Mayor Kirk Caldwell over the weekend signed into law a bill creating a new property tax classification for those Oahu properties where bed-and-breakfast establishments operate.

The bill also places transient vacation units into the existing hotel-resort category.

B&Bs, also known as “hosted” vacation rentals, are defined as rentals of less than 30 days where an owner or operator is present. TVUs, also known as “unhosted” or “whole home” vacation rentals, are defined as rentals of less than 30 days where an owner or operator is not present.

Vacation rentals are disallowed on properties zoned for residential use unless specifically permitted by the city. No new permits have been issued by the city since 1989, but up to 1,700 new rentals islandwide will be allowed by permits to be issued by the Department of Planning and Permitting next fall.

While no new permits have been allowed since 1989, thousands of illegal vacation rentals have sprouted across the island. In response and after a number of failed attempts over the years, the Council passed a new, comprehensive ordinance that took effect earlier this year that allows for the new rentals but also cracks down on illegal ones.

“This bill carries out the next phase of the city’s ordinance that is successfully clamping fown on illegal short-term vacation rentals,” Caldwell said in a press release. “This next phase allows 1,700 hosted short-term vacation rental units to be registered and permitted starting in October 2020.”

Tax rates are determined each June by the City Council. It’s presumed that under Bill 55, the measure Caldwell just signed, the B&B tax rate will be higher than the $3.50 per $1,000 of assessed value that the owner of a B&B property in the residential zone would now have to pay. TVUs, meanwhile, would need to pay the hotel-resort tax rate, currently $13.90 per $1,000 of value.

“It’s only fair that owners who operate their homes as short-term vacation rentals pay a higher real property tax rate than the residential category of $3.50 for every $1,000 of value,” Caldwell said. “We must not forget that those who are offering their homes as short-term vacation rentals are operating a business in our residential neighborhoods.”

Those vacation rentals permitted up to 1989 are exempt from the new law and will continue to pay at the residential rate.