Recently, our state Tax Department admitted that a 2015 law (Act 204) intended to increase tax compliance from short-term rentals might violate federal law. Act 204 requires homeowners advertising their properties as short-term rentals to include a correct transient accommodations tax (TAT) registration number, and if the number is incorrect or missing, both the property owner and any online platform publishing the advertisement, such as AirBnB, VRBO or Flipkey, can be penalized.

But the federal Communications Decency Act prevents states from punishing platforms on account of user-supplied content. As such, the state might be unable to enforce the Act 204 penalties against these platforms, also known as transient accommodations brokers.

About a decade ago, our Legislature was concerned about collecting taxes from the independent business owners working in multi-level marketing companies like Amway, Avon, Herbalife and LegalShield. So it allowed these companies to collect and pay general excise tax (GET) on behalf of the independent owners. The law was sensible because our Tax Department could then concentrate on a few larger suppliers instead of chasing a multitude of small business owners with varying degrees of tax compliance.

In this past legislative session, House Bill 1850 would have done the same for those in the short-term rental industry. Transient accommodations brokers would have been able to collect GET and TAT and pay them on behalf of their many users who, like the multi-level marketers, had varying degrees of tax compliance. Even the Tax Department testified in favor of the bill. In hindsight, it now seems a much more viable solution than Act 204.

Detractors of the bill, however, argued that the brokers would be a shield enabling unit owners to operate rentals that would be illegal under county zoning laws. In addition, they said that the bill would give property owners an economic incentive to renting on a short-term basis rather than renting to low-income working families and individuals who lack affordable housing options. As a result, the bill was vetoed.

But let’s look at the objections a bit more closely.

First, would a broker really be shielding the property owner from anything? If the counties are serious about their zoning laws, isn’t it enough for a county investigator to start with an online ad, trace it to the property, look up its registered owner and any zoning restrictions on it, and then cite the owner if the use is not permitted? Advertising the property as a vacation rental without a permit or in violation of zoning regulations is evidence enough, no matter whose tax number is on the ad.

Second, what about the concern for the homeless and affordable rentals? Homeowners have every right to decide how their property is used. Many choose to rent their homes occasionally on a short-term basis rather than taking on a long-term tenant for an affordable rental. There is nothing evil or un-Hawaiian about that choice, even if it is driven by economics. Our leaders need to face reality: we live in paradise, people want to come here, and they are willing to pay for the privilege. This basic truth remains whether or not brokers collect and pay taxes on behalf of property owners.

In the meantime, we are missing out on lots of money. Rick Egged, president of the Waikiki Improvement Association, estimated that $100 million in TAT on short-term rentals is uncollected annually. GET on the same rentals would be another $50 million annually.

Whether or not you think counties need to update land-use laws, those doing business in the short-term rental industry need to pay their fair share. If they don’t pay, the rest of us taxpayers do. The longer the delay, the more millions we lose.

Tom Yamachika is president of the Tax Foundation of Hawaii.