Despite piles of opposition testimony from out-of-state owners of Hawaii vacation rentals, the Hawaii Legislature has advanced two measures that require non-resident owners to hire local property managers.

Lawmakers and many of their constituents, especially on Maui, Kauai and the Big Island, say without the new regulations the state may be losing out on tens of millions of dollars in tax revenue.

Tweaks were made in the legislation, but not enough to appease opponents.

The bills — especially a Senate measure — continue to tick off non-Hawaii owners.

Not long after the Hawaii state Senate passed Senate Bill 2089, reaction began to flow in on a discussion stream at HomeAway Community.

The stream, titled Hawaii Trying to Kill VRBO — VRBO stands for “vacation rentals by owner” — were near unanimous in their shock and contempt.

“24 to 1 — incredible,” said one post, referring to the vote.

“Totally unconstitutional,” said another. “This will be challenged at the Federal level if passed.”

Said another:

I cannot understand this passing. It is mind-boggling to me. I understand that they want to collect their taxes, but this bill is still discriminatry [sic] and I do believe unconstitutional. If it was a good way to do enforce uncollected taxes, wouldn’t other states have laws like this. I don’t believe any other states have a similar law. I truly feel that it MUST be unconstitutional. I am not a lawyer, but someone out there, please help us!!!

But state senators remain convinced they are doing what’s best for Hawaii.

“Your Committee finds that although many owners of transient accommodations operate in compliance with applicable state and county laws, there are a sizeable number of owners who do not,” according to a SB 2089 committee report. “Failure to comply denies the State and counties of transient accommodations taxes and general excise taxes they are due. Enforcement efforts may also be hampered when the owner of a transient accommodation lives on a different island from the property or out of state.”

Legislators Represent Tourist Areas

SB 2089 has attracted the most ire. It has been amended since it’s introduction and would currently do the following:

Requires any nonresident owner who operates a transient accommodation located in the nonresident owner’s private residence to employ a real estate broker or salesperson. Requires any nonresident owner who operates a transient accommodation located in the nonresident owner’s private residence in a condominium hotel to employ a condominium hotel operator. Requires relevant information about owners of the transient accommodation to be provided to the department of taxation for enforcement purposes. Requires the counties to provide the department of taxation with relevant owner information about every transient accommodation permitted by the respective counties annually. Establishes fines for noncompliance. Provides an exemption from the mandatory employment of a licensed real estate broker or salesperson or condominium hotel operator in certain circumstances.

SB 2089 was introduced by Sen. Josh Green, whose district on the sunny Kona side of the Big Island is dotted with vacation rentals.

Speaking in support of the measure during Tuesday’s floor session were Kauai Sen. Ron Kouchi and Sen. Roz Baker, whose Maui district covers Kapalua, Kaanapali, Lahaina, Kihei and Wailea — a district chock full of vacation rentals.

Kauai, Maui and the Kona Coast are also home to a lot of local property managers. Testifying in support of SB 2089 were the Maui Hotel & Lodging Association, Condominium Rentals Hawaii, Poipu Beach Resort Association, West Hawaii Property Services and Waikoloa Vacation Rental Management

The Hawaii Vacation Rental Owners Association opposes SB 2089 as does Trading Places International, Hanalei Bay Resort
“and numerous individuals,” according to committee reports.

On VRBO chat discussions like HomeAway Community, the filing of tax forms has irked some and confused others. On Wednesday, Hawaii Rep. George Fontaine, who represents the Makena-Wailea-Kihei area, made a post himself to help folks out:

SB 2089 SD 1 has been amended so that non-resident owners 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.

As of this date, the measure has not been scheduled for a hearing. Typically bills go through many changes and there is no telling how the bill will be modified in the House. I will decide my vote when the bill is in its final form.

“Great to have a member of the House of Representatives respond,” an owner soon posted.

But anger persists, as seen in this post: “This whole tax clearance BS is lame. It serves no purpose.”

Doubts Whether Testimony Heeded

Others doubt that legislators even read the avalanche of testimony submitted in opposition to SB 2089.

This post was made Sunday, two days before the floor vote:

A friend of mine spent some time reviewing all the testimony on the SB 2089 posted last week, and gave me permission to share with you all. It is rather interesting:

Total votes to support – 28

Total votes to oppose – 706

1 vote to defer from Mike McCartney – Pres & CEO Hawaii Tourism Authority

Votes they listed as late testimony (these votes were counted in the totals above)

In Support – 1

To Oppose – 94

FYI – Vast majority of those supporting were just a vote. No comments or documentation. Those opposed were very detailed and fact oriented.

The other VRBO measure moving through the Legislature is House Bill 1706, which passed the House Tuesday. Only four representatives — including Fontaine, all Republicans — voted against it.

As currently amended, HB 1706 — introduced by by Rep. Cindy Evans, a Democrat who represents the North Kona-South Kohala area of the Big Island — would do as follows:

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.

Local property managers like Tom Hagen, president of South Kohala Management Corp., love the bill.

“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,” he said in written testimony. “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 manegement [sic] companies.

HB 1706, which is now scheduled to be heard by the Senate, has received far less attention then SB 2089, which appears the primary “vehicle” at the Legislature to deal with non-resident-owned vacation rentals. It now awaits a House hearing.