Council approves B&B property tax increase

Owners of bed-and- breakfast vacation rentals will likely pay more in property taxes starting next year after the Honolulu City Council on Wednesday approved a bill creating a new B&B tax category.

The exception would be those B&B operators who were legally permitted to do business under a nonconforming use certificate program that ended in 1989. Those operators would continue to pay at the same tax category rate they pay now. Most are in the single-family homeowner category.

Owners of transient vacation units (TVUs) with existing permits also would continue to pay at the residential rate under the version of Bill 55 approved Wednesday. A previous version of the measure would have placed TVUs in the hotel-resort class, which carries a much higher rate.

A number of TVU operators raised strong objections to the notion of being taxed at the same rate as hotel and resort owners, estimating their property taxes would shoot up by more than three times.

“What this (approved version of the bill) does is it allows all holders of nonconforming use certificates that were issued roughly 30 years ago to continue operating as they have all these years with no changes,” Council Chairman Ikaika Anderson said.

While several permitted B&B operators voiced appreciation, Helena Von Sydow said she continues to oppose the bill because it still forces TVU operators to be taxed on use rather than zoning, as the property tax system was set up to be. “A TVU is going to be taxed as a resort even though it’s not in a resort area,” she said. “It doesn’t make any sense.”

Martine Aceves-Foster said she used to operate a B&B but stopped doing so after the Council approved sweeping vacation rental regulations last year that made it more difficult to operate.

“So now it is difficult financially for me to get by,” she said. “Bill 55 will hurt locals who are just trying to scrape by. By raising property taxes for those Hawaii residents who rent one or two bedrooms out of their own homes, as is proposed in Bill 55, real estate on such a small scale becomes unaffordable, unsustainable.”

The measure does not set the tax rate, which is done in June each year by the Council. Currently, those in the homeowner (owner-occupied) classification pay at a rate of $3.50 for every $1,000 of value assessed by the city’s Real Property Assessment Division. Those in the hotel- resort class pay at a rate of $13.90 per $1,000.

The rate for the B&B class would likely fall somewhere in between.

The bill now goes to the desk of Mayor Kirk Caldwell, whose administration sought the creation of the new B&B class. At previous meetings, administration officials said removing TVUs from the hotel-resort class as originally proposed would cost the city about $5 million in additional revenue.

In Hawaii, short-term vacation rentals are any units rented for less than 30 days. B&Bs are vacation rentals that are “hosted” because the owner or manager stays on-site while guests occupy a portion of the property. TVUs are vacation rentals of the “whole home” variety where a guest rents the entire property without an owner or manager present.

Both types of operations are not currently allowed on residential property on Oahu unless previously permitted, but a new city ordinance requires the Department of Planning and Permitting to issue permits for about 2,000 new B&Bs — but no new TVUs — beginning in October.