Happy New Year to Everyone!!
In this edition:
- 1) 2017 Legislative Session is open;
- 2) New Regulations Effective January 1, 2016;
- 3) Specific regulations for each County;
- 4) Update on Oahu County Enforcement; and
- 5) Funding and Membership Drive
The 2017 Legislative Session in now Open.
The Hawaii Legislature opened earlier in January and will run until about mid-May. To understand the 2017 session, we need to remember last year. The 2016 session ended with Governor Ige vetoing the bill which would allow the advertising platforms to collect and remit taxes on behalf of the operators. As you know, one of the main criticisms of vacation rentals, whether true or not, is that we do not collect and remit taxes. The hotel industry uses that argument across the nation to support increased regulation of vacation rentals. The bill had put forward in an attempt to crack down on tax cheats. During the session, the bill took on additional burdens – namely the requirement for advertising platforms to ensure owners complied with county zoning regulations.
The bill also became a referendum on vacation rentals as a whole, with the argument being that we should not be allowed to rent out our properties to tourists at all. RBOAA initially supported the bill but ultimately opposed it as our concerns were not addressed. Well, guess what? Those themes have become front and center in 2017. There are no less than six bills dealing with the ability of advertising platforms to collect taxes. More worrisome, there are about 10 bills which propose to increase taxes on us. The State of Hawaii is actually putting forth an amendment to the State Constitution in order to allow the State to impose a new tax upon vacation rentals.
There are 20 bills currently on the table dealing with vacation rentals and they boil down to four themes.
- Advertising Platforms (such as VRBO) can collect and remit taxes on behalf of operators (you).
- Travelers to Hawaii and people and companies who provide accommodation to the travelers should pay more in tax.
- People who rent out property on a secondary or accessory basis should be limited to renting out no more than 60 nights per year and owning no more than one or two properties. (More on this below)
- Counties should be allowed to change zoning to eliminate transient vacation rentals. This proposal comes up each year, but this year, it only applies to the County of Kauai.
The limitations on rentals is quite concerning, obviously. There are at least four bills dealing with imposing restrictions on vacation rentals, and unfortunately, the bills as currently worded are not clear and are not consistent. And so RBOAA needs to do some work to ensure that if these proposals go ahead, there will be clarity.
New Category of “Short-term Rental Lodging”: We believe Legislators are thinking of creating a sub-category of transient vacation rentals known as “short-term rental lodging”. From one bill: “Short-term rental lodging” means the accessory or secondary use of a residential dwelling unit or portion thereof by an operator to provide room or space to short-term lodgers for less than one hundred eighty consecutive days for each letting.” The key words here are “accessory or secondary use”. Think of renting out a spare room or renting your place out for a week while you go on vacation or renting out your ohana unit. This would be distinguished from a dwelling unit where the primary use is as a vacation rental.
We believe, although we aren’t yet sure, this is aimed at providing a mechanism for those with properties not located in zones which permit transient vacation rentals. If we are understanding this correctly, those renting out “short-term rental lodging” may be restricted to owning only one or two properties and may be limited to 60 days per calendar year. So, this appears to be a compromise by providing limited opportunity to do vacation rentals, but still requiring those operators to comply with GET and TAT collection and local contact rules.
We are sure that our understanding will evolve over the next couple months just as the bills will be amended and clarified. We promise to keep you updated.
Increasing Taxes: As travelers don’t vote, they are a good source of tax revenue. There are a number of proposals to increase the TAT from 9.5% to 13.5%. There are also proposals to add additional taxes on top of the 13.5% to cover education, environment and housing. There is also a proposal to add an additional tax on the property tax. This is the tax which the government is proposing to change the State constitution in order to be able to implement.
RBOAA will try to help the legislators understand that Hawaii needs to remain competitive in the tourism and convention market. However, it is no secret to any of us that Hawaii has a housing issue (especially in Honolulu), a homeless issue on all islands and ranks low in the nation on education, so higher taxes are likely an inevitability.
Synopsis of Bills as of January 31, 2017
This bill is one of many dealing with the question of hosting platforms as tax collection agents. It requires us, as operators, to keep records (putting the onus of audit on the operator). The bill provides for hosting platforms to de-list any advertiser (you) who does not comply with tax or zoning laws and requires the platforms to obtain attestation from you that you are in compliance with zoning laws. Up to this point, the bill is similar to bills we saw last year, and they have addressed most of the concerns we raised at the time. We would still like to have language inserted prohibiting the hosting platforms charging the advertisers for the tax collection service since the State is paying the hosting platforms for this work.
It provides for an increase of 4% in the TAT, giving Hawaii the distinction of the most expensive hotel tax in the country. The bill also provides for the ability of counties to restrict zoning and phase out transient vacation rentals.
This bill also introduces the distinction between short term lodging and transient vacation rentals, discussed above. The bill also limits the number of rentals any person, couple or company can own to one unit. The bill also restricts the number of nights we can rent registered short-term rental lodging units to 60 per calendar year.
HB 1471 / SB1087
This bill is similar to HB1470, but allows anyone, not just hosting platforms, to act as tax collection agents. However, crucially, it does not have the language around increased taxes, limits on ownership and limits on the number of nights rentable in a year.
RBOAA recognizes that some members are opposed to having their hosting platforms collect and remit taxes on their behalf, but in the grand scheme of things, it has a small impact on how we do business and is a soft compromise to make in order to avoid far more restrictive regulations.
RBOAA will likely be proposing amendments to this bill, but we expect it will pass. There is general support at the Capitol for this bill.
SB1281 / HB1242 / SB1202
This is similar in concept to the two bills described above.
