The vacation rental industry is a large part of the Hawaii economy. Not only does it play a large role in tourism, but it also is a large contibutor to state taxes due to the transient accommodations tax. Just recently with the struggles of the economy the state and counties have had a hard time enforcing policies that have been set to regulate the industry.
The first issue is non conforming use of homes. This is when the homeowners attempt to rent their properties out as vacation rentals when the land use ordinance does not allow for that property to be a vacation rental. In these instances the fines can range from $50-$1000/day. Many homeowners can reach $100,000 in fines quickly. Typically if the county brings the issue to the homeowners attention and it is dealt with in a timely manner the fine will be drastically reduced up to 75%. If it is not dealt with in a timely manner then the county can enforce the maximum penalty since this non conforming use falls in the category of the homeowner doing it solely for financial gain.
The second issue is homeowners attempting to rent their properties out on their own and not being fully aware of the taxes for vacation rentals. For vacation rentals not only do you have the general excise tax, but you also have the transient accommodations tax of over 8%. This tax was raised by 1% in 2009 and will be raised another percent in 2010. There are a substantial amount of owners that do not pay this tax. Another fair amount of owners were unaware of the tax increases and did not charge the guests accordingly and did not pay the state the correct amount. Failing to pay the correct taxes for a vacation rental is fraud and homeowners can potentially be imprisioned.
Where the battle of legislation comes into play is that the counties would like to see the tax records from the state to see who is paying transient accommodations taxes. The counties are confident that most people do pay at least a portion of the transient accommodations taxes to avoid legal issues. If the counties could gain access to this information then they could compare the data to the land use ordinances to see who is renting their home out as a vacation rental in an area where this is not allowed. The state of Hawaii tax department can not share the information with the counties due to legislation. The two have battled for over a year now and no agreement has been met.
As the economy continues to struggle the state of Hawaii is bound to see this as a greater issue in the future. Many second homeowners are doing what they feel they need to do to keep possession of their home and not lose it to foreclosure. Hopefully in the near future the counties and state can reach an agreement to help policies be enforced.