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

Vacation rental supporters say it’s just the latest example of the city going after folks just trying to get by financially.

Bill 55, which was approved by the City Council earlier this month, also places transient vacation units, or TVUs, into the existing hotel-resort category.

The new law all but ensures that most of the island’s short-term rentals will be taxed at a rate higher than $3.50 per $1,000 of assessed value, which is the current rate for owner-occupied residential properties.

Tax rates are determined each June by the City Council but it’s presumed that under the new law, the B&B tax rate will be higher than the $3.50 per $1,000. TVUs, meanwhile, would fall under 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.”

Vacation rental units permitted before 1989 are exempt from the new law and will continue to pay at the residential rate.

B&Bs, also known as “hosted” vacation rentals, are defined as rentals of less than 30 days where an owner or operator is present during the stay. 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 not allowed on properties zoned for residential use unless specifically permitted by the city. No permits have been issued since 1989, but up to 1,700 new rentals islandwide will be allowed under permits to be issued through the Department of Planning and Permitting next fall.

While no new permits have been allowed for 30 years, thousands of illegal vacation rentals have sprouted across the island. 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 down 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.”

Proponents of vacation rentals sent letters opposing the bill as it went through the Council.

Kailua businessman Will Page, who owns a business that’s benefited from short-term vacation rentals, said the discussion before the vote on Bill 55 was confusing because several last-minute drafts were offered, making it difficult for the public to follow along. Meanwhile, Council members ignored the testimony that was predominantly against the bill and appeared to have made up their minds in advance, he said.

Creating a new tax class and the vacation rental ordinance are killing an industry, Page said. “They haven’t even figured out how they’re going to allow people (to apply for a B&B permit starting in October) and they’ve basically set it up shutting down a whole industry and now they’re talking about how they’re going to tax people on it,” he said. “The whole handling of this thing has been totally distasteful, it’s been a sham.”

Major cities including New York, Los Angeles, Chicago, San Francisco, Boston and Seattle all have vacation rental laws that allow residential owner-occupants to operate hosted short-term rentals without discretionary approvals. While some may require registration, “it’s like registering a bike,” he said.

Ann Otteman, a member of the Oahu Short-Term Rental Alliance, said not allowing permits for whole-home rentals is having a huge impact on the industry.

Vacation rental operators from other island are beginning to poach customers that otherwise would have spent the dollars on Oahu, said Otteman, who runs a property management company.

“It doesn’t seem like they’re thinking about what this does economically, it seems like they’re just thinking about preserving hotels and it’s not very forward thinking,” Otteman said. “Already, two of my properties have gone under. It doesn’t make sense to cut out a viable business option for people who live on Oahu.”

Larry Bartlett, executive director of the Save Oahu’s Neighborhoods group that has consistently opposed short-term vacation rentals in residential neighborhoods, said his group did not take a position on creating a new B&B tax class because its members could not come to a consensus.

Personally, Barlett said, he opposed creating a new tax class because he’s worried getting into the tax class may provide vacation rental operators a step toward legitimacy and could lead to more of them arguing that they should be considered legal.