Editorial: Taking action on vacation rentals

The first signs of an altered landscape for vacation rentals in Hawaii is visible now, with the state making a renewed push for data in a well-justified bid to collect unpaid taxes from these businesses.

Owners of rentals that are tax-delinquent or altogether illegal under county zoning codes need to acknowledge those signs and, if they want to continue renting, change to a legal business model. Ideally, many would opt to put units on the local long-term rental market, in which the housing shortage is dire.

The state Department of Taxation is seeking the data through a requested subpoena of records from the online rental advertising and booking platform, Airbnb. The petition is the second one filed with state Circuit Court to get an administrative subpoena served on the company for booking records on Hawaii rentals, from 2016 to the present.

The first petition, filed last August, was denied in February by Circuit Judge James Ashford, who found that the state did not show a reasonable basis for its belief that Airbnb hosts were not paying their taxes, or that the data being sought was unavailable from another source.

The state now appears to have made a more persuasive argument this time, having hired a consultant to do preparatory investigative work. Any rental “host” is accountable for the state’s general excise tax as well as the transient accommodations tax (TAT) on the bookings, and the investigation showed many lacked a GET license or a TAT account.

The results presented to the court also include an estimated rate of 76% of the lodging hosts being delinquent with tax returns and a count of about 70.4% of the Hawaii listings on Airbnb lacking required tax identification numbers.

Airbnb has in cases elsewhere cited the federal Stored Communications Act as precluding the disclosure of information to a government entity; a court order to serve a subpoena would be an exception to that statutory prohibition.

This petition targets data more narrowly, said department Director Linda Chu Takayama. Information sought would include name, Social Security or employer identification number, tax license and registration numbers, physical address of the accommodation and gross income by year, from Jan. 1, 2016, to the date the subpoena would be issued.

But the department would not seek information on hosts to whom Airbnb issued a Form 1099-K for any tax year between 2013 and 2017, because DoTAX would have access to those filings. Also, it is excluding data on those who did include the required tax ID numbers on their Airbnb listings.

The court is due to hear the matter Aug. 21. There should be enough basis for granting the subpoena.

And starting Aug. 1, the City and County of Honolulu is bound by the enactment of Bill 89 to begin enforcing a ban on advertising illegal short-term rentals.

The city Department of Planning and Permitting must take an aggressive approach to issuing citations and assessing the stiff fines; there is no fine for a first offense if the ad is removed in seven days. That is a fair grace period.

But beyond that, daily fines ranging from $1,000 to $10,000 can and should be collected. It should be established from the start that the city is serious about reclaiming control of land use. The proliferation of vacation rentals has made a mockery of zoning rules.

Now with both city and state officials cracking down, the prudent homeowner should keep things legal and review the rules for registering a hosted bed-and-breakfast, starting Oct. 1, 2020 (honoluludpp.org/Portals/0/pdfs/planning/ShortTermRental_FAQ.pdf).

Bringing order to the Wild West of vacation rentals must start now.