The Legislature is on the cusp of passing two bills that will allow online accommodation brokers such as Airbnb to serve as tax collectors for the state.

Although both bills could enable the state to rake in revenue that’s now eluding tax collectors, the bills are vastly different in their details – and in who is backing them.

And there’s no guarantee that Gov. David Ige, who vetoed a similar measure last year, will sign either into law.

This ad appeared on the Airbnb website advertising properties for rent in Waikiki. 

The measures have set off a lobbying battle that involves several interest groups, including affordable housing advocates, tourism executives and property owners. A former state attorney general has weighed in, testifying in opposition to one of the bills on behalf of an internet trade group that represents Facebook, Google, Amazon and other tech giants.

Former Honolulu Mayor Mufi Hannemann, meanwhile, has testified on behalf of the Hawaii Lodging and Tourism Association. Honolulu’s acting director of planning is throwing her support behind one of the bills in hopes that a new state law will not undermine enforcement of county zoning laws.

“This is one of the most important issues facing not just tourism but Hawaii today,” said Kekoa McClellan, a spokesman for the American Hotel & Lodging Association. “This is about the quality of our tourism product, the safety of our visitors, and the residential nature of our neighborhoods.”

“There can be no tourism in Hawaii if there are no neighborhoods that people can afford to live in,” McClellan added. “And the proliferation of online transient rentals is taking housing away from local residents.”

Both bills allow the internet sites to act as tax collection agents. But one bill lets property owners self-certify that they are complying with county zoning laws, while the other requires county planning departments to sign off.

Last Year’s Veto

Both bills are in conference committee, waiting for lawmakers to hash out a final version.  But if last year was any indication, only one of the bill’s prospects seem rosy. Ige vetoed last year’s bill, which allowed self-certification, in part because it wasn’t strong enough to protect neighborhoods.

A spokeswoman for Ige declined to comment on whether the governor would veto either bill this time.

The current draft of  Senate Bill 704  is much like the bill Ige vetoed. Under the measure,  the property owner would merely have to attest that it was legal to rent the property under the applicable land-use law.

Airbnb has expressed support for this bill. So has an association of short-term rental operators called the Oahu Alternative Lodging Association, as well as a number of individuals.

“Hawaii’s current system to collect taxes from tourists and home sharing is outdated and inefficient” said Matt Middlebrook, Airbnb’s public policy manager, in a prepared statement. “This plan streamlines the tax payment system, making it easier for all hosts on all platforms and it could generate $100 million in new revenue for the state each year.”

The bill’s current version is much different from the original measure sponsored by Sen. Laura Thielen, whose district includes the tony beachside communities of Kailua and Lanikai.  Her version would have set up a working group to look at managing the multiple issues that arise when masses of people rent out their homes to visitors on an island where affordable housing is hard to find and tourism is king.

But Thielen’s original bill was largely gutted, replaced with language similar to that of the measure Ige vetoed last year.“It seems kind of silly to pass a bill that was vetoed last year,” Thielen said.

Senator Laura Thielen AirBnB debate during floor session. 3 may 2016.
Sen. Laura Thielen’s original Airbnb bill was gutted. Cory Lum/Civil Beat

Critics complain that operators would have only to attest that they are complying with local land use laws when they accept the brokerage site’s terms of service.

“That’s just a shibai provision,” said Charles Prentiss, chair of the Kailua Neighborhood Board.  “Do you think people who are already operating illegally are going to attest to it?”

Probably not, according to one person interviewed who is operating an illegal rental in Lanikai.

“Do you think people who are already operating illegally are going to attest to it?” — Charles Prentiss, chair of the Kailua Neighborhood Board

The property owner, who was granted anonymity under Civil Beat’s anonymous source policy so she could speak freely about illegally renting out on Airbnb and VRBO a 350-square-foot studio that brings in $2,500 to $3,500 per month. That compares to $1,200 to $1,500 per month she could earn renting out the property under a long-term lease, she said.

The owner said she needs the money to maintain the property and to support her children, one in college and the other headed to a private high school soon. The owner said she is a good neighbor: she built an extra parking space to avoid clogging the street, hires her elderly neighbor as a cleaning lady for $180 to $360 a month, and refers guests to neighborhood restaurants and recreation companies.

Asked if she would be willing to wrongly attest that her property was in compliance with the county land-use law, she said, “If that’s all I have to do, then I probably would. Who’s going to enforce it?”

Kathy Sokugawa, acting director of the Honolulu Department of Planning and Permitting, says enforcement is a problem with the bill. The overwhelming majority of Oahu’s transient rentals advertising on the broker sites are operating without a valid permit, and the number of rentals has increased dramatically in the past three years, Sokugawa testified.

Instead of letting property owners simply attest that they’re in compliance with land-use laws,  Sokugawa testified that the state should require property owners to obtain proof of compliance in the form of a certification document issued by the county regulator.

Hoping To Crack Down

Sokugawa’s department is supporting House Bill No. 1471, which would require Airbnb operators to be certified by the county. Certification would help the city and county crack down on illegal rentals.

“I’m not even sure the operators know what land-use laws are,” she said.

Requiring certification will dampen the enthusiasm to sign up for Airbnb, she said, because many people will not be able to obtain the certification. The tougher approach is supported by the hotel industry, the hotel workers union and affordable housing advocates.

All of this might sound good to people who want the state to help the counties enforce their land-use laws, but not to David Louie, a former attorney general of Hawaii who is now representing the Internet Association, a trade association of large internet companies.

Louie has testified the tougher bill would run afoul of federal law that prohibits state and local governments from penalizing internet companies for what users post.

Louie cited numerous cases in which federal courts have held the federal statute insulates internet sites. But those cases involved instances in which the internet platform was acting merely as a platform for others to post material.

Asked if the law means the state cannot impose greater burdens or liability on an Internet site that has voluntarily registered to serve as a state tax agent Louie said, “That’s certainly an interesting question.”

“Once they’ve signed up (to be a tax collection agent), is that fundamentally different?” Louie said. “I think not.” Louie acknowledged there have been no court cases addressing this point.

Housing advocates say the issue goes far beyond questions of how to collect taxes or protect the traditional tourism industry. Many are worried that short-term rentals are shrinking the amount of housing available for working people.

While brokers such as Airbnb highlight how local residents can generate additional revenue by sharing space in their homes to visitors, Victor Geminiani, co-executive director of the Hawaii Appleseed Center for Law & Economic Justice, said the reality is different.

“One of the issues we are very much into is the availability of housing stock, and many of these are not what Airbnb would have you believe,” Geminiani said. “They are not people renting a room in their house.  Most are people renting whole homes.”

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