State House and Senate fail to reach agreement on short-term rentals

Lawmakers appear to have failed for a third straight year to resolve the conundrum over how best to tap into millions of dollars in uncollected state taxes from short-term vacation rentals without encouraging or endorsing illegal operators.

House and Senate negotiators working on House Bill 2605 deferred the measure indefinitely Thursday, citing opposing positions.

The Senate pushed a plan to allow so-called transient accommodations brokers like Airbnb to register as tax collection agents with the state to collect and remit general excise and transient accommodations taxes on behalf of vacation rental operators.

That plan aimed to deter unlawful operators by making it a crime for home-sharing platforms to do business with those who break county zoning laws.

The House, meanwhile, had proposed a plan to incentivize the counties with $1 million “carrots” to regulate short-term rentals by coming up with a special property tax bracket for transient accommodations; developing a process to issue permits for short-term rentals and collect applicable taxes; and establishing an appeals process for denied permits.

Honolulu has long struggled with the issue of short-term rentals, prompting efforts by state lawmakers to intervene. By some counts there are 30,000 illegal short-term rentals in Hawaii, mostly on Oahu, where the city ceased issuing permits for transient rentals nearly 30 years ago. Except for grandfathered properties, short-term rentals are permitted only in areas zoned for resort use on the island, but that hasn’t deterred hundreds of illegal operators.

Opponents have faulted past legislative proposals for turning a blind eye to unlawful operators in exchange for the tax revenues. Critics say past efforts — including a bill that Gov. David Ige vetoed in 2016 — would have allowed the continued proliferation of short-term rentals, which they said reduces available housing for local residents and overwhelms residential neighborhoods. Hotels also cried foul because many short-term rentals don’t pay transient accommodations taxes.

State Sen. Glenn Wakai (D, Kalihi-Salt Lake-Aliamanu), the lead Senate negotiator on HB 2605, said he was disappointed the two chambers could not come to agreement.

“We’ve been trying for three years to get our hands wrapped around this issue and failed the public for the third time. It’s not rocket science here. It’s not like these guys are hiding in the shadows,” Wakai said.

“The Senate’s position has been to put the responsibilities on the homeowners as well as the platforms to share information, to find out who the bad actors are and take down the bad actors from the platforms,” he said. “We felt that was a position that most people in Hawaii would be supportive of, but the House saw it from a different perspective and we have nothing to give to the public this year.”

State Rep. Richard Onishi (D, South Hilo-Keaau-Honuapo), one of the House negotiators, said the counties should come up with systems to track and permit short-term rentals first, before the state earmarks funding for enforcement efforts. The House draft did not propose penalizing home-sharing platforms that promote illegal rentals.

“The House’s position has always been to try to help the counties move forward on this issue. At this point the counties wouldn’t be able to enforce the issue because most of them don’t have a permitting or registration regime in place,” he said. “So we’re saying, ‘Hey, work on your ordinances, then we’ll look at providing funding to help you do the enforcement.’”

‘$1 MILLION BRIBE’

Airbnb officials had testified against the Senate version of the bill, saying the proposed penalties — a minimum $25,000 fine for any violation — would deter platforms from voluntarily acting as tax agents.

“Airbnb has consistently advocated for legislation to assist the state with its goal to more effectively capture taxes from the short-term rental industry by allowing online platforms to collect and remit GET and TAT from users,” Matt Middlebrook, public policy manager for Airbnb Hawaii, said in an emailed statement.

“Unfortunately, the Senate version of this bill included unreasonable provisions that were too onerous and would have harmed the tourism industry as well as Hawaii’s economy,” he added. “We were supportive, however, of the House’s draft which would have allocated $1 million per county to update regulations and enhance enforcement for the industry.”

State Rep. Cynthia Thielen, who represents Kailua, where illegal vacation rentals continue to multiply, said she opposed the House’s position, calling it a “disaster” because it would have allowed more vacation rentals on the island.

“It was a $1 million bribe to the city to set up a system that was going to result in more short-term rentals,” Thielen (R, Kailua-Kaneohe) said. “The Windward side is just being hammered by these illegal, mostly transient vacation units, which are primarily owned by out-of-state investors who don’t give a rip about the local community, and they don’t care about operating illegally. It really just rips housing from our local families.”

She said the city needs to enforce existing laws prohibiting short-term rentals outside of resort areas. “You have the authority to do this now, you have the responsibility to do it now, and you’ve been utterly ineffective,” she said.

Kekoa McClellan, spokesman for the American Hotel & Lodging Association, which supported the Senate version of the bill on behalf of its more than 150 Hawaii- based members, echoed some of Thielen’s concerns.

“We know that almost all of these rentals are illegal and owned by mainland or foreign investors,” McClellan said in an email. “Illegal short-term rentals shouldn’t be allowed to proliferate here at the expense of local residents seeking access to affordable housing.”

Today marks an internal deadline for positioning financial bills for final votes in the House and Senate.

On the status of HB 2605, Ige said in a statement, “Nothing is dead until the session is officially adjourned.”