In the end, the fate of the vacation rental bill this year may come down to the money.
Certainly it was money that helped win passage of the controversial bill to authorize vacation rental platforms such as Airbnb to collect taxes on behalf of the state. That measure, Senate Bill 1292, would generate an estimated $46 million in extra tax collections next year, and key lawmakers said they need that cash to pay the bills.
Now an unexpected surge in state tax collections may help sink the measure.
In the arm twisting in the closing days of the legislative session this spring, Senate Ways and Means Chairman Donovan Dela Cruz warned his colleagues that appropriations for everything from research into rapid ohia death to housing vouchers for the poor might die if SB 1292 failed to pass.
Without that extra tax money from vacation rentals, plans for voting by mail might fail, he said. So would burial grants for Filipino war veterans, funding for a state plan for industrial hemp farming, funding for suicide prevention, funding for “Ohana zones” for the homeless, and
extra funding for University of Hawaii athletic programs.
The Senate finally approved the vacation rental bill in an extremely rare 13-12 vote, and it now sits on Gov. David Ige’s desk. But while Ige has been mulling whether he should sign or veto the measure, the money picture has shifted.
Lawmakers didn’t know it when they were voting, but state tax collections accelerated significantly in April and are now on track to deposit about $180 million more in the state treasury this fiscal year than anyone
To the passionate opponents of SB 1292, that new and cheery tax collection data is a game changer.
“We were told at the end of session we had to pass that bill because the budget depended on it, and obviously now it no longer does,” said state Sen. Laura Thielen, who has been an outspoken opponent of the bill. The claim that the state urgently needed the extra taxes vacation rentals could provide was critical during the Senate voting, she said.
“But for that argument, the bill would not have passed,” said Thielen, (D, Hawaii Kai-
Waimanalo-Kailua). “So I think we need to take a look at it just purely from is this a good policy for the state to pass, to allow these platforms to act as a shield for unpermitted and illegal operations?”
Ige isn’t saying what he plans to do with SB 1292, but the measure is very similar to a bill he vetoed in 2016, and the uptick in state tax collections could nudge him toward another veto.
In his veto message in 2016, Ige said the vacation rental bill that year would have shielded property owners who illegally operate vacation rentals in residential neighborhoods where the city and counties do not allow them.
The 2016 bill would have authorized online platforms to collect state taxes on those illegal operations without revealing the locations of the rentals to the counties. The bill also would have aggravated the statewide shortage of affordable long-term rentals by encouraging more property owners to enter the vacation rental market, Ige said at the time.
He echoed some of those concerns earlier this month in an interview on Hawaii Public Radio.
“I do hear it more and more in our community that they’re concerned about vacation rentals,” he said. “It has permeated virtually every community across the state, and we need to do a better job of collecting taxes owed as well as helping counties to regulate vacation rentals, and so I’ll be looking at the measure with that lens and trying to make sure that we can do a better job of collecting taxes and making sure that they comply with county regulations.”
Ige said through a spokeswoman Friday that he is still awaiting a review of SB 1292 by his staff, but the bill would again authorize online vacation rental platforms such as Airbnb, HomeAway, TripAdvisor and VRBO to collect taxes for the state without disclosing to the counties the names of vacation rental owners or the locations of the rentals.
House Tourism and International Affairs Committee Chairman Richard Onishi, who was the lead negotiator for the House on the vacation rental bills, said SB 1292 is “long past due.”
“We always need tax revenue. The more taxes we collect, the more that can be done,” Onishi said. “When you’re looking at a particular source of revenue, I think you’ve got to look at the long picture, not just the short picture.”
That said, “I don’t think the whole issue is just revenue,” Onishi said. “The issue is whether or not these people are doing business in
Hawaii, and whether or not they should be paying taxes. Collecting from the platforms is a way to hold everybody accountable.
“This is more than just revenue. This is people who are doing business in Hawaii should be paying their taxes equally,” he said.
Airbnb, meanwhile, continues to stress the opportunities for the state to collect more tax dollars. Last month the company said in a letter to Ige that if it had been authorized to collect excise and hotel room taxes for the state last year, it would have funneled $64 million in tax revenue to the state.
However, it isn’t clear how much of that $64 million is already being paid. Many vacation rental operators say they already file and pay state taxes on their own without the involvement of the vacation rental platforms.
Matt Middlebrook, Airbnb Hawaii public policy director, acknowledged in a written statement that Ige did veto a bill similar to SB 1292 in 2016 in part because of concerns about properties that don’t comply with city and county restrictions on vacation rentals.
“Given recent steps by all four counties to address short-term rental enforcement, it makes sense to finally pass a law that helps the state capture this much-needed tax revenue from the industry,” Middlebrook said in his statement.
While Maui and Kauai have moved to crack down on illegal vacation rentals, the Honolulu City Council deferred action May 8 on bills that were supposed
to address the problem of
illegal rentals. The Council is expected to take up the issue again later this month.
The city Department of Planning and Permitting estimates there are 816 legal
vacation units outside of resort zones but between 6,000 and 8,000 illegal units on Oahu.