B&B tax bill up for final vote

The Honolulu City Council on Wednesday is scheduled to take a final vote on a bill establishing how owners of vacation rentals are to be taxed, and three Council members have introduced different floor draft proposals to help ease the burden on those now operating previously permitted “whole home” transient vacation units.

Bill 55 calls for creating a new tax classification for properties where vacation rentals considered bed-and-breakfast establishments are operating. Properties where vacation rentals are identified as transient vacation units would be put into the hotel-resort tax classification.

The bill does not determine exactly how much those operating vacation rentals pay — that’s determined annually by the assessed value derived by the city Real Property Assessment Division multiplied by a rate in each tax classification as determined by the Council each June.

The presumption, however, is that owners in the new B&B class, which is being requested by the Caldwell administration, would pay at a tax rate somewhere between that of the owner-occupied single-family category (currently $3.50 per $1,000 of assessed value) and the hotel-resort class (currently $13.90 per $1,000).

Under Honolulu law it’s illegal to operate a vacation rental unless specifically permitted to do so. Vacation rentals are those residential properties rented for less than a month at a time. City law further separates vacation rentals into B&Bs and TVUs.

B&Bs are vacation rentals “hosted” by a property owner who stays on property at the same time as the guests, who typically rented rooms within a home. TVUs are “whole home” vacation rentals where neither an owner nor operator is on-site and the guests typically rent the whole home.

New permits for vacation rentals have not been issued since 1989. But up to 1,700 new permits for “hosted” bed-and-breakfast operations will begin being issued by the Department of Planning and Permitting in October under the wide-ranging vacation rental ordinance approved by the Council and signed by Mayor Kirk Caldwell in June. No new TVUs will be allowed under the new bill.

City officials want the new tax category in place for the 2020 tax year, and for that to happen, the Council will need to pass Bill 55 Wednesday because city tax officials send out assessed values in mid- December.

Several TVU operators who received permits prior to 1989 raised objections to the bill at last month’s Budget Committee meeting, which led several Council members to promise to ease their burden.

A draft by Councilwoman Heidi Tsuneyoshi would create a new tax class altogether for TVUs. Councilman Ron Menor’s version would create a new tax class but only for those already approved. Others would need to be placed in the hotel-resort category as the bill now prescribes.

A draft by Council Chairman Ikaika Anderson would allow existing TVUs to stay in the residential class but have their owners pay an additional $2,000 in supplemental property taxes. Other TVUs would be taxed at the hotel-resort rate as proposed in the current draft. The bill creates a new B&B tax class that would include all newly designated B&B properties. Those B&B properties that already are permitted would stay in the residential class, but its owners would have to pay an additional $1,000 annually in supplemental property taxes.

Administration officials previously said they are OK with the already permitted B&Bs being allowed to remain in the residential class but want those operating as TVUs to be placed in the hotel class. Of the 808 operators now permitted under the pre-1989 law, 770 operate as TVUs while only 38 are B&Bs. Having the TVUs switched into the hotel category would net the city about $5 million annually in revenue, officials said.