Most vacation rental owners not paying taxes

  • The Kona Islander Inn is a popular vacation rental in Kona. There were 8,647 Big Island units advertised on platforms such as Airbnb and VRBO in 2017, a 16.7 percent increase over 2016, according to the Island of Hawaii Visitors Bureau. In contrast, only 2,037 are registered with the state. (Laura Ruminski/West Hawaii Today)
  • Airbnb shows vacation rentals in the Kailua-Kona area. (Image capture from Airbnb.com/Special to West Hawaii Today)

HILO — Owners of more than 6,000 vacation homes on Hawaii Island are collecting money from short-term renters without registering with the state or paying the required taxes.

That’s according to data compiled by Ross Birch, executive director of the Island of Hawaii Visitors Bureau for a presentation last week to the Hawaii County Council.

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“It’s almost been a free-for-all,” Birch said, “where there is no reason for someone not to put a secondary home or piece of property or speculation purchase into a vacation rental because there is no penalty.”

There were 8,647 Big Island units advertised on platforms such as Airbnb and VRBO in 2017, a 16.7 percent increase over 2016, according to Birch. In contrast, only 2,037 are registered with the state.

The county and the state are working on several measures to get a handle on short-term vacation rentals, an important first step to ensuring those who rent out their homes are paying both transient accommodations and general excise taxes to the state.

The county’s Bill 108 would require existing transient vacation rentals outside of the Vacation District, the General Commercial District or Resort Nodes to apply for a nonconforming use certificate in order to be grandfathered in. Those in the allowed districts would be required to register with the county, but they don’t have to apply to the Planning Department for a nonconforming use permit.

The county bill is on hold until after the Board of Ethics rules on whether North Kona Councilwoman Karen Eoff, one of the co-sponsors, has a conflict of interest because she owns a vacation condo in the Vacation District along Alii Drive. The board next meets March 19.

Matt Middlebrook, Airbnb head of public policy for Hawaii, said he’s met with a few council members as well as Airbnb hosts on the island. Airbnb has not taken a stance on the bill, he said Monday.

“We’re hopeful that county government listens to those members of the community as well, and their concerns are included in any legislation,” Middlebrook said.

In the state Legislature, Senate Bill 2963 would provide a mechanism for transient accommodations brokers such as Airbnb and VRBO to collect taxes on behalf of the state. It’s passed the Senate and is now being considered in the House.

Gov. David Ige in 2016 vetoed a similar, but weaker, bill. The latest bill contains enforcement measures that require the internet booking platforms to verify the legality of a vacation rental before doing business with it.

The bill is supported by hotel and lodging associations and tourism agencies.

Three Hawaii County Council members and the county Planning Department supported the bill in testimony.

“While Hawaii County considers its own efforts to address the impacts of short-term rentals, the proposed (bill) provides another tool for the counties to ensure that our residential communities will remain residential and not become single family resorts, and that real property tax rates will be fair and based on actual use,” said Hilo Councilwoman Sue Lee Loy.

It’s opposed by real estate agents, Airbnb and HomeAway/VBRO, which said in testimony that requiring it to disclose the names and license numbers of rental units without a subpoena is contrary to federal law. Over-regulation could result in a loss of tax revenue to the state, they said.

“Instead of trying to eliminate an essential part of the hospitality industry that is woven into the fabric of our economy, the focus should be on finding balance, to create substantial revenue for the state and counties (to fund affordable housing, public facilities, park maintenance, roads, and the like), and protection for communities that host visitors,” Amanda Pedigo, vice president, Government and Corporate Affairs for Expedia Inc., said in testimony.

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Another bill, House Bill 2605, sponsored by state Rep. Richard Onishi, D-Hilo, and others, would give each county $1 million to set up a registration, property taxation and tracking system for vacation rentals. It’s scheduled to be heard Wednesday by the House Finance Committee.

“We support efforts in Hawaii at the state, and particularly at the county level, to update its laws concerning alternative accommodations in order to adapt to today’s marketplace, while putting in place fair laws that will protect housing stock and neighborhood integrity,” Middlebrook said in testimony.

  1. Bitsy Cavanaugh February 27, 2018 6:51 am

    My vacation rental in Waikoloa Beach Resort is listed on three vacation rental sights. I suspect our one condo is being counted three times.


