Hawaii Vacation Rental Tax Total Of 33% Proposed 

Hawaii vacation rentals are back in the news again as House Bill 820 is making its way through the state legislature. The bill, introduced on January 25 and going through committees, calls for a combined tax rate of 33% on Hawaii vacation rentals. Hawaii already has the dubious honor of the highest accommodation tax in the country.

The bill’s authors are working with the Hawaii Department of Taxation to “Ensure that the language in this measure would tax transient vacation units at a rate of twenty-five percent and not 35.25 percent (as originally proposed).” But wait, those aren’t the only taxes on vacation rentals.

Currently the counties each have their own charge of 3%, which brings the total accommodation tax to 13.25%. In addition, there is a 4.17% GST on Maui and 4.712% GST elsewhere in Hawaii. The combined tax on hotels and vacation rentals is now approximately 18%. Based on what Quinlan said about the bill’s intention, it would seemingly increase the total tax on vacation rentals to 33%.

This comes while Honolulu is still in the midst of legal wrangling after a judge blocked for now the city’s desire to convert minimum 30-day rentals to a minimum of 90-days.

House Bill 820, in its entirety, is attached below. One of its authors, Representative Sean Quinlan, wrote:

“Transient vacation rentals continue to be a problem for the State as public discourse and perception have grown more critical of the increasing number of visitors and the impacts of over-tourism. Your Committee believes that the State needs to take a strong stance on holding the tourism industry accountable for the impacts on the State’s resources and residents, such as the lack of housing for residents, as many units that may have housed residents are instead used as transient vacation rentals. This measure will ensure that transient vacation rentals that host visitors for less than thirty days pay their share to address the impacts of the tourism industry on the State.”

This Bill violates the United States Constitution as well as the Hawaii State Constitution. It disenfranchises a certain category of taxpayer. — Hawaii Tax Foundation.

Second, HB820 was initially set to implement the new tax rate effective July 1, 2023. Testimony from the Hawaii Director of Taxation, however, indicated that it would not be feasible to do so and that even an effective date of January 1, 2024, might not be achievable. In the interim, the date was set to June 30, 3000, until this implementation issue can be resolved.

[Hawaii intends to] limit and regulate short-term vacation rentals in neighborhoods and other sensitive areas in our communities. We are generally supportive of state and county efforts to advance that priority.” — Hawaii Tourism Authority.

Misguided and likely not legal.

This pro-hotel and anti-vacation rental bill is clearly discriminatory against legal Hawaii vacation rentals. Many vacation rentals are second homes or investment properties managed by large companies.

The Hawaii Tax Foundation, which is a private, nonprofit educational organization dedicated to informing the public… about the finances of our state and local governments in Hawaii, also testified. They are opposed to the bill on several counts.

1. First, this extra 25% charge is being assessed against only vacation rentals and not hotels.

2. Hawaii’s accommodation tax is, at this time, evenly levied across hotels, timeshares, condos, hotels, and vacation rentals.

3. Additionally, HB820 “only assesses the 25% additional tax on ‘short term vacation rentals’ where the operator is not present (unhosted) and specifically omits all other providers of transient accommodations including a short term vacation rental with a hosted operator (Bed and Breakfast).

4. The position of the Hawaii Tax Foundation is that “This Bill violates the United States Constitution as well as the Hawaii State Constitution. It disenfranchises a certain category of taxpayer from those that are similarly situated. It is discriminatory in that it does not treat all providers of transient accommodations the same.”

Hawaii Tourism Authority testimony.

John DeFries, the state’s Hawaii Tourism Authority head, testified regarding HB820 that “Our community-driven Destination Management Action Plans across Hawaiʻi clearly articulate a desire to manage visitor accommodations – specifically, taking steps to limit and regulate short-term vacation rentals in neighborhoods and other sensitive areas in our communities. We are generally supportive of state and county efforts to advance that priority.”

BOH: What DeFries has issues with, as far as we know, are only vacation rentals in private neighborhoods. This bill seeks to tax even those in approved visitor areas, which is confusing.

Testimony for and against the bill has started.

One person testified that it “Sure looks like Rep. Holt is looking for a career in/by the Hotel industry. Throwing local small businesses under the bus. This bill is dead on arrival. To even suggest such prejudicial and punitive taxation will be challenged in court for sure.”

Another said, “I am vehemently opposed HB 820 becoming law. This motion will only hurt homeowners who supplement their income with renting out rooms in their house by making rental costs so prohibitively expensive for potential renters. We are already charging guests 17.962% and I hear from visitors that the cost of staying in my home with such high tax has made traveling to Hawai’i almost out of reach. I think that the revenue could be raised by taxing hotels at the same rate as STVR’s rather than targeting individual homeowners.”

(BOH: In reading this Bill, it does not apply to bed and breakfast homes).

“You are taxing us to death… The intention of this bill is to further encumber and burden an underserved and marginalized community who provide housing to support our community and our people. We are property owners who provide housing equally to all. By raising the tax and taking away our homeowners exemptions, and not putting a cap on our property taxes, like everyone else has, you have already made it impossible for us to contribute to our community and our families’ survival. We are the locals, the mom-and-pop people who are providing housing to the visitors who support your shops, your schools, our cultural programs, our non-profits, our artists and carriers of culture and your local businesses. With this tax, you are chasing the people of Hawaii away from our land and generations of those before us who hold our culture dear.”

Are you supportive of legal Hawaii vacation rentals?

We are and think it’s a good option for visitors who want more of a home environment during their stay with a private kitchen and offer additional amenities to guests.

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