The BB-12 State of Hawaii Basic Business Application, Instructions and Payment Vouchers, and information which contains BB-1 (Rev. 2010), VP-1 (Rev. 2010), and NEW VP-2 (Rev. 2011), can be accessed through this link: [Download packet].
What are the property tax rates and categories for the State of Hawaii?
In Hawaii the Counties determine the tax rate information. For more information, please visit the following sites:
Is everything I need to know about operating a vacation rental in Hawaii on this website?
The statutes and regulations governing operation of a vacation rental property in Hawaii are complex and, at times, vague. There are specific federal, state, and county laws, bylaws, and regulations in respect of operating a vacation rental property in Hawaii. Except where noted, this website presents State of Hawai’i laws, regulations, and requirements, not those of the federal government, counties, or localities. It is always prudent to verify your specific responsibilities for your individual situation with your legal and tax advisors, and to consult with federal, state, and county officials to ensure you have the current information regarding your responsibilities in operating your Hawaii vacation rental business.