Gov. David Ige says he will veto Senate vacation rental collection bill

Gov. David Ige announced Monday that he will veto a controversial vacation rental tax collection bill, while Honolulu Mayor Kirk Caldwell is expected to sign into law today an Oahu-only bill designed to make it tougher for those operating outside the law to continue.

Senate Bill 1292 requires vacation rental platforms such as Airbnb and Expedia to collect taxes from transient rental operators on behalf of the state. Supporters of the bill argue that it could pump as much as $46 million into state coffers annually by way of transient accommodations and general excise taxes.

But opponents say having the hosting platforms collect the taxes provides a shield that would make it more difficult for Honolulu and the other counties to collect information about the vacation rental operators they want to regulate.

Ige, at a news conference, said that while the Senate bill might make tax collection more efficient, “we want to make sure there are no adverse unintended consequences that were not fully contemplated when the Legislature took action on Senate Bill 1292.”

The bill is one of 20 Ige placed on his “intent to veto” list as required by state law. He is not required to veto the bills, only notify the Legislature of those he is considering rejecting. Any measure the governor has not taken action on by July 9 becomes law without his signature.

But when he was asked whether there were any bills among the 20 that he was sure to veto, Ige immediately said Senate Bill 1292.

“The state’s taxation of transient accommodations through the hosting platforms should complement the counties’ regulations of transient accommodations,” Ige said.

He noted that Caldwell has given strong indications he will sign City Council Bill 89 (2018), which imposes stiffer penalties on operators of illegal vacation rentals while giving the Department of Planning and Permitting more tools to go after violators. The bill also permits an estimated 1,699 vacation rentals across the island.

The Council passed Bill 89 by a 9-0 vote.

“Certainly, we want to make sure that any action taken at the state level does not interfere with the action taken in the recent passage of Bill 89,” Ige said. “Our concern is that any action that we take be complementary of actions that would be taken at the county level.”

The office of Attorney General Clare Connors issued a memo to the Senate last week stating that even illegal businesses must pay taxes but that doing so does not by itself make them legal. The memo also said the legislation would not bar the counties from enforcing its laws against vacation rental operators.

Caldwell and City Councilman Ron Menor urged Ige to veto the Senate bill, arguing that it did not include specific language allowing the counties to receive information about the vacation rental operations obtained by the state Department of Taxation that would assist them in enforcement.

Ige said the veto gives the state and stakeholders the opportunity to craft a stronger bill that works in unison with the city legislation.

“I think knowing that the City Council is going to create a registration process for the (transient vacation units) … allows us to craft a proposal that specifically acknowledges that and allows us to incorporate that into our tax collection efforts,” Ige said.

In the Legislature all but one House member supported the bill, while the Senate vote was a narrow 13-12 in favor. The traditional hotel-resort industry pressed against the bill, as did hotel workers union Unite Here Local 5 and homeowners frustrated by the proliferation of vacation rentals. Airbnb, meanwhile, spent $75,598 on lobbying from Jan. 1 to April 30.

Mufi Hannemann, president and CEO of the Hawai‘i Lodging and Tourism Association, said the tourism industry “stands ready to assist to ensure that there’s a level playing field, that everyone engaging in the lodging business will pay their fair share of taxes, and that our local residents will be able to have more affordable housing opportunities in their neighborhoods.”

Phillip Minardi, a policy communications official for the Expedia Group, said it supports components of the bill, including tax collection and remittance. However, he said, “we remain opposed to the requirement to submit the confidential information of our customers to the state as it is inconsistent with federal law.”

Expedia is hopeful the veto will give the company “an opportunity to come together and work with the Governor and state legislators to develop holistic policies that can be enforced while upholding the law to protect our customers,” Minardi said.

Shane Peters, a local Airbnb representative, said the company is still hopeful Ige will sign the bill.

“SB 1292 preserves the right of county governments to establish and enforce short-term rental regulations while delivering an estimated $46 million annually for vital state serv­ices,” Peters said. “State leaders passed this law to require vacation rental platforms to collect taxes so Hawaii can receive this much-needed revenue. We hope the governor will exercise leadership on this issue and let it pass into law.”