Honolulu City Council members are looking into whether transient vacation units and bed-and-breakfast homes should be taxed at higher rates. Also, they appear ready to tackle related issues such as allowing for more legal short-term residential vacation rentals while cracking down on illegal ones.

A bill scheduled for its first vote Wednesday would create new property tax classifications for both types of short-term residential vacation rentals, which currently are taxed in the residential category like other single-family homeowners in their neighborhoods.

Council Chairman Ernie Martin, Bill 23’s author, said creating the two new tax classes is a step toward tax equity and one of several measures designed to tackle the broader B&B/TVU issue. "Both endeavors are primarily business activities" but pay based on residential rates, he said.

Rates for B&Bs and TVUs are expected to fall between those of residential property owners, who currently pay at a rate of $3.50 per $1,000 of assessed value, and hotel/resort owners, who now pay $12.40 for every $1,000 of value.

Last year, after strong objections from the vacation rental owners, the Council rejected a plan that would have placed TVUs and B&Bs in the hotel/resort class.

Martin said he also intends to introduce companion legislation that would allow for new TVUs and B&Bs to operate legally and crack down on the large number of illegal vacation rental homes. The city imposed a moratorium on issuing new nonconforming use certificates for B&Bs and TVUs in 1986, a move that has not stopped what the city estimates to be thousands of illegal short-term rentals from operating.

Councilman Ikaika Anderson, who represents Kai­lua, where residential vacation rentals are a hot-button issue, has tried in the past to find a middle ground. Anderson said he welcomes a go-slow approach on future legislation to ensure all concerns are addressed. "I do support legislation allowing for additional short-term rentals coupled with very strict and severe enforcement."

The city Department of Planning and Permitting told Martin this week that there are about 48 legal B&Bs and 810 TVUs. With illegal operations, "there are probably triple that amount," Martin said. B&Bs and TVUs are both considered short-term rentals, where visitors stay for fewer than 30 days. The difference is that a property owner must physically occupy a B&B, while no owner needs to be present at a TVU.

Both Angie Larson, former president of the Hawaii Vacation Rental Owners Association, and Tonic Bille, president of the B&B TVU Association of Oahu, said Martin’s plan to create two new tax classes would create new burdens that are likely to drive many legitimate B&B and TVU owners out of business while discouraging illegal ones from ever wanting to become legal.

The idea that most B&Bs and TVUs are raking in cash is a myth, Bille said. "We work hard and are able to just break even at the end of the year," she said. Residential vacation rentals also boost the businesses in the neighborhoods where they operate, and a loss of B&Bs and TVUs would be felt by them as well, she said.

Larson said that establishing the new tax categories without addressing the other issues is putting "the cart before the horse."

Legally operating B&B and TVU owners already pay income and general excise taxes, Larson said, and raising the price of renewing a nonconforming use certificate would provide more certainty than a tax rate that could change from year to year.

Larson said her group supports expanding the number of licenses issued for B&Bs and TVUs as well as stricter action against illegal units. She noted that Mayor Kirk Caldwell has promised both.

See the city’s current rules on TVUs and B&Bs at bit.ly/1kgRMNr.