In the debate on how to put right sketchy operations of online home-sharing platforms in Hawaii, transparency is key to a viable solution.
A year ago, it came as a relief when Gov. David Ige rejected a proposal hashed out behind closed doors to authorize Airbnb to collect vacation-rental taxes on behalf of the state. The debate then moved back to where it belongs, in a public setting, among state and county lawmakers.
Unfortunately, last year’s legislative session — and those for the three preceding years — wrapped with House and Senate negotiators at odds on strategy. As this year’s Legislature again picks up the puzzle, part of the debate hinges on how to pinpoint illegal vacation rentals.
In Honolulu, it’s painfully clear that the inventory of illegals has multiplied as weak city law and enforcement are outmatched by strong demand — spurred by Airbnb and other advertising platforms that are not currently required to vet the legality of a Hawaii home-sharing operation.
As bills to set up reporting requirements for third-party rental tax collection agents such as Airbnb are being considered at the state Capitol, a dispute over tax law is unfolding in court.
Last week, Circuit Judge James Ashford denied the state’s subpoena move to compel Airbnb to hand over a decade of vacation rental receipts from online bookings. The state had sought the records as part of its investigation into whether the company’s hosts — vacation rental property owners — are paying transient accommodation and general excise taxes.
Ashford ruled that the state’s request failed to 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. The state’s Taxation Department rightly plans to ask the attorney general to appeal the judge’s decision.
Contrary to the ruling, it’s hard to believe that the bulk of hosts are paying their taxes. On Oahu, the problem dates back to the late 1980s, when the City Council banned new bed-and-breakfast (B&B) operations and limited additional unhosted transient vacation units (TVUs) to hotel-resort zones. The current legal count is about 800. Data sleuthing gauges the illegal tally at between 8,000 and 10,000 units.
The state needs the court’s permission to serve the subpoena because its investigation is targeting a group of taxpayers and not specific individuals. Based on that, Airbnb compared the state’s move to a fish-expedition tactic, going door-to-door in search of people violating the law — something that is unconstitutional.
The home-sharing industry, though, seems to carve a fuzzy line between private property rights and commercial operation.
Common sense tells us that if online brokers want to operate in Hawaii, they should disclose to government basic identification of their host clients. With ID at the ready, county agencies could verify whether operations are legal and handle enforcement. Without such transparency the ongoing underground problem will continue to fester.
A recent Hawaii Tourism Authority study identified upwards of 30,000 individual vacation units advertised in Hawaii on four booking sites: Airbnb, HomeAway, TripAdvisor and VRBO.
Airbnb, which has said it had 16,000 hosts statewide operating from 2008 to now, is in our spotlight, in part, because it has offered to collect and remit taxes through a “voluntary agreement” similar to what it has with various other jurisdictions.
Through that offer — pitched to Ige in 2017 — the state would have had access to information allowing it to audit tax dollars Airbnb remits to confirm accuracy. Among the snags: The deal would not have allowed the state to share with counties any property-identifying data. That’s a nonviable condition as somehow state and county agencies need to work in tandem.
Hawaii’s courtroom face-off follows similar disputes between Airbnb and local governments in other states. Among the transparency-focused strategies now making strides in some jurisdictions: requiring a rental registration number on all advertising, including online platforms. In the absence of one, a notice of violation would be issued.
This idea is key in the lineup of an omnibus bill now before the City Council’s Planning Committee. Also among Bill 89’s provisions: Permits would be issued for possibly up to 4,000 B&Bs and TVUs islandwide; illegal operators would be hit with stepped-up penalties starting at $25,000 per day, and technology would be key to enforcement.
The proposal holds much potential to establish accuracy in the generation of tax revenues while addressing valid home-sharing complaints, such as that illegals are contributing to residential street parking headaches, strained residential infrastructure, and the shortage of housing available for long-term local renters.
The reach of online platforms is growing nationwide and around the globe. Industry observers say Airbnb now has 5 million listings on its site, up 25 percent from a year ago. As home-sharing demand appears to be unabated, it’s increasingly critical for the state and counties to take sensible, forceful action to rein in the industry’s presence here.