The Case Against Hawaii's HB 1707

HB 1707 and Tourism in Hawaii

HB 1707 is legislation relating to Transient Accommodations, or vacation rental homes, currently being debated in the Hawaii House of Representatives. Its description states that it "requires nonresident owners of residential single family dwellings, apartments, or townhouses who rent their property as a transient accommodation for 30 days or less to rent the property through a licensed real estate broker or salesperson who must collect all applicable taxes for the rental of the property. Provides for penalty." Unbelievably, the penalty for not hiring a real estate property manager would be $1,000 a day!

HB 1707 and Hawaiian Vacation Rentals

Many owners of property in Hawaii don't live on the islands, and rent their places to tourists for income. This draconian legislation doesn't even appear to be legal as it would force them to hire realtors to pay their taxes for them, creating a para-government department of taxation enforcement manned by the real estate industry. There are already laws in place regarding the collection and remitting of GET and TAT taxes, so this bill is unnecessary.

The proponents of HB 1707 are mainly realtors, like Dan Monck of Exclusive Getaways, Rob Dalton and Kim Horton, all from the Big Island. Property managers like them typically charge owners a fee of 28% to 40% of their nightly rental rate, then add other fees like housecleaning and supplies. Unfortunately for them, vacation rental owners are getting technologically savvy, renting their places through vrbo.com and homeaway.com on the internet rather than use their services. What motivates them is the fact that Vacation Rentals By Owner and other similar business models are putting a downward pressure on their ability to charge their high fees. The rental property managers have everything to gain with this legislation, especially since they have been sorely hurt these past few years by the depressed housing market.

Rob Dalton had a blog about HB 1707 on activerain.com, but he stopped allowing any further comments after about a week in February, 2012 because his position was so shot full of holes by the comments readers left. While the page was up, he randomly pulled a vrbo.com listing in Waikiki and suggested that the individual advertising the listing was not paying his taxes since the ad didn't show the accurate tax percentage. To discover the truth, a reader of the blog called on the listing and made a fake inquiry, whereupon the vacation rental owner offered a price that included the accurate of amount of GE and TAT tax. Mr. Dalton was subsequently informed on his blog about his erroneous assumption the owner wasn't paying his TAT, and that the man's only crime was in not updating his ad.

In 2009, a leading property manager, Property Network in Kona, went out of business, closing their doors and skipping town with a substantial amount of money owed to owners, vendors and renters. This type of large scale failure has the chance of continuing regardless of licensing. When individuals are in charge of their own property units, the most that will happen is one unit will be a problem.

Hawaiian Transient Accommodations Tax

Every government has consequences for citizens' not paying taxes when they are due, interest and penalties on the overdue amounts. If there is willful fraud, a government agency will then pursue criminal action. At no level does any government agency require a citizen's salary or income to be received by a third party. Everyone is bound by law to pay taxes they owe, and if there is non-compliance, those same laws impose penalties of interest, fines, or for fraud, jail time.  Hawaii already has laws that require any person receiving income for transient accommodations to collect TAT and GE taxes. If there is a non-compliance of that law, the crime is in not paying one's taxes.

The claims by the bill's proponents that Hawaii is missing out on lost tax revenue by tax-evading vacation rental homeowners is a ruse to get the law in place, but if tax collection was a true concern, the State of Hawaii could easily peruse their own files to determine who is renting to visitors and for how long. Visitors flying to Hawaii are handed a form provided by the State on airplanes, asking where they are staying and for the duration of their visit. Since the State already knows who owns each property and who is paying taxes, this would be a simple remedy to implement.

If enacted, HB 1707 would discriminate between resident and nonresident owners and how they manage their units. There is no provision in the law to allow non-resident owners who have been operating legally to be exempt from complying with this new law. It would hurt property values as many out-of-State owners would most assuredly experience financial losses and be forced to sell or possibly lose their houses to foreclosure. The entire real estate market would be affected, costing Hawaii tens of millions of dollars. Hawaii can't afford a law forcing property owners to hire realtor managers and then relinquishing all their rights of management to them.

Many States like Arizona, Nevada, California and Florida are welcoming investors to help them emerge from the bloodbath of the mortgage meltdown and subsequent market collapse. Apparently the only individuals looking to limit the scope of ownership for investors in the United States are to be found in the State of Hawaii. These self-serving individuals and their political allies are doing great harm to Hawaii.

Sources:

activerain.com

Hawaii State Legilslature. HB 1707 HD2, February 22, 2012, http://www.capitol.hawaii.gov/.

homeaway.com

Jensen, Chelsea. Kona property management firm closes, leaving clients wondering where their money is, The Honolulu Advertiser, March 22, 2009.

Read more:

• The Case Against Hawaii's SB 2089
• Hawaii Legislature Discussing Transient Vacation Rentals