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Posts tagged ‘HB1707’

Legislation Affecting Vacation Rentals in Hawaii Upsets Investors

Is Hawaii a good place for investors in vacation property? Recent developments in the state legislature have left many in doubt.

Overwhelming fear from homeowners that legislation affecting short-term rentals in Hawaii may cause them to lose return on their investments – possibly having to sell their property or even risk foreclosure.

The highly divisive legislation in question calls for non-resident (read: off-island) vacation rental owners to employ a licensed property manager who would be responsible for collecting taxes on the homeowner’s behalf and who would be the primary contact listed on all solicitations, advertisements, etc. Guests would be required to deal with this agent in place of the homeowner.

The bills have sought, in large part, to be a means of ensuring non-resident owners pay their required taxes, a justification that has angered owners who have consistently paid their taxes. In effect, for non-residents this means the end of the concept of vacation rental by owner, i.e. the self-management of their vacation rental homes.

A slew of legislation has led some to describe the legislative battles as a “war”. Bills that have been fought over include SB2089, HB1706, and HB1707. At play now are HB2078 and SB2947, the language of which is being hotly contested as this story goes to press.

The highly charged opposition to the legislation has sent thousands of pages of testimony to legislators, organized petitions and watch-groups to protect vacation rentals by owner in Hawaii and beyond, and have taken to web boards and online forums to share strategy and information. They describe the legislation as an “onslaught” that unfairly targets non-resident investors of vacation rental property which has quickly garnered Hawaii a reputation as an inhospitable environment for outsiders to do business. Rentini.com has confirmed as much. “Many would-be investors on Hawaiian vacation homes are holding off until this legislation is behind us before going through with their plans,” a Canadian client recently told us.

The technology of the Internet has made do-it-yourself solutions more popular than ever. It is no surprise that vacation rentals by owner has grown into such a huge industry, one that continues to threaten management companies that have traditionally acted as intermediaries, charging large sums of money and taking up to 50% commission plus other fees on rental transactions. Just as travel agents have been hit hard by the Internet, so too have hotels and property management firms felt the sting of new ways of organizing travel.

Individual owners have long complained that this arrangement is deeply unfavorable to them. With a simple Internet connection, many have taken the responsibility of management upon themselves. As reported earlier, a homeowner from California told us:

I know most of the management companies on the Big Island, and I wouldn’t trust the majority of them to manage my home. To me, this is the realtors wanting this legislation. I just don’t think it will work the way they think it will. Two realtors [I know of] (one of them a vacation rental property manager), has lost one home to foreclosure and the other one had to file for bankruptcy. My help on the island had her realtor’s license, but I think she let it expire. What I don’t get, is that I would have to give up the handling of the rent completely and it would go through a management company in Hawaii. I think I will sell before I do that.

Adam Yanow, a vacation rental owner from Canada, expressed his frustration with management companies which he views as the driving force behind the legislation. Fearing foreclosure, Adam writes:

This is just another attempt by rental managers to increase their profit margin at our and our guest’s expense…. I, for example, am at least 20 percent underwater on my mortgage already due to the recession. This bill will force me into foreclosure.

The legislation is also feared by many simply because it would take over a role they have cherished for several years – the role of manager of their vacation home. Marsha Vaughn, a Kihei condo owner living on the main Island, expressed her disappointment in towards the legislative hurdles. “[T]he Hawaiian legislators ha[ve] created not one, not two but at least four different bills,” she writes, “[all] designed to force me to turn the management of the business I so lovingly created over to licensed property managers or real estate agents.”

What has outraged many homeowners regarding these bills has been that as one is successfully deferred its contents have “morphed” into an amended version of another bill. This was the case with HB 2089 that was deferred. The requirement for a licensed property manager to operate the rental was vociferously opposed until the bill’s deferment. Yet in an amendment to HB 2078 this clause was resurrected, reintroduced. In light of this, homeowners have become hyper-vigilant to any amendments that may affect them.

Online message boards have been on fire with homeowners opposed to the recent string of bills. “The intent behind much of it seems, from my perspective, to place the blame for on-island problems directly in the laps of off-island investors,” said one blogger.