  2. Buds4All February 27, 2018 9:03 am

    Wonder if the state is smart enough to force the sites to comply with having a HI State Business license or Renter registration and force them to collect the taxes for them? Hello…anyone out there?


  3. wahineilikea February 27, 2018 9:15 am

    Well, of course – what do you expect? I would wager that the 2,000-some that pay taxes are the legal vacation rentals, located in areas zoned properly for vacation rentals. The 6,000-some that don’t pay any taxes are no doubt the illegal vacation rentals – those people are already scofflaws, ignoring our zoning laws, so not paying taxes would be par for the course for them.


    1. PDog February 27, 2018 9:50 am

      Your comments always amuse me so much. I love your use of the word scofflaws. That is a word that needs to come back into regular usage in conversation.


    2. wutzhappn February 27, 2018 1:44 pm

      prove it.


    3. Alex February 27, 2018 4:53 pm

      According to our planning department, there are only about 160 or so B&Bs in our county that are officially approved and pay taxes. Not sure about the other vacation rentals. This is where the current state of affairs is hugely unfair: A bed-and-breakfast is subject to taxes and a whole page of county regulations, from fire codes to licensing, while a absentee house owner simply listing his home on AirBnB is not.


      1. wahineilikea February 27, 2018 5:18 pm

        Mahalo, Alex –that’s another consequence that is rarely discussed. I know of two operators of legal B&B operations who have had to shut down in the past few years because of loss of business due to all the illegal vacation rental activity. These are people who played by all the rules, jumped through all the hoops, only to have their totally legal businesses go under because the county won’t enforce its own laws.


        1. CongressWorksForUs February 27, 2018 5:25 pm

          We’ve sparred before, but it seems here we are in agreement; but lets insist on enforcing those laws before we add new ones that will do nothing if they’re not enforced, and the County’s track record in that regard is pitiful…

          Then again, this is typical politics; talk a lot, pass legislation that people just ignore, and then pretend the problem has gone away…


  4. BustaBeeBee February 27, 2018 9:20 am

    What do they mean by “registered?” I am registered to pay TAT and GET, but my 2 rentals aren’t the ones registered. I also pay higher property tax. ALSO, the tax department would be the ones reporting if people are paying their taxes, not the Visitors Bureau and the tax department isn’t allowed to give out tax payer information. Something smells a little fishy with the report.


  5. BustaBeeBee February 27, 2018 9:24 am

    Also, a quick review of Mr. Birch shows that he has a deep connection with the resorts in Kona…


  6. KonaDude February 27, 2018 9:35 am

    Just charge the people playing by the rules more money, isn’t that how we always do it?


    1. Buds4All February 28, 2018 6:01 am

      Hahahahaha…no kidding. The Stupid ones.


  7. wutzhappn February 27, 2018 10:26 am

    The headline is VERY misleading and the article is confusing. There is a difference between “registration” which is not adequately defined here, and paying taxes. It’s impossible to avoid paying TAT and GE taxes if you have an excise license. Impossible, so I dare anyone to try. You have to classify every cent of gross income on your return. The platforms send out 1099s as well. Anyone trying to escape taxes is playing russian roulette. You can write the state/local taxes off so why wouldn’t you just pay them? It’s easy too, you collect it from the guest, most of whom readily “pony up.” Guests all understand they have to pay taxes on accommodations. I want my guests to pay taxes–they use our parks, roads and Infrastructure.

    Thousands of rentals ARE paying GE/TAT taxes, yet might not “register with the state” in some undefined way. (by the by, registration is not even a law yet!)

    This headline was written by the intern, and the writer herself failed to define “registration,” which then led to a misleading story. Also, these numbers didn’t come from the tax office. That info is confidential. Last I heard they can’t just give out data about who is paying and who isn’t. That this was presented by an alleged hotel lobbyist is also seemingly suspect.

    Oh and let’s not forget the council woman who sponsors a bill that benefits her personally while shutting down the competition. Convenient memory loss in “forgetting” she had a rental condo in the resort zone. Also it supposedly made no money worth disclosing on the council form, even in the high season when the Islander is 100% booked. Must be a dump.

