Opposition is mounting to bills that would let the online vacation rental giant Airbnb and similar companies arrange to collect general excise and transient accommodation taxes on behalf of hosts and pay the money to the state.
Airbnb, many of its Hawaii hosts and the state Department of Taxation support the intent of Senate Bill 2693 and House Bill 1850, which they say would make it easier for Hawaii to collect its fair share of taxes from transient vacation rentals.
Airbnb, which is pushing for similar legislation in about 50 jurisdictions worldwide, said it already has collected about $42.6 million under similar measures. If the 50 largest cities in the U.S. would allow the company to serve as tax collection agent, it said the windfall for local governments would grow to at least $2 billion over the next decade.
“Airbnb is committed to working with Hawaii lawmakers to enable hosts to pay their fair share of taxes and provide the state with badly needed revenue,” said Cynthia Wang, Airbnb public policy manager for the Northwest and Hawaii. “We are open to exploring all options to achieve this goal.”
Last month, House Bill 1850 passed through the House Committee on Finance with amendments; Senate Bill 2693 was passed with amendments by the Senate Committee on Ways and Means. While both bills are advancing, opponents are calling for further tweaking.
Airbnb allows travelers to book accommodations from its client list — much of it mom and pop operations — the way sites like Expedia, Travelocity and Orbitz help travelers rent hotel rooms and cars and find flights.
One point of contention with the bills pertains to language that exempts tax collection agents from providing the state with the names and addresses of the hosts that they service.
As written, the bills would allow companies like Airbnb to collect taxes directly from their sites under the agent’s general excise tax and transient accommodations tax licenses. Owners who are renting units through a valid tax collection site, as Airbnb would become under the bills, would no longer need separate GET and TAT licenses.
That’s contrary to what other vacation rental property managers must do, said Barry Wallace, executive vice president of hospitality services for Outrigger Enterprises Group.
“In the traditional Hawaii vacation condo model, we collect GET and TAT on behalf of individual owners and file it and remit it to the state under their tax numbers. We have an enormous accounting team that manages all the different reporting systems and makes sure they are clean and ready for an audit at all times,” Wallace said.
“The bill in question would allow Airbnb the opportunity to develop a dedicated tax ID number for the state of Hawaii that everyone would hide behind,” Wallace said. “This isn’t the best language.”
Another concern is that passage of either bill would undo the effectiveness of Act 204, which took effect Jan. 1 and requires owners and managers of Hawaii vacation rentals to post their transient accommodations tax identification numbers on their online advertisements or face fines. If the new bills pass as written, the Department of Taxation has said that posting of the agent’s tax ID would be sufficient to meet the website advertisement requirements.
Sen. Laura Thielen (D, Kailua-Waimanalo-Hawaii Kai) said she introduced Act 204’s identification requirement so the state could collect its fair share of taxes and stop issuing TAT license numbers for vacation rental operators who don’t have county permits.
“I’ve met with the tax department and talked to them. They are adamant that it’s not their obligation to enforce the county codes. But I don’t think they should be making it harder for the counties to enforce,” Thielen said.
Hawaii Tourism Authority President and CEO George Szigeti agreed.
“There seems to be a huge loophole in this bill,” Szigeti said. “The bill might actually inspire people who are on the fence about undertaking an illegal vacation rental operation to go ahead and do it. The fact that a company like Airbnb wants to collect the taxes is a good thing. We just need to make sure that accountability is there.”
Mallory Fujitani, public information officer for the Department of Taxation, said: “The purpose for posting of the tax IDs under Act 204 is to provide the Department of Taxation information about the taxpayer.” She added, “Act 204 does not include requirements related to land-use enforcement.”
Since all taxpayer information is confidential, Fujitani said, the bills would not shield the names and addresses of illegal operators.
Kathleen Pahinui, vice chairwoman of the North Shore Neighborhood Board, said the “Airbnb bills” would make it easier for illegal operators to circumvent a 1989 Oahu moratorium, which bans adding new vacation rentals and bed and breakfast homes.
“Airbnb needs to give the state a fair and honest accounting of all its members,” said Pahinui. “Otherwise, what you’ve got is the fox guarding the henhouse.”
Pahinui, who is a member of Save Our Oahu Neighborhoods, said the popularity of turning homes into vacation rentals has displaced North Shore residents and changed the nature of residential neighborhoods.
Honolulu City Councilman Ron Menor opposes the bills for similar reasons.
“Problems related to illegal transient accommodations affect both the state and the counties. Prior to approving this legislation, there should be considerable discussion and coordination between the numerous parties involved, including the appropriate state and county government agencies,” Menor said. “Passing this legislation during this session would be premature.”
Mufi Hannemann, president and CEO of the Hawaii Lodging & Tourism Association, said his organization supports the intent.
“The language just needs to be changed so that vacation rentals are operating on a level playing field with the rest of the accommodations industry,” Hannemann said. “Amendments need to be made to move these bills forward. Making sure we are collecting taxes from vacation rentals is a No. 1 priority.”
Thielen said the bills need major overhauls. In her view, current exemptions make it impossible for the state tax office to audit vacation rental hosts whose tax obligations are being assumed by tax collection agents.
The Department of Taxation disagrees.
“Auditing is actually made simpler as there is only one source to request documentation to initiate an audit,” Fujitani said. “Additionally, the department has nonjudicial subpoena powers, which is a fairly simple way of obtaining documents for audit as it does not require us to go through the court system to get a subpoena.”
When a valid tax collection agent is standing in the place of the taxpayer, the agent is responsible for the collection and payment of all applicable taxes, she said. If owners have any rental activity separate from a valid tax collection site, Fujitani said they would be required to have their own GET and TAT licenses for reporting the separate activity.
“If owners are renting out their unit on their own and not submitting the appropriate GET and TAT on all revenue received, they are committing tax evasion.” she said. “Substantial penalties and interest may apply.”