“We live in Vancouver and own two condos on Kauai, and I wouldn’t want anyone managing them but us. We take great care with them and have had just the best experiences dealing direct with our guests. I also have two friends in the process of buying in our same complex and both have put their deals on hold until this gets sorted out,” wrote another.

Adam Leamy lambastes Hawaii’s “me-first” policies that threaten NAFTA protections for cross-border investments in vacation rentals, such as his own. “And what a monopoly it will be. Testimony on these bills has revealed that the commissions Hawaii property management firms charge to properties under their ‘care’ can be 30, 40, and 50 per cent, with all manner of hidden costs and property abuses. It’s hard to see how those commissions will decline, or how quality and service will increase once a state-legislated monopoly is in place,” added Leamy.

John Eckel, Vice-President of the Rentals By Owner Awareness Association, has stated that he doesn’t believe it would be wise for the State of Hawaii to pass the legislation as it currently stands. The repercussions can be “damaging for Hawaii.” Citing alleged unconstitutionality of the bills, Eckel warns of the cost of “legal wrangling” that will result should this legislation pass. “It may cost Hawaii dearly,” Eckel said.

Legislation Targeting Off-Island, Self-Managed Vacation Rentals Still Kicking in Hawaii

Where’s the aloha in the aloha state? According to off-island resident owners of vacation rentals, the State of Hawaii is putting their business in the cross-hairs.

The controversy in question centers on a slew of legislation calling for non-resident (read: off-island) vacation rental owners to hire rental agents to manage their businesses. Writing in the Vancouver Sun, Adam Leamy, owner of a rental in Maui, summed it up this way:

Four bills are advancing through the Hawaii legislature that target off-island…owners of vacation rental properties. Senate bills (HB2078, SB2089) and House bills (HB1706, HB1707) require off-island owners of vacation rental properties to turn over the management of their rental property to some form of on-island licensed real estate broker or salesperson, managing agent, rental agent, or condominium hotel operator. Curiously, local, on-island owners of vacation rental properties are exempted from the bills and their provisions.

This legislation has given rise to stormy opposition from off-island owners who self-manage their vacation rentals, and Leamy is one of them. Leamy lambastes the “me-first” policies that threaten NAFTA protections for cross-border investments in vacation rentals, such as his own.

Not only are Canadians like Leamy voicing legal concerns, hundreds if not thousands of people are arguing against the discriminatory nature of the bills as such. Attorney Gregory Kugle, representing the Hawaii Vacation Rental by Owners Association, has lodged complaints against the bills on grounds that they’re unconstitutional, in violation of the Commerce Clause. On homeowner forums, there is already talk about lawsuits should this legislation pass in its current form.

Marsha Vaughn, a Kihei condo owner living on the main Island, penned an article in Maui Now in which she expressed her sadness in the face of the legislative onslaught. “[T]he Hawaiian legislators ha[ve] created not one, not two but at least four different bills,” she writes, “[all] designed to force me to turn the management of the business I so lovingly created over to licensed property managers or real estate agents.”

The question “Why?” has produced answers. But detractors argue that even the answers are flawed and foolish. The stated reason why this legislation was borne has been that, as Vaughn says, “[S]ome …people cheat on their taxes.” Or rather, “Because the Department of Taxation can’t figure out how to find the people who do.” This latter point has added fuel to the fire. In targeting off-island owners, Hawaii has offended countless vacation rental owners who assert their good standing vis-a-vis current laws and their tax compliance. They feel under attack, angered by the accusatory nature of the legislation. “We Are Not Tax Cheats,” Vaughnn exclaims.

Indeed, the argument that non-residents are disproportionately tax evaders doesn’t carry much merit. Leamy explains:

Legislators say the measures ensure tax compliance, but the only evidence of non-compliance is anecdotal, and provided by the…licensed real estate brokers or salespersons, managing agents, rental agents, or condominium hotel operators. The state has no data to suggest this is the case, and in a classic case of “legislate first, get facts later,” says it will undertake to find out.

