Bill would let Airbnb brokers act as tax agents

A proposal that would allow Airbnb to collect tens of millions of dollars in state taxes generated by short-term rentals using the online home-sharing platform would also make it illegal for Airbnb to do business with any rental operators breaking county zoning laws.

The measure aims to strike a balance between collecting taxes owed to the state and deterring illegal vacation rentals.

Senate Bill 2963 would allow so-called transient accommodations brokers to register as tax collection agents with the state to report, collect and remit general excise and transient accommodations taxes on behalf of rental operators.

The measure could help raise $67 million annually in taxes, according to estimates provided to the Legislature by three state departments: Taxation; Budget and Finance; and Business, Economic Development and Tourism.

But the bill would make it illegal for such brokers to “engage in business” with any rental operator that is not in compliance with all state and county laws, including regulations for land use, taxes and professional licensing. Violations would be a misdemeanor offense carrying a minimum $25,000 fine.

That provision could dilute the estimated tax revenues the state would reap from short-term rentals. By some counts there are 30,000 illegal short-term rentals in Hawaii, mostly on Oahu, where the city stopped issuing permits for transient vacation rentals nearly 30 years ago. Except for grandfathered properties, short-term rentals are permitted only in areas zoned for resort use.

Lawmakers said the $67 million figure will fluctuate as counties work to implement laws that would allow more permitted short-term rentals.

As an incentive for counties that have struggled historically with enforcement, when a county establishes a process for verifying compliance with its land use ordinances, the county will get up to $1 million of the GET and TAT collected in that county for that fiscal year, under the bill.

“The improved county zoning authority in this bill will help us to hold illegal vacation rental operators responsible,” Michael Dahilig, planning director for Kauai County, testified in support. “We believe it will have a positive trickle-down impact on preserving our local neighborhoods, keeping resort uses in resort areas, preserving our residential housing stock and minimizing procedural barriers to insure timely due process.”

The bill cleared the state Senate over objections from Airbnb and individual rental operators and has crossed over to the House for consideration.

The penalties in the bill add an enforcement mechanism that was missing from similar tax-collection bills that have failed in recent years. Gov. David Ige in 2016 vetoed a bill that he said would have shielded illegal rental operators. Ige’s administrative director, Ford Fuchigami, testified in support of SB 2963.

Federal violations?

Airbnb, meanwhile, said it agrees with the intent of the measure but said current language in the bill would deter platforms from voluntarily acting as tax collection agents. The company says it voluntarily collects and remits taxes in more than 350 jurisdictions worldwide — including in Amsterdam, Paris, Chicago, Los Angeles and Malibu, Calif. — and in nearly 20 states, including Florida, Oregon, Vermont and Arizona.

Hawaii’s bill, however, violates the federal Communications Decency Act and the Stored Communications Act as well as the Fourth Amendment, which prohibits unreasonable searches and seizures, Airbnb contends.

“Because of the legally unenforceable provisions included in the bill, it is highly unlikely that any platform would voluntarily agree to collect and remit taxes in accordance with this bill, thus rendering the intent of the majority of the bill moot,” said Matt Middlebrook, public policy manager for Airbnb in Hawaii.

David Louie, an attorney for Airbnb, said the bill has “some very serious legal flaws and some serious legal concerns.”

“The section which provides for criminal penalties as an enforcement mechanism makes it illegal and subject to … penalties if somebody engages in business with anyone who violates any law of the state of Hawaii. That’s a little broad. It’s a little problematic,” Louie said. “The drafting problem that exists for establishment of those criminal penalties is very poor, it’s overbroad and it’s probably unconstitutional.”

The American Hotel & Lodging Association testified in support of the bill on behalf of its more than 150 Hawaii-based members.

As more visitors have turned to alternative accommodations offered on platforms like Airbnb, hotels have complained that short-term rentals don’t charge or pay transient accommodations taxes.

“We’ve been at this now for three years, and in every hearing what we see is a good faith effort by our legislators to create common-sense solutions that work for our communities, for our hotels, and for our legal short-term operators,” said lodging association spokesman Kekoa McClellan.

“And at every turn we see very intelligible, very interesting comments and challenges to these solutions. It’s a very smart scare tactic and frankly I give credit to our colleagues in the short-term rental platform industry for deploying this.”

McClellan said a 2017 report on 13 of Airbnb’s largest U.S. markets, which includes Oahu, found most short-term rental units here are owned by part-time residents or commercial operators — “not local homeowners renting out a spare room to supplement their income as a true host, as Airbnb likes to flaunt. In fact, 85 percent of Oahu’s Airbnb revenue comes from entire-home rentals.”