Airbnb is pushing back against a measure designed to address the perennially thorny issue of how to regulate and tax people who rent out homes and condominiums through the popular websites.

Senate Bill 2963 is aimed at generating tax revenue for the state, creating tough penalties and enforcement tools that counties can use to shut down illegal rentals, and establishing clear rules for online brokers like Airbnb. The bill also would allow Airbnb to serve as tax collection agent for Hawaii’s Department of Taxation, something Airbnb has said it wants to do.

But, in a strongly worded rebuke to the bill, Airbnb made it clear last week that if the measure passes, the company won’t help collect hotel and excise taxes from properties that use the site.

“While we support the bill’s intent to allow us to collect and remit taxes, we want to be clear — if SB 2963, SD 1 is adopted as it is currently drafted, Airbnb will not enter into a voluntary agreement with the State to collect and remit taxes, and thus the potential revenue from the bill would not be realized,” the company wrote in a letter addressed to the heads of Gov. David Ige’s tax and budget departments.

Airbnb has told state officials that the company will not help the state collect  taxes if Hawaii adopts a bill that won unanimous approval in the Senate. Screenshot

The letter reiterated concerns Airbnb has raised previously in testimony, among them the assertion that the bill would violate the Communications Decency Act, a federal law designed to protect internet companies from being held responsible for content posted by someone else.

But the letter marked an unusually strong statement from the company’s head of public policy in Hawaii, Matt Middlebrook.

Proponents of the bill pushed back, saying the measure had been crafted carefully to be consistent with federal laws. The bill has had hearings before the Senate Committees on Economic Development, Tourism and Technology and Ways and Means, where it received support from a spectrum of interest groups, including the hotel industry, labor organizations, housing advocates and county planning departments. It passed out of the full Senate on a 25-0 vote.

Kekoa McClellan, Hawaii spokesman for the American Hotel and Lodging Association, disputed Airbnb’s statement that the bill would violate federal law. He noted that Airbnb lost a lawsuit challenging a similar law in California.

“Airbnb’s threatening letter to the Hawaii State Legislature reeks of the same rhetoric and scare tactics that Airbnb tried in San Francisco,” McClellan said in an email to Civil Beat. “This did not work there, and it will not work here.”

“No one in Hawaii should be allowed to take a fee for brokering illegal activities, and we believe the Senate’s WAM and ETT chairs drafted this bill with that consideration in mind,” he added.

“If that’s what Airbnb wants to do, that’s their choice,” said Victor Geminiani, co-executive director of the Hawaii Appleseed Foundation for Law & Economic Justice, a non-profit that works on housing issues. “But it doesn’t mean the counties can be held hostage in terms of their ability to enforce” local zoning laws.

Although Oahu law generally allows short-term rentals only in resort areas, several hundred properties, represented by the blue dots on this map produced by the Office of Hawaiian Affairs, have been grandfathered in. Office of Hawaiian Affairs

The measure would amend state laws to give counties significantly more power to enforce zoning laws. Among other provisions, brokers like Airbnb, Homeaway and VRBO would have to make sure properties were legally zoned for short-term rentals and could be charged with a misdemeanor, and fined a minimum of $25,000, for doing business with an illegal rental.

Counties could collect attorney fees against losing parties, could more easily get a court order to shut down an alleged illegal operation before a trial and take defendants straight to court rather than going through a lengthy administrative hearing process.

Still, it would be a big blow to the state’s coffers if Airbnb follows through on its decision to not partner with the state to help collect and remit taxes. Airbnb is the only platform that has explicitly said it will be a tax collection agent for the state, so if the company does not step up, the bill conceivably could generate no extra money.

That’s a problem because Ige’s budget analysts had estimated the state could rake in an extra $33 million for the second half of the 2019 fiscal year if a bill passed. Although that estimate included money generated by all of the vacation rental brokers, Airbnb is considered the biggest player in Hawaii.

Jodi Leong, a spokeswoman for Ige, said neither the state’s budget director nor the tax director had received the letter and therefore could not comment.

Lawmakers, meanwhile, are scrambling to cobble together enough money to cover the state’s expenses without some $33 million they were counting on.

Sen Donovan Dela Cruz chats with Rep Aquino after conference committee. 27 april 2016.
Sen. Donovan Dela Cruz, chairman of the Senate Ways and Means Committee, is trying to cover the state’s expenses without extra money from Airbnb. Cory Lum/Civil Beat

The financial concerns have become so pitched that Sen. Donovan Dela Cruz, chairman of the Ways and Means Committee, last week scheduled a briefing for Wednesday to discuss the $33 million revenue projection along with Ige’s requests for more money to cover some unexpected expenses, including $48.9 million to finance state employee health care benefits.

Dela Cruz expressed concerns on how to deal with Ige’s requests. But he said the fiscal issues should not stop the state from moving ahead with a bill to help counties enforce the law.

“If it’s not going to bring in taxes anyway, maybe the focus should be on helping the counties enforce the law,” Dela Cruz said.

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