State Senate might allow vacation rental platforms to collect taxes

In the face of intense lobbying by the hotel industry, the state Senate signaled Thursday night it might once again approve a bill to authorize vacation rental platforms such as Airbnb and Expedia to collect taxes on behalf of the state.

That measure and others like it have been condemned by critics including Gov. David Ige for providing cover for illegal vacation rentals that have spread across Oahu neighborhoods, but some senators hope to use the $46 million that could be collected from the vacation rentals to help pay for initiatives as basic as hospital subsidies on Maui.

In an 18-7 vote that signaled deep divisions on the issue, the Senate voted Thursday night to agree to a House version of Senate Bill 1292 that would allow vacation rental platforms to collect taxes for the state without identifying the locations or owners of the rental properties to the counties.

Ige vetoed a similar vacation rental tax bill in 2016, saying that approach would shield property owners who illegally operate vacation rentals in residential neighborhoods where the city and counties do not allow them. Ige also said the bill would have aggravated the statewide shortage of affordable long-term rentals by encouraging more property owners to jump into the vacation rental market.

The hotel industry has strongly objected to the spread of illegal vacation rental units that do not comply with county zoning and other requirements — as the hotels must do — and also protests that the illegal rentals frequently do not pay their state excise and hotel room taxes.

News of the pending Senate action triggered intense lobbying at the state Capitol on Thursday by the American Hotel and Lodging Association and the hospitality workers union Unite HERE Local 5 in an effort to block the measure. Lawmakers also reported receiving a deluge of emails from opponents of the bill.

Kekoa McClellan, Hawaii spokesman for the association, said in an interview that the bill “is appalling. This is exactly what Airbnb has wanted for years. This bill will create a special treatment for hosting platforms and will allow them hide the illicit activity of these illegal hotels that are ruining our neighborhoods.”

State Sen. Laura Thielen (D, Hawaii Kai-Waimanalo- Kailua) said passing SB 1292 would lead to an increase in illegal operators statewide.

“Do we want to be known as a Legislature that’s just going to make a tax grab and act as a shield for illegal vacation rentals to continue to proliferate and take over neighborhood after neighborhood?” she asked her colleagues during the Senate floor debate.

“Or do we want to be a Legislature that changes the narrative, says we want to do both — making sure that vacation rentals are paying their fair share of the taxes that are due, and we want to make sure that the counties have the ability to regulate the operations within their communities in a manner that works for them,” she said.

Sen. Gil Riviere (D, Heeia- Laie-Waialua) said illegal vacation rentals are destroying communities. “There is no question what side to be on if you are looking to serve the people,” he said. “We are now coveting taxes on illegal activity. That’s wrong.”

Eleven senators voted yes “with reservations” on SB 1292, a sign that many might switch their votes when the measure comes up for a final vote in the Senate today or next week.

House Tourism and International Affairs Chairman Richard Onishi, the architect of the bill, said state tax officials and the Attorney General’s Office have worked with lawmakers on the measure and that he is “hopeful” Ige will not veto the bill. “It has been, over the course of the session, vetted through the governor’s office,” he said.

The bill would require vacation rental platforms to collect taxes on behalf of the state, and the platforms such as Airbnb would be required to disclose to the state Department of Taxation the address of each rental, the rental operators’ names and other information. However, the state would not share that information with the counties.

“We don’t believe that that’s necessary for the counties as they move forward because they’re doing their own registration and permitting systems, so they’ll have a handle on what is legitimate,” Onishi said.

Meanwhile the vacation rental platforms have raised their own objections to the bill. A spokeswoman for Expedia said recently that the company cannot disclose the identities or other information about its clients even to state tax officials because that is prohibited under the federal Stored Communications Act.

A Hawaii Tourism Authority study identified more than 30,000 vacation units statewide that were being advertised in Hawaii on the Airbnb, HomeAway, TripAdvisor and VRBO booking platforms, and Airbnb has publicly admitted not all of its clients pay state taxes.