    I wish I could forget and then suddenly remember about real estate I owned.

    Get your own ethics in order before imposing draconian measures on everyone else. Resign, Eoff!!


    1. wahineilikea February 27, 2018 11:40 am

      It’s not very meaningful to conflate Ms. Eoff’s alleged ethics issues with the larger, very serious problem of the proliferation of illegal vacation rentals, She didn’t write the bill, she just agreed to co-sponsor it. Trying to maintain that the bill “benefits her personally” is like saying that a bill designed to create better enforcement of restaurant health violations would “personally benefit” a legislator who happened to own an eating establishment that hadn’t had any health violations.

      Illegal vacation rentals are a huge problem here, and the bill is designed to clarify the existing law and make enforcement more efficient.

      As for the reported conflicting, “memory loss” statements, well, that’s for sure not a mark in her favor, but it certainly doesn’t obviate the need for this important bill.


      1. wutzhappn February 27, 2018 1:43 pm

        unfortunately she lied about her property. she should resign. and her name should be nowhere near any kind of bill that limits the rights of homeowners


        1. wahineilikea February 27, 2018 3:21 pm

          It’s zoning that defines what you can and can’t do with your property – that’s why you can’t open a 7-11 store in a residential neighborhood. This bill isn’t “limiting the right of homeowners – it’s clarifying existing law and making enforcement more effective. Sure, remove Ms. Eoff’s sponsorship from the bill, but move the bill forward with the other sponsor!


          1. wutzhappn February 27, 2018 5:33 pm

            so only the wealthy who can afford to own property in a resort zone are allowed to make money on vacation rentals. The poor and struggling middle class don’t get the same opportunities as the rich. How nice of you.


          2. wahineilikea February 27, 2018 5:42 pm

            It’s not just resort zone that allows vacation rentals; they are allowed in various commercial and multi-use zones as well.

            How can a non-resident investor that owns multiple residential homes (at least two: one to live in and one or more to use as a vacation rental) possibly be characterized as “poor and struggling?”


          3. Buds4All February 28, 2018 6:00 am

            Who are you to define socioeconomic status?


      2. Buds4All February 28, 2018 5:59 am

        Eoff is a Cheating Liar and should resign. If we can not trust her on this issue where else is she lied and mislead us? What other bills has she introduced for her financial gain? It is time she steps down from office. #ImpeachEoffNOW


    2. Alex February 27, 2018 4:41 pm

      Wutzhappen, let’s stay on the issues and let’s not try to shoot the messenger! Karen Eoff has taken a lot of heat over Bill 108 which she didn’t even write. The personal accusations against her make no sense. You must be aware of the current social and political landscape surrounding short term rentals not just in our county but across America. This will get regulated at some point, sooner or later. Why is this so hard to understand for some? We really need to keep our discourse on the issues, lest our communities will become totally irrational and divided. Karen is to be commended; even if you can’t see it right now, she is doing our communities a huge favor by taking on an issue that raises such strong emotions on the part of the people who have money at stake in the debate.


      1. KonaDude February 28, 2018 4:30 am

        “Ahh, Alex must be a friend or relative of Karens?


        1. Buds4All February 28, 2018 6:09 am

          Good Guess……wahineilikea as well?


        2. Alex February 28, 2018 9:25 am

          Nope, not related. Not in her district, either. (Live in Hilo.) I am simply someone who recognizes good work and Karen stands out. She was instrumental in saving a huge piece and cherished piece of land (Ooma, next to KOA and NELHA) from high-density development (“Ooma Beachside Villas). A developer was going to build 2,300 homes there. She is working on mandating helicopter flights to go over the ocean rather than dumping constant noise on us. I recognize good work when I see it.


          1. KonaDude March 1, 2018 11:43 am

            She stands out alright, like most of the lying cheating politicians, they do a couple good things and you look the other way on the rest!!


          2. Alex March 1, 2018 12:07 pm

            Ooma was a huge win. (I testified there, too, and I thought we would loose it.)
            Kona Dude, give Karen a break. “He that is without sin among you, let him cast the first stone at her.”


          3. KonaDude March 2, 2018 3:28 am

            So what’s your opinion on Trump, are you giving him a break or are you just another liberal hypocrite?


