Many Hawaii vacation rentals are operated illegally, making tax collection more challenging. In Hawaii, the necessary permits for short-term rentals are issued by counties which have varying regulations. Honolulu, the most populous county, has not issued new permits since 1989. It’s estimated to have 800 legal vacation rental and bed-and-breakfast units and about 10 times as many illegal ones.
Airbnb has argued the subpoena amounts to an unprecedented, “massive intrusion” into the private data of 16,000 hosts. Subpoenaing the records would violate state and federal law, the company said.
Hawaii is the latest state to tangle with Airbnb. In New York City, a U.S. judge last month shelved a city law that would have required home-sharing platforms to reveal hosts’ names and other information.
New York City adopted the law so it could crack down on illegal listings and impose fines.
In that case, a U.S. District Judge Paul A. Engelmayer ruled that forcing home-sharing platforms to reveal a “breathtaking” amount of information about their businesses seemed unconstitutional. He issued a preliminary injunction halting implementation of the law.
Hawaii said in court filings that Airbnb acknowledged in the past its hosts have not all paid taxes. It pointed to legislation Airbnb proposed in previous years that would have allowed it to register as a Hawaii tax collection agent to ensure its hosts do pay their taxes. A court filing from Hawaii’s attorney general said such legislation would not be necessary if hosts were tax compliant.
But Ashford said he did not see where Airbnb had made such an admission. He told the state to be careful with the language it uses and “do not exaggerate.”
He said the state successfully established that some Airbnb hosts might have violated tax laws, but the question was how many.
Kristen Sakamoto, state deputy attorney general, told Ashford that not all hosts would need to have violated tax laws for the state to subpoena the records.
Jacob Sommer, Airbnb’s attorney, countered that the standard must be higher.
“If you’ve going to ask for 16,000 people’s records, I think you’ve got to show that most have violated the law,” he said.
Sakamoto told Ashford the state attempted to narrow its subpoena by talking with Airbnb but found the company uncooperative. She said the state did not know how many hosts the company had in Hawaii until last week when Airbnb filed a response to its subpoena request.
“It’s a bit unfair that they hold all the information and are unwilling to work with (the state Department of Taxation) in trying to find a subpoena with a scope that would address the issue of identifying the unknown taxpayers,” she said.
Hawaii wants to ensure owners pay transient accommodation taxes imposed on rooms or homes rented for less than six months. It also wants to collect the general excise tax — a levy similar to a sales tax — from rental operators.
The state needed the court’s permission to serve the subpoena because its investigation targets a group of taxpayers and not specific individuals.
Airbnb applauded Ashford’s ruling.
“We’re pleased the court has recognized the state’s request would have amounted to an unjustified, massive intrusion of our host community’s private data,” the company said in a statement. “In Hawaii, Airbnb has made repeated attempts to work with state and local leaders to collect and remit taxes on behalf of our hosts, and we remain willing to do so.”
The Hawaii Department of Taxation, meanwhile, said it will continue to try to enforce Hawaii’s laws and collect taxes from short-term vacation rentals.
“While we are disappointed with the outcome of the hearing today, we owe it to the community to continue to apply the law to those in the vacation rental business to ensure they are paying their fair share of taxes,” Hawaii’s director of taxation, Linda Chu Takayama, said in a statement. “We will be asking the attorney general to appeal the judge’s decision today, and we continue to hope that Airbnb and others would voluntarily assist our efforts.”
Takayama also cited two bills introduced in the Legislature, a House bill and Senate companion, both part of Gov. David Ige’s package, that would set up reporting requirements for third-party rental collection agents such as Airbnb. The measures would require the agent to report the name, address, social security number and general excise tax number of the property owner, and the amount of rent collected during the previous year.
The Honolulu City Council and mayor have been unable to agree on more effective regulations despite several attempts over the years.