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Hawaii stays out of tax collection on short-term vacation rentals, for now

June 26, 2019
Harold-L-Lyon-Arboretum-Hawaii

Mother Nature gives her colorful imprimatur to the beauty of Hawaii. (Rainbow over Harold L. Lyon Arboretum, a research and community resource of the University of Hawai’i at Mānoa)

It's vacation season and lots of folks plan to spend their days off in other folks' homes.

I'm not talking bunking on a friend's couch or in a relative's guest room. I'm looking at private residences leased to a series of strangers in cities across the country (and world).

The popularity of private accommodations for vacationers has prompted many state and local jurisdictions to enact regulations and tax collection policies on these short-term rentals.

Hawaii is bucking that trend.

At least at the state level. For the time being.

State rental tax complications: The Aloha State's governor has indicated that he will veto a measure that would require entities like Airbnb and Expedia to register as tax collection agents and collect general excise and transient accommodation taxes from their clients.

Those clients, of course, would add those taxes to their asking prices for their homes' temporary leasing.

It's not that Gov. David Ige is against more tax revenue for America's Paradise.

Short-term rentals in the state, which are those that are leased for less than 180 days, are by state law subject to both Hawaii's 4.5 percent general excise and a transient accommodations tax of 9.25 percent. But as in many locations, not all renters follow the law. 

The state proposal would have set up a system to register, track and collect the due taxes. 

Ige has decided to veto it, though, because the state bill might interfere with a measure recently passed by lawmakers in the 50th state's largest city.

New local rental tax system enacted: The City of Honolulu has created its own transient accommodation enforcement provisions.

Ige said any similar state temporary accommodation strategy should be complementary to more local short-term rental registration and taxation efforts.

Honolulu's action, noted Ige in his intent to veto message, could affect certain logistics in the collection of state accommodation taxes.

He added that "further review is required to ensure there are no adverse unintended consequences" with any state proposal and it's effects on other tax collection efforts.

Illegal rentals still a concern: Another unintended effect is the potential defacto legitimization of illegal rentals.

"While the taxation of illegal transient accommodation uses would not legalize these operations, there is concern that the collection of taxes on illegal transient accommodations could be viewed as legitimizing these operations," Ige noted.

That was the same reason Ige gave three years ago when he vetoed a statewide transient lodgings tax then.

Future state Airbnb taxes possible: Ige, however, left the door open for possible future state taxation of private vacation rentals.

"I think knowing that the [Honolulu] City Council is going to create a registration process for the (transient vacation units) … allows us to craft a proposal that specifically acknowledges that, and allows us to incorporate that into our tax collection efforts," Ige told the Honolulu Star-Advertiser.

Do you stay in private rentals when you vacation? If so, is your choice driven by personal lodging preferences or price? Would added taxes affect your choice?

Or are you like the hubby and me, preferring housekeeping services, concierge assistance and late-night room service meals at traditional hotels?

Clarified to note Hawaii does tax short-term rentals, but has no specific mechanism in place to ensure they are paid.

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It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

Comments
  • could be fun to go with yellowstone bus to see more around me.

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