  8. PDog February 27, 2018 10:28 am

    Considering that there are only about 4,500 vacations rentals TOTAL on VRBO as of February 18th, One must think that the 8,647 number that they are tossing about is fabricated, a typo, or the total of all of the rental sites combined. If they have combined all of the rental sites into one total, the numbers are completely invalid as every owner I know lists on multiple sites. That means that the same property would have been counted two or three times and added into the total more than once.

    There is already a law in Hawaii that Vacation Rental Owners need to post their tax Identification number on their listing with online listing services like VRBO and/or Airbnb. They also need to have it posted inside the rental unit. It is a simple matter of going onto the websites and checking to see who is, and is not, following the law.

    I understand that the county would like the extra $500 annual fee per person for the non-conforming use permit in addition to their GE taxes, TA Taxes, Property Taxes, Income Taxes, and any other taxes they can think of, but over regulation of an industry that fills the coffers of the state with tourism money is not the answer. Local people shouldn’t be burdened with an ADDITIONAL FEE in order to host guests in their homes.

    The short term vacation rental market is an industry that hires local workers in the form of house cleaners, landscapers, plumbers, electricians, carpenters, property managers, and others to maintain their properties. The owners make recommendations of local sights, tour companies, restaurants, coffee shops, farmer’s markets, massage therapists, mom & pop stores, and tips that tourists staying in a resort don’t have access to. Our council members should think long and hard about the impact on our local economy and the voting citizens of our community that a draconian measure of this sort could effect.


    1. Buds4All February 28, 2018 5:47 am

      What about Rogue Places like Craigslist? And I agree with your last paragraph….I am sure the numbers are misleading to stir the pot.


  9. shirl February 27, 2018 10:49 am

    Don’t forget to mention “couch and Surf”. People going so far as to rent their Sofa or Hidabed
    in the living room by the night. Anywhere from $35 to $50 per. This has been happening for
    a long time. Very troubling for neighbors to say the least.


  10. oceanwatcher.com February 27, 2018 11:23 am

    It’s not only short term vacations rentals that are the problem with not paying taxes, it’s also all the rentals on single family residential properties that are rented out by the month by property owners that do not declare the income and do not pay taxes, and none of which are “registered” – all of which are technically illegal. My neighborhood is FULL of them. More traffic, more noise, and no benefit to anyone except the owner’s pocketbook. People are so desperate for long term rentals, little advertising is done – it’s all word of mouth.
    All the short term vacation rentals just hurt the working people who live here, trying to find a reasonable rental in which to live, as it’s too easy to do vacation rentals, charge by the week and make more $. Long term rental housing really suffers because of this.
    There needs to be a process where everyone pays their fair share, period.


    1. wutzhappn February 27, 2018 1:47 pm

      so only the wealthy who can afford to own property in a resort zone are allowed to make money on vacation rentals. The poor and struggling middle class don’t get the same opportunities as the rich. How nice of you.


    2. PDog February 27, 2018 4:52 pm

      Long Term Rentals are *supposed* to pay GE taxes. That is yet another tax law that is not enforced and there, for some reason, doesn’t seem to be a political outcry about that.

      If the long term rental market is in such an incredible crisis, as Ms. Eoff claims, why hasn’t she put her condo into the long term rental pool in order to help alleviate the housing crisis on the island? She could certainly make more than the (less than) $1,000 a year that she claims that she currently makes.


      1. wutzhappn February 27, 2018 5:32 pm

        This!


      2. Buds4All February 28, 2018 5:46 am

        I wonder if that 1K is after IRS allowed depreciation on that unit? Or if there is some side money being handled here? Perhaps Eoff’s rental records should be reviewed for the last number of years she has been serving? If any wrong doing has occurred then the IRS should get involved. #ImpeachEoffNOW


        1. KonaDude March 2, 2018 9:10 am

          I like the way you think!


    3. angkoldoy February 27, 2018 10:22 pm

      Suggest creative incentives to those who do long term for local workers. Hotel/Resort industry may want to step in to support and/or fund such an incentive. Protects housing availability for their workers in addition to supporting those other goals they have to lobby against the vacation rentals.