In fact, testimony by the Department of Taxation to the House Committee on Finance in 2007, addressing a Hawaii Tourism Association study of non-compliance vis-a-vis vacation rentals, stated that proposed regulations could backfire:

INCREASED SCRUTINY MAY DRIVE TAXPAYERS UNDERGROUND-The Department points out that after its last audit project with HTA, the Department concluded that, in general, those that rent transient accommodations are tax compliant. The Department fears that any increased scrutiny could potentially backfire and drive otherwise tax compliance individuals ‘underground.’ Taxpayers that are forced ‘underground’ can have a direct impact on collections.

Many local agencies were armed with detailed information on those rentals that were non-compliant at the time. Many feel that the problems could be addressed by the counties on the local level and that the legislation reveals a general failure in local and state government in Hawaii. That the state is cash-strapped is no excuse for current legislation, they say.

What has been shocking about these bills is that as soon as one is successfully deferred its contents reappear in an amended version of another bill, causing off-island owners to again rally against the new morphing of the bill. This was the case with HB 2089 that was deferred. The requirement for a licensed property manager to operate the rental was vociferously opposed until the bill’s deferment. Yet in an amendment to HB 2078 this clause was resurrected, reintroduced. In light of this, homeowners are more vigilant to any amendments that may affect them.

Behind the stated interest of securing rightful tax money for the State of Hawaii, there are surely hidden interests. In a previous article, I wrote that HB 2089 was revealed to be backed by the City and County of Honolulu Department of Planning and Permitting; Maui Hotel & Lodging Association; Condominium Rentals Hawaii; Poipu Beach Resort Association; West Hawaii Property Services, Inc.; Waikoloa Vacation Rental Management; and four individuals. Testimony in opposition, on the other hand, came from the Hawaii Vacation Rental Owners Association; The Travel Group; Trading Places International; Hanalei Bay Resort; Makana Mai Ka Lani; Hot Spot Tax Services; Sunshine & Rainbows, LLC; Humiston and Company, CPAs; and numerous individuals.

The current legislation, so similar to that early legislation, is lobbied for by roughly the same interests, with property management firms and hoteliers taking lead.

Overwhelming fear that these bills could cause homeowners to lose return on their investments – possibly have to sell their property or even risk foreclosure – is rife. Many would-be investors on Hawaiian vacation homes are holding off until this legislation is far behind us before going through with their plans.

The office of Senator Sam Slom, the lone dissenting vote on much of the legislation, evidently provided a list of amendments on HB 2078 that they expect to see introduced this Friday. They include the following:

1. removing the term “non- resident owners” and replacing it with language that conforms with the Landlord Tenant Code (521-43)

2. deleting the definition of non- resident owner

3. replacing the requirement that owners residing out of state or on another island must hire rental agents to manage their property with the requirement that they must designate an on- island agent

4. Defining the scope and duties of the designated agent to be consistent with chapters 467 and 521 of HRS, specifying that the agent cannot perform the duties of a real estate agent without a license, and clarifying that the agent will serve as a local point of contact.

5. Tying the fines under this section to existing fines for non- payment of taxes under the tax code

6. Requiring that immediate notification be given to the appropriate parties upon a change in contact information for the designated agent

7. Requiring that the GET and TAT tax numbers be listed on any advertisement for a transient accommodation

8. Deleting the tax clearance provision in subsection ( e )

9. Amending the findings and purposes section to reflect the changes to the bill

Although many homeowners still have reservations about displaying a registration ID or website where the ID can be found on all advertisements or solicitations, the general sentiment is that these amendments would be agreeable enough. Most homeowners seem eager to welcome the changes.

All this drama has resulted in some positives. In their opposition to the recent slew of legislature, off-island vacation rental owners have formed new bonds and strengthened old ones. A new NGO devoted to keeping abreast of developments in pending legislation affecting transient rentals has come into being. Its name is the Rental By Owner Awareness Association (http://rboaa.org). Many other allegiances were formed.


How do you feel about this legislation winding its way forward in Hawaii? Give us your thoughts. Tell us your stories. Share them below.

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Shh..don’t tell anyone yet…let the Bill get passed!!!

A specter haunts vacation rentals by owner in the state of Hawaii. The problem is a pressing one.

In January of this year, two bills were introduced to the Hawaiian legislature that could effectively end the practice of vacation rentals by owner as we know it, and turn the industry in Hawaii on its head.