This bill will allow counties to impose a surtax on the TAT, effective January 1, 2019. This is in addition to the 4% increase in the TAT proposed in a number of bills this session. The funds are to be used to fund housing.
HB180 / SB686
This bill increases visitor taxes to help fund the education system in Hawaii.
The bill would apply a tax on residential investment property as well as on visitor accommodations.
Property Value Surcharge per $1000 of property value
Under $500,000 $3.50
$500,000- $750,000 $4.50
$1,000,000 – $2,000,000 $6.50
$2,000,000 and over $7.50
So, if your property was worth $400,000, you would pay $1400 in residential property tax surcharge each year. If your property was worth $2,000,000, you would pay $15,000.
The rate of tax, as a percentage of the value of the property, decreases as the property value increases. Clearly, Hawaii favors the rich and the elite.
In addition, there is proposed a nightly tax of $3.00 for rents up to $150 per night and $5.00 per night for rents over $150. This is regardless of occupancy. So the $400,000 property probably commands a rent of $150 a night on average, so 365*$5 = $1825, for a total tax of $3225.
Again, the rate of tax, as a percentage of the rental rate decreases as the rental rates increase. Lower valued properties are hit harder than the high end properties.
Currently, this type of tax is most likely not possible to implement in Hawaii, so they are proposing a constitutional amendment (SB683 & HB182) to allow the state to impose this tax. This is the same tax which has been the subject of a legal battle in the City and County of Honolulu.
HB1453 / SB1143
This is another tax on tourists, this one being $20 per guest to fund environmental protection and conservation. The wording indicates that a party of 4 would pay $80.
SB862 / HB1331
This bill allows for the phase out of single family transient vacation rental units in the counties with populations under 100,000, which is essentially Kauai. The County of Kauai has put forward this bill every year for at least the past 5 years. Every year it gets defeated. By narrowing the scope to just that county, perhaps they think it will have a better chance.
The preamble to the bill proposes moving the tax burden from residents to non-residents. The bill, as currently drafted, doesn’t actually change the tax structure to affect non-residents. We will continue to watch this bill as it is likely to get amended by committee.
This bill has already garnered some media attention as it states that failure to register for TAT and GET is a class C felony. For those who weren’t fans of Law and Order, a Class C felony is punishable by a maximum of seven years in prison. Class C felonies include crimes such as theft, possession of a controlled substance, second-degree statutory rape and first-degree involuntary manslaughter.
This bill also sets up a public database whereby anyone can look you up to see if you are properly registered. This raises certain security and privacy concerns.
This bill is actually quite good as it attempts to clarify that TAT applies to rent and mandatory fees charged to guests. RBOAA supports clarification of tax rules.
This bill proposes to set up a committee to study transient accommodations in the State and provides for membership from vacation rental owners.
Act 204 Took Effect January 1, 2016. Make sure you are in compliance today.
The full details of Act 204 are available on our website at www.rboaa.org. The key summary points are:
- If you don’t live on the same island as your vacation rental, you need to name a Local Contact and 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. Your local contact does not need to be a real estate agent unless he/she is performing tasks for which a real estate license is required (e.g. collecting rent on your behalf).
- You must post your Hawaii Tax ID number (your TAT ID number) conspicuously in all advertisements and in your rental
We are still – yes – still – waiting for the detailed rules from the DoT as to how they will enforce and interpret Act 204. We will send that along to you when we get it.
Specific Regulations for each County
RBOAA’s mandate is focused at the State of Hawaii level, and to consider certain issues which bridge the County level and the State level. It is very important for you to know that each county in Hawaii has its own regulations (or lack thereof) for zoning and permitting of vacation rentals. Please visit the County Regulations page on the RBOAA website, https://www.rboaa.org/county-regulations/ to check for regulations and upcoming potential regulations. The onus is on you, as owner, to ensure you are in compliance with all regulations – state, county and HOA.
We will do our best to keep this page up to date, but we can’t promise it is always up to date. If you have specific questions about county regulations which you can’t answer from our website, please contact the county. RBOAA simply does not have the volunteer resources to answer questions on specific county regulations.
Update on Oahu County Enforcement
As many of you are already aware the City & County of Honolulu has initiated a massive and aggressive widespread campaign to significantly reduce the number of vacation rentals on Oahu. Our friends at Hawaii Vacation Rental Owners Association (HVROA) took the drastic and expensive step of initiating legal action against the Department of Planning in Honolulu. While there was some degree of success, the legal action continues. If you are on Oahu, please go to their website for more information.
Funding and Membership – RBOAA
It is, of course, membership renewal time!
“Mahalo” to all of you who renewed your membership and/or made a donation to RBOAA this year. We would not be able to do what we do without your support.
In a recent study of some of the more popular owner rental web sites, there appears to be more than five thousand owner-managed vacation rental properties in Hawaii. That number dwarfs our membership numbers so we know there are a lot of owners out there who might not be aware of RBOAA, not aware of all the good work we have done, and all of the good we will continue to do on your behalf.
We need to grow our membership in order to continue on as we have in the past. Please ask anyone you know who owns a vacation rental property to visit our web site www.rboaa.org and become a member or make a donation today. We all have neighbors, friends, or maybe even family who would benefit. Please don’t assume they are aware of RBOAA. We are all in this together and all of you can act as a small army of recruiters. Please do your part and help us spread the word.
Help us make sure everyone who self manages a vacation rental property in Hawaii is aware of the opposition we all face and that RBOAA is here to help.
So please, right now, please renew your membership at www.rboaa.org and click on the “Donate — Click Here” button.
Remember, none of your executive team is paid – we are all volunteers.