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.”
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.