The first Bill, Senate Bill 2089 calls for any non-resident of Hawaii who rents out their vacation rental accommodation to employ a property manager who has been approved by the real estate commission. The second, House Bill 1707, requires that any non-resident property owner in Hawaii who rents their housing short-term must do so through a licensed real estate salesperson or broker. The middleman must then collect all applicable taxes for the rental of the property or the owner is penalized.

One proponent of the measure evidently sent an email to fellow Realtors and property managers celebrating the possibility of 1707’s passage. The email is telling:

I didn’t have time yesterday to provide written testimony but they passed the initial Bill with a complete affirmative vote from the House…The Bill will require all mainland owners who rent their homes or condos out to have a licensed Realtor on island …ie …Bayer …vinson… Berndt…this way the State can make sure everyone is paying their GET and TAT… yee hahhhhlll! But don’t tell anyone yet…let the Bill get passed! !…then we can get some $$$…unless they find a cheap Broker who will represent them for cheap…

But it was too early to celebrate a victory. Concerned homeowners mobilized and took action. At a public hearing on February 23, thanks in large part to the testimony from vacation rental owners that pay their taxes on time and employ local Hawaiians to maintain their homes, HB 1707 was “deferred”. A temporary victory for vacation rentals by owner in Hawaii, but it would be premature to start dancing the Hula just yet.

The ending of HB 1707 is not an outright win, as that first Bill – SB 2089 – still awaits its hearing. If proponents have it their way, on Tuesday, February 28th, SB 2089 would again interject a middleman into already established private rental businesses in Hawaii.

Tuesday’s hearing will again bring proponents of this bill out into the open, revealing the powerful Realtors interests that gave birth to these bills. Many vacation rental owners who would be adversely affected by this bill are not aware that it is out there. If owners do not push back, SB 2089 could pass.

To Submit testimony online, click here and hit the blue Submit Testimony button.

To ensure the CPN Committee receives the testimony it is essential to duplicate the message to cpntestimony@capitol.hawaii.gov by 10:00 am Hawaiian Time on Monday Feb 27.

Meanwhile, many are challenging the constitutionality of the bills. Attorneys and constitutional scholars point to the targeting of non-residents of Hawaii as blatantly discriminatory and unconstitutional. Gregory Kugle, representing the Hawaii Vacation Rental by Owners Association, authored a widely distributed letter in opposition to the bill on these grounds.

The technology of the Internet has made do-it-yourself solutions more popular than ever. It is no surprise that vacation rentals by owner has grown into such a huge industry, one that continues to threaten management companies that have traditionally acted as intermediaries, charging large sums of money and taking up to 50% commission plus other fees on rental transactions.

Individual owners have long complained that this arrangement is deeply unfavorable to them. With a simple Internet connection, many have taken the responsibility of management upon themselves.

SB 2089 can be viewed in this light. If it passes on Tuesday, the old way of business will enjoy a revival while the fate of vacation rentals by owner in Hawaii will likely take a nose-dive. Many homeowners familiar with the bill say that the stakes are too high and they will sell if it passes.

One homeowner I spoke with from California ended the conversation by saying:

I know most of the management companies on the East side of the Big Island, and I wouldn’t trust any of them with my house or my money. To me, this is the realtors wanting this legislation. I just don’t think it will work the way they think it will. Two realtors [I know of] (one of them a vacation rental property manager), has lost one home to foreclosure and the other one had to file for bankruptcy. My help on the island had her realtor’s license, but I think she let it expire. What I don’t get, is that I would have to give up the handling of the rent completely and it would go through a management company in Hawaii. I think I will sell before I do that.

If SB 2089 passes, it may be Hawaii that loses in the end.

A Hawaiian resort before bill SB2089

A Hawaiian resort before bill SB2089

Think of it as it was before and after!

A Hawaiian resort after bill SB2089

... and after bill SB2089

Do you own a property in Hawaii?

What is your position on SB 2089 and HB 1707 ?

What if every state adopts the same practice to force all out-of-state residents to employ a broker for running vacation rental business?

 

 

Does the SB 2089 sound unconstitutional to you?

Attorney’s letter to Senator Baker from Hawaii Vacation Rental Association

 

 

 

No more Aloha in the Aloha state if you are a vacation rental owner outside the islands!

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