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After years of wrestling with how to handle the Wild West proliferation of vacation rentals here, the state, which levies the taxes, and Honolulu, which administers zoning and permits, are moving forward with encouraging transparency- focused tactics.
A Circuit Court judge ruled this week that Hawaii may subpoena Airbnb for records of its hosts as the state investigates whether vacation rental operators have been paying their taxes. The securing of subpoena authority likely sets a foundation for similar enforcement action with other online vacation rental platforms, like Expedia and HomeAway.
The ruling clears a path for the state to collect from tax scofflaws, and serves as welcome — and long overdue — opportunity to help pinpoint illegal operations. Prior to Honolulu’s recent crackdown by way of Ordinance 19-89, it was estimated that in addition to a legal inventory totaling about 800 rentals, there were 10 times as many illegal operations.
Statewide, in recent years, the annual visitor arrival count has increased from 7 million to nearly 10 million — yet demand for traditional lodging units — hotels, condominium hotels and timeshare resorts — has remained steady, rather than spiking. Plainly, more visitors have been opting for home-sharing vacation rentals, which are often less expensive but intrude into residential neighborhoods.
For several years, here and in other visitor-magnet areas, profit-minded online platforms have often balked at calls for more online transparency and policing — asserting that federal law shields web providers from liability for third-party content on their sites. Recent court challenges are disputing the scope of that protection.
Airbnb had previously proposed to serve as a Hawaii tax collection agent — with strings attached. Earlier this year, Gov. David Ige rightly vetoed a bill passed by state lawmakers to allow vacation rental platforms to collect taxes from hosts. It also would have protected platforms from accountability for doing business with illegal operators by allowing host information, including names and addresses, to be kept confidential.
Bill supporters had argued that the legislation could pump more than $45 million into state coffers annually — but such confidentiality was a deal-breaker. Increased transparency is key to eliminating the industry’s underground presence in the islands.
In tandem with this week’s subpoena ruling, the court approved an agreement between Airbnb and the state Department of Taxation through which the company will provide the state with records of its top 1,000 revenue-generating Hawaii hosts from 2016 through 2018. That’s a step in the right direction.
In a more tentative step, the agreement directs Airbnb to provide data — but withhold identities — for all other hosts who had more than $2,000 in annual revenue during those years. In those cases, the state can request individual records for hosts. However, if a host files a legal challenge, the data will be withheld until the case is resolved.
Meanwhile, enforcement of tougher Honolulu City and County regulations, which took effect in August, appears to have some illegal operators thinking twice — and that’s good. According to a new Hawaii Tourism Authority report, Oahu’s advertised inventory of available vacation rental units dropped by 19% in recent months.
Under the new Oahu ordinance, online ads that lack city-issued certification information can be flagged for stiff fines — and they should be — although there’s no fine for a first offense if the ad is removed in seven days. The city has so far issued just over 165 notices of ad violations.
Both the city and state must remain steadfast. Government is on track to get its due tax revenue, while shutting down illegal vacation rentals that flout land-use laws and disrupt neighborhoods.
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