Owners of vacation rental properties in Hawaii are rallying support to defeat several bills they say would add thousands of dollars a year to the cost of renting out their places.
Internet sites including Facebook have been lighting up in recent days as more property owners are learning of the debate as the bills move through the legislative process.
Three bills pending before the Hawaii Legislature would require owners of vacation rentals who live on different islands or out of state to retain local management of the units.
Critics say the bills would greatly increase their management costs while supporters argue that millions of dollars in revenue are leaving the state.
“We perceive that this is not about taxes per se, but really about a money grab by the Realtor family and all the associations and individuals connected to that,” said Meera Kohler, an Anchorage, Alaska, resident who is co-owner of a Maui condo. “They see it as an opportunity to get management fees to manage. It would be a huge loss of revenue for us — very, very crippling.”
But Patrick Sullivan, principal broker and owner of Lahaina-based Sullivan Properties, said the state is losing millions because nonresident owners aren’t paying the proper taxes, something owners like Kohler say simply isn’t true. “Funds not being collected have to exceed $30 million a year and growing,” Sullivan said.
It’s unclear how much the state may be losing through unpaid taxes. There’s no fiscal information presented with any of the legislation.
But a conference committee report on one of the bills cites a 2005 study by the Hawaii Tourism Authority that estimated as many as 9,000 rental units in Hawaii may not be complying with tax law.
Because real estate agents are required by state law to protect consumers, said Sullivan, nonresident owners should use the local agents to collect rental monies to insure that Hawaii gets paid its general excise and transient accommodations taxes.
The two House bills at issue were introduced by Rep. Cindy Evans, while the Senate bill was introduced by Sen. Josh Green. Both are Democrats representing the Kailua-Kona side of the Big Island.
House Bill 1707 was moving through the legislative process but was tabled Thursday. It would have required nonresident owners of vacation rental apartments or townhouses to rent the property through a licensed real estate broker or salesperson who must collect all taxes for rental of the property.
But a similar measure, House Bill 1706, awaits a final House floor vote before crossing over to the Senate, perhaps as early as this week.
HB 1706 requires owners of residential units who reside on a different island 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.” That means the nonresident owner would basically have to hire a local rental agent, something that critics say would cost them thousands of dollars a year.
Meanwhile, Senate Bill 2089 has a vote scheduled for Wednesday at the Capitol.
It requires any nonresident owner who operates a transient accommodation located in the nonresident owner’s private residence to employ a property manager approved by the Hawaii Real Estate Commission.
SB 2089 has the support of the Department of Taxation, the Hawaii Tourism Authority, the Honolulu Department of Planning and Permitting and several sales and property managers.
“There is a serious leak in the State’s tax revenue pipeline,” wrote Mark Marchello of Whalers Realty Management Company in Kaanapali. “This invisible leak is bursting in to the tens of millions!”
The measure is opposed by the Hawaii Association of Realtors and people like Nancy Sweatt of Oahu, who also opposes HB 1707.
“These bills are allegedly presented on the premise of bringing in more tax funds to the state of Hawaii,” Sweatt said in written testimony. “Instead, they will result in just the opposite — a huge reduction in collected tax funds right along with thousands of lost jobs.”
But senators seem inclined to pass SB 2089, according to the most recent committee report:
Your Committee finds that with the advent of the Internet, there has been a significant increase of rental-by-owner activities occurring outside the State through internet bookings. These nonresident owners may or may not charge general excise and transient accommodations taxes on their reservations, and even if they do, they may not remit the taxes to the State. Since the transactions take place outside of Hawaii, it is difficult to determine how many violations occur and the resulting revenue loss to the State.
SB 2089 awaits a vote Wednesday; if approved, it could get a final Senate floor vote this week and cross over to the House.
HB 1707 — the deferred bill Kohler of Alaska opposes but Sullivan of Maui supports — has received hundreds of pages of testimony, much of it in opposition.
Supporters include the Kailua Neighborhood Board, Save Oahu Neighborhoods Hawaii, Save North Shore Neighborhoods, Summit to Sea Realty Corporation, Exclusive Getaways and Rentals Maui Inc.
As for HB 1706 — the bill awaiting a floor vote — supporters include South Kohala Management Corp., Captain Cook Real Estate and Captain Cook Resorts while the Hawaii Association of Realtors, Exclusive Getaways and “numerous individuals” testified in support of the bill’s intent.
Kohler of Alaska and co-owner, Marilyn Leland, bought their two-bedroom condo in a 40-year-old building in Maalaea, Maui, three years ago.
Frequent Maui visitors, Kohler and Leland stay at the property two months out of the year with friends and family. They call their company Aurora Sands, which gets its name from the Northern Lights and Hawaii beaches, and they promote through a VRBO website — Vacation Rentals by Owner.
After factoring in association dues, lease fees, GET and TAT, housekeeping, utilities, repair and renovation, Kohler said she and Leland effectively break even.
“If we had to have an agency, the going fees are 25 percent to 45 percent,” she said. “We would be operating in the red big time. Our stance is that these bills would basically put us out of business, which means we would have to sell the property.”
In testimony submitted opposing SB 2089, Leland wrote:
Our advertisement and communications with all of our prospective renters make it clear that we charge Hawaii taxes. Our taxes are always paid in full and filed on time. We have satisfied renters and even though we have owned a relatively short time, we already have repeat customers. I actually was a renter through VRBO for many years prior to buying our property, which is why we decided to go that route. Frankly, I have had much better experiences renting directly from owners than I have had by using management companies.
However, Sullivan, the Lahaina broker, says the local market won’t charge anywhere near as much as Kohler and other nonresident owners argue.
“They are trying to make it look like we are Outrigger,” he said. “They’re blowing smoke. There are hundreds of small managers like myself, and market forces will keep management fees reasonable. Free market enterprise will lower the costs. This needs to be controlled because it is out of control.”