Court sides with Airbnb; state to appeal

Hawaii’s Department of Taxation plans to appeal a Honolulu judge’s ruling Thursday that denied the state’s attempt to subpoena rental records from online vacation rental booking site Airbnb.

The state had sought the subpoena Aug. 31 as part of its investigation into whether the company’s hosts are paying excise and transient taxes.

The state wanted Airbnb to provide access to its Hawaii booking invoices, receipts, statements and confirmations from 2008 to now. It also wanted personal host information, including names, user IDs, taxpayer IDs, Social Security numbers, addresses and booking activity and charges.

Airbnb had sought to quash the subpoena on the grounds that it was an “unprecedented attempt to amass a decade’s worth of detailed private data on about 16,000 people.”

First Circuit Judge James Ashford ruled that the state’s request failed to meet two provisions of state law HRS 231-7(e). Ashford said the state did not show a reasonable basis for believing that Airbnb hosts were not paying their taxes and that the information the state was seeking was not readily available from other sources.

Linda Chu Takayama, state Department of Taxation director, said in a statement that the department will ask the attorney general to appeal the judge’s decision.

Takayama said, “While we are disappointed with the outcome of the hearing today, we owe it to the community to continue to apply the law to those in the vacation rental business to ensure they are paying their fair share of taxes.”

“We continue to hope that Airbnb and others would voluntarily assist our efforts,” she said.

Airbnb released this statement following the hearing: “We’re pleased the court has recognized the state’s request would have amounted to an unjustified, massive intrusion of our host community’s private data. In Hawaii, Airbnb has made repeated attempts to work with state and local leaders to collect and remit taxes on behalf of our hosts, and we remain willing to do so.”

During the hearing, state Deputy Attorney General Kristen Sakamoto told the judge that Airbnb had refused the state’s offer to confer about the breadth of the request and provide a counterproposal if it thought 16,000 hosts was too broad.

“The point of the subpoena was to identify hosts who are not registered (with the Tax Department) and have not filed returns,” Sakamoto said.

In a court filing, the state said Airbnb had admitted that its users were not paying state taxes during its previous legislative attempts in support of a bill that would have allowed Airbnb to serve as tax collectors and remit taxes for its hosts.

“There would be no need for such a bill if its hosts were compliant with tax laws,” Sakamoto said, adding that Airbnb had argued that if such a bill were adopted, it would have resulted in $41 million of new tax revenue to the state.

Vacation rental units statewide last year grew just over 3 percent to 13,082 units. That’s more than 16 percent of all the supply of visitor lodging in the state, making them the study’s second-largest visitor accommodation category after hotels, which posted a more than 3 percent drop in unit counts between 2017 and 2018.

A Hawaii Tourism Authority study identified 30,139 individual vacation units were being advertised in Hawaii on four booking sites: Airbnb, HomeAway, TripAdvisor and VRBO.

Airbnb said it had 16,000 hosts in Hawaii operating from 2008 to now.

Airbnb maintains that Expedia, which offers vacation rental bookings and also operates VRBO and HomeAway, has the largest footprint of any Hawaii shared-economy hosting platform.

The judge’s decision also comes as county governments statewide struggle to ensure that owners of transient vacation rentals are operating according to zoning code and are assessed their fair amount of real property taxes.

There’s a wide discrepancy between what hosting platforms are advertising and what is authorized under city zoning laws.

HTA reports 9,495 transient vacation rental units were advertised on Oahu last year on Airbnb, Home­Away, TripAdvisor and VRBO. However, city records show only 770 transient vacation units and 38 bed-and-breakfast homes currently possess the required certificate.

But don’t look for the city to take Airbnb to court anytime soon. Kathy Sokugawa, acting director of Oahu’s Department of Planning and Permitting, said, “Subpoenas are probably not the best or first-choice process for us. We are looking at monitoring and regulating the short-term rentals (not in resort districts) through an annual permit process and regulating advertising. We have introduced bills that are before the City Council that would address these issues.”