We have written two reports (here is the original and the follow up) on the passing of Bill SB 2089 in Hawaii. This bill is designed to enforce proper taxing of vacation home rentals through a mandatory representation through a local vacation rental manager. The idea behind the legislation was to help Hawaii collect on taxes that had been avoided by homeowners who rented out their homes on the island, yet did not pay the due taxes. Hawaii relies heavily on tourism, but with that tourism, comes increased traffic on the islands infrastructure and land. The taxes are designed to help the island pay its employees to maintain all of the areas that people love. We have seen similar cases in areas like Colorado where large VRBO sites have allowed room for people to dodge tax payments.
Hawaii attempted passing this legislation but met heavy opposition already, as homeowner’s who have been reliably paying their taxes see this as an unconstitutional expense. Is it too much to legally require an out of state owner to have on island representation? Most, if not all of the opposition, has come from the good apples of the group but as the saying goes, one bad apple spoils the bunch. Is it fair of Hawaii to attempt to regain some of the ground lost on missed excise and transient accommodation taxes?
Photo by Madmarv00
After facing such heavy opposition, Hawaiian lawmakers added an amendment, SB 2089 SD1 which now allows the exclusion of homeowners who “obtain an annual tax clearance and submit, along with the federal tax form 990, to the Real Estate Commission will be exempt from the mandatory employment of a licensed real estate broker or salesperson or a condominium hotel operator proposed by this measure”. Despite this, many home owners still feel as though the legislation is too harsh.
At the same time, HB 1706 is moving through the house and it “requires owners of residential units who reside on a different island than the unit or out-of-state to provide the managing agent or resident manager of the condominium project with contact information of a rental agent located in the State who is responsible for the management of the unit”. Tom Hagen, president of South Kohala Management Corp had written
"The largest website for owner rentals is VRBO and there has been little, if any enforcement, on the tax collections. Not only is this situation allowing thousands of people to avoid their tax obligation it is also undercutting the revenues of the hard-working Hawaii property managers who are paying the wages and taxes due on their employees. People will continue to get away with this until new laws are put in place to protect the State's tax revenues and the local management [sic] companies."
All of this legislation is going to change how things work on the Island. Homeowners will be forced to hire on-island managers to fit this bill and it may change the structure of VRBO significantly. We want to know what you think on the matter, and if you can come up with a better way for Hawaii to collect the owed taxes. Post your comments or opinions below.