  11. Pest Outwest February 27, 2018 4:23 pm

    Whatever the number is, if the state can’t assign a couple auditors to cross check listings with registrations, then they’re just being lazy. About what I expect out of local government. When I send an estimated tax deposit check to the IRS center in Calfornia, the check clears in a couple days. The check I send to Honolulu can take weeks to clear, it’s just sitting there in a bin some place, unprocessed.


  12. Chris Bradley February 27, 2018 7:09 pm

    The listings on VRBO, Home Away and Air BNB do not provide addresses. So it is impossible to know if there are duplications. 8600 advertisements only 2037 registrations. 6000 not paying taxes. MOST do not pay taxes. Or MOST advertise on multiple platforms. Moron.


  13. reply to February 27, 2018 7:13 pm

    Thieves and crooks regulating someone’s private property. It doesn’t matter that they taxed them till they had enough money to buy, it does not matter that they steal the money for property taxes, they want to steal the last penny for their cushy pension plans and perks. Sick!!!!….Abuse of power!!!…. Steal more for some paper pushers who don’t do anything except eating donuts!!!….


  14. onceawarrior February 27, 2018 8:27 pm

    The story headline reads: ‘Most vacation rental owners not paying taxes’
    IMO, they cheat because the business laws appear impotent or inapplicable to them.
    The supposed enforcers perhaps are similarly lackadaisical because loss in revenue appears to be insignificant in the whole scheme of things.
    Both beliefs are unconscionable.

    Car owners register their vehicles. Drivers are licensed for the privilege to operate vehicles.
    If they don’t comply, they get fined or the license revoked.
    Whether the applicable law is under vehicle code or business code, same principle of compliance applies to vacation rentals.
    If someone I know wants to vacation rent, I would say: Obey the law; don’t circumvent the rules.
    Don’t mimic the bad guys; small or big. If you do, eventually, you’ll get busted too.


  15. angkoldoy February 27, 2018 11:04 pm

    There is plenty of discussion in the following comments about enforcement. The follow up to enforcement action is due process for those accused. Both take a substantial efforts. On one hand, many of those that have vacation rentals may decide to comply given this media attention. Others may wait until they get official notices to comply, with or without conferring with their lawyer. Yet others may chance ”em, gambling on the fact that there just ain’t enough money and resources to catch ’em. This is when your enforcement entity starts to get expensive. Many of these owners will decide to comply when they are caught and in Hawaii, often enough, a warning is issued only. Some may shine the fact that they got caught and only got a warning and continue on. A few of those that got warned will use their due process rights along with those others that shined on the warning and subsequently got fined. Now is the time when the taxpayers begin to understand why strong enforcement provisions are not part of regulations. It gets expensive now. Sure the losing owner may get hit with court costs. But if the county or state is not successful, we will take the hit. And we ask ourselves, Did our neighborhoods go to hell due to short term rentals or our local neighbors?


    1. Alex March 1, 2018 11:16 am

      Good points. I am researching this and found that municipalities on the mainland say that only strong enforcement measures and stiff fines solve the problem of paying for enforcement. For example, Santa Monica started mandating last year that anybody who is caught violating their ordinance is charged penalties plus enforcement costs. That had a big impact on their ability to hire more inspectors and go after the worst offenders (multiple housing unit, entire home hosts, especially those living offfsite, in their residential zoned areas). Also, smart computer algorithms can help greatly bring enforcement costs down — a lot the process you describe above can be automated. And the situation in the courts on the mainland is turning. There is more and more case law about commercial activities in residential areas. It is unlikely that offenders will prevail, especially if a municipality has clarified their position on short-term rentals in the zoning code.


  16. Buds4All February 28, 2018 6:08 am

    So here is a funny note…this explains our Island Government. So a number of years ago when I purchased my home in Kona I discovered two issues. The first I made the Seller’s Agent handle, there was a building permit open for 8+ years and never had the city closed it, asked for an update…nothing. I made them close it prior to escrow closing. The second item I had happen is our State transferred title with my wife and I removing the son but leaving the deceased person as a title holder. Explained to me they did not remove them since they had not received their death certificate. This has been corrected. It shows there is no way to handle a mess like this since the people running “The Show” have very limited capabilities. So I think this is all for not. But One thing is I do not like to be lied to as Eoff has done to all of us!


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