Editorial: Veto ‘Airbnb bill,’ but not REITs one

Nearly eight weeks after the Legislature adjourned, Gov. David Ige is flagging 20 of nearly 300 bills as veto candidates.

Among the most deserving of the axe is Senate Bill 1292, which would authorize vacation rental platforms, such as Airbnb, to collect taxes from hosts. But it would also shield the home-sharing industry from accountability for doing business with illegal operators by allowing information collected — including names and addresses of proprietors — to be kept confidential.

While supporters have argued that the legislation could pump as much as $46 million into state coffers annually, the confidentiality provision should be an obvious deal-breaker as business transparency is key to weeding out thousands of illegal operations in the islands.

With the state levying taxes — transient accommodations and general excise — and the counties handling the issuing permits and enforcement matters, the two must work in tandem in a long-overdue effort to wrestle control over this Wild West industry.

On Monday, when the veto list was announced, Ige rightly noted: “While the taxation of illegal transient accommodation uses would not legalize these operations, there is concern that the collection of taxes … could be viewed as legitimizing these operations.”

Another tax measure, Senate Bill 301, which would impose the state’s corporate income tax on REITs (real estate investment trusts) should be spared veto.

The federal REIT framework allows small investors to buy into large developments such as retail centers — including Ala Moana Center and the International Market Place — as well as office buildings and resorts. But unlike other businesses, REITs are effectively exempt from state income tax.

Instead, shareholders pay the income taxes in the states in which they live. In Hawaii’s case, we have more REITs per capita than any other state, and a vast majority of the shareholders live elsewhere.

Siding with the bill’s opponents, who are pushing hard for a veto, Ige reasoned that this taxation “could potentially stifle economic development and scare away investment capital.” Ige should reconsider this stance.

Together, scores of REITs own property in the islands with an estimated total value of $18 billion that earns an estimated $1 billion in profits annually. SB 301’s supporters persuasively argue that Hawaii taxpayers are essentially subsidizing the costs of government services that support properties owned by these trusts. And that’s plain unfair.

Also worthy of the governor’s signature — rather than veto — is House Bill 748, which would ban state law enforcement officials from seizing and forfeiting assets in connection with alleged criminal activity unless there’s a felony conviction.

In opposing this bill, Ige described the civil asset forfeiture practice as critical to preventing the “economic benefits of committing a crime from outweighing consequential criminal penalties.” Further, he asserted that safeguards are in place to prevent abuses.

But there’s good reason to believe that they’re too lax. For instance, a June 2018 state audit found that in 26 percent of civil asset forfeiture cases in fiscal year 2015, property was seized but corresponding criminal charges were never filed.

The bill also would also change the distribution of forfeiture proceeds from the state and local law enforcement agencies to the state general fund. Such a switch could effectively curb potential for self-interested, overzealous seizure.

Among the bills that did not make the veto list, and are thereby slated to become law on July 9 with or without Ige’s signature, is House Bill 1383, which scraps criminal penalty for possession of a small amount of cannabis — three grams or less. Instead, offenders will be fined no more than $130.

The new law also will allow previous convictions for such small amounts of marijuana possession to be erased. Currently, possession of any amount of pot is a petty misdemeanor punishable by up to 30 days in prison as well as a possible $1,000 fine. Amid a growing list of states legalizing medical and recreational use, HB 1383 correctly shifts the focus to keeping drug dealers — rather than petty-scale offenders — behind bars.