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Posts tagged ‘Senate Bill 2089’

SB 2089 Advances Through the House

12 mile Kalalau trail leads to the picturesque Napali beach. Does the Bill SB2089 bring you Aloha?

On March 6th, the Hawaii State Senate passed 372 Senate Bills during its session. Shouldn’t that feel as exhausting as hiking the 12 mile Kalalau trail along the Napali coast? Perhaps, but do all these bills lead us to an image as picturesque as the Napali beach?

According to individual vacation rental owners rebelling against Senate Bill 2089, this one will certainly not.

Senate Bill 2089 was forwarded from the Senate Committee to the House. The vote passing it forth was a lopsided 24 in favor, 1 opposed.

Senator Sam Slom, the lone dissenting vote, answered a supporter’s question of what he saw in the Bill that made him oppose it. Senator Slom offered a succinct response:

Dear Gordon,
Thank you for your email. I saw:
1) An unconstitutional bill

2) An unfair cost burden to out of state owners.
It is as simple as that.
Aloha, Sam

Yesterday, March 8th, SB 2089 passed its first hearing by the House and is scheduled for a second hearing on Monday, March 12th.

In the meantime, homeowners continue to band together – creating action groups and strategizing on how they can best have their voices heard.

They continue to submit testimony in opposition to the bills. Other homeowners contend that SB 2089 violates NAFTA. Still others have reached out to the American Civil Liberties Union for support. Attorney Gregory Kugle is arguing that SB 2089 discriminates against non-residents and is therefore unconstitutional, a view echoed by many scholars of constitutional law.

John Eckel, a principal organizer of the homeowners group, summed up his opposition in six points, ending with an appeal:

1. It will do significant damage to tourism and non-resident property owners.

2. It reduces visitors’ right of free choice to decide if they would like to rent directly from an owner or instead go through an agent.

3. It will reduce property values since it will make it less attractive to own property in the State of HI. This will result in lower property taxes.

4. It is unconstitutional since it discriminates against non-residents.

5. The Department of Taxation testified in 2007 that there was not a substantial non-compliance problem. There has not been any hard data submitted to suggest that situation has changed.

6. This appears to violate the provisions of NAFTA (North America Free Trade Act).

These are all substantial issues that must be considered and addressed before the bill should be approved. This will take time. Please do NOT rush this bill through. The damages will be very consequential both for the State of Hawaii and the non-resident property owners.

One of the difficulties faced by individual homeowners confronting this law has been awareness of its existence. Although they’ve been actively working to get word out, there are organizational challenges. The homeowners – though many are out-of-state and distanced from the legislative process, in different time-zones – the homeowners communicate with each other on-the-go. Many are organizing using the same media they use to promote their vacation homes: forums, blogs, social media, email and phone trees.

Reading their exchanges on public forums, the confusion and anger caused by these bills is palpable. Homeowners feel they’re being railroaded with not one but three separate bills that, if passed, will cost them dearly. One of the Bills – HB 1707 – has been deferred. Attention is now focused primarily on SB 2089, which would require the following:

Requires any nonresident owner who operates a transient accommodation located in the nonresident owner’s private residence to employ a real estate broker or salesperson. Requires any nonresident owner who operates a transient accommodation located in the nonresident owner’s private residence in a condominium hotel to employ a condominium hotel operator. Requires relevant information about owners of the transient accommodation to be provided to the department of taxation for enforcement purposes. Requires the counties to provide the department of taxation with relevant owner information about every transient accommodation permitted by the respective counties annually. Establishes fines for noncompliance. Provides an exemption from the mandatory employment of a licensed real estate broker or salesperson or condominium hotel operator in certain circumstances.

Homeowners feel that they’re being faced with multiple, unclear bills that will compromise their business. What’s worse – doubts persist over whether or not Senators read through or even counted testimony against SB 2089 before it was sent to the House. One homeowner posted the following:

A friend of mine spent some time reviewing all the testimony on the SB 2089 posted last week, and gave me permission to share with you all. It is rather interesting:

  • Total votes to support – 28
  • Total votes to oppose – 706

1 vote to defer from Mike McCartney – Pres & CEO Hawaii Tourism Authority

FYI – Vast majority of those supporting were just a vote. No comments or documentation. Those opposed were very detailed and fact oriented.

In response, one user commented,

The legislators may be pinched for time, and aren’t giving the testimonies the time they should.

In reference to the State House passing 300 bills primarily aimed towards boosting the economy, another blogger wrote:

Any group of people that can pass 300 bills in what? a week? is not paying attention to what they are doing.

Why is Rentini so invested in these issues? This Bill hits close to home. Some of us run our own rentals in Hawaii via other states like NY and California, and we have friends – and clients – that do too. We support them as much as we support you.

Let’s hope the bill doesn’t pass. Either way, Rentini will stand behind homeowners. We are working on features to minimize the impact of the Bill shall it pass.

We would like to hear from you.

Why are you opposed to SB 2089? Are you a frequent visitor of the islands, or do you own a home there? Regardless of who you are we encourage you to submit your stories about dealing with individual owners versus management companies. We’ll publish your best stories and forward them to the journalists we know.

Let’s spread the word and fight this together!

Publish your stories as comments below.

What is Senate Bill 2089 after and who is behind it?

Pu'u 'O'o crater floor continues to erupt lava as Hawaii Senate floors get some heat from vacation rental owners

Hawaii crater floor continues to erupt lava while Senate's floors get some heat from vacation rental owners

The purpose of Senate Bill 2089, which calls for any non-resident (out of island) owner who rents out their vacation accommodation in Hawaii to employ a property manager, is supposed to be for Hawaii to ensure it collects taxes from short term rentals.

But are they going about it the right way? Are they only after taxes or something more?

While Hawaii aims at ensuring it gets its taxes, we’ve been hearing from many owners who do pay their taxes on time and employ local Hawaiians to help them manage their rental business. They express fear of overhead costs associated with employing a property manager approved by the real estate commission. There has long been bad blood between individual owners and property management companies. One vacation rental owner shared her experience of hiring a prominent management company in Hawaii:

On almost ALL of my monthly revenue reports, they took more money than they were entitled to take. Instead of 45%, they would take 47% or 48%. When I questioned them, they always paid me back very quickly and apologized. However, never, ever was an error in my favor…always theirs. They were totally skimming off the top and I’ll bet they did it to all the owners and nobody bothered to double check their math. They would frequently upgrade angry guests who booked “parking lot view condos” to my oceanfront condo for $135/nt!! I was sick of getting ripped off by them and having my condo trashed by guests who couldn’t even afford the Motel 6! So I fired them. I don’t ever want to go back to them…ever!

Her next statement is even more telling:

The other management company I used, Luxury Kauai, didn’t bother to pay my taxes for an entire year! Guess who got stuck paying the interest and penalties?

This defeats the stated purpose of the Bill – for Hawaii to collect tax revenue accordingly.

Writing for Maui News, Adam Yanow, a vacation rental owner from California, expressed his frustration with management companies which he sees as the force behind SB2089. 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 Senate Committee set a 48 hour period to deliberate on the Bill with added amendments, which is set for tomorrow March 6th. Amendment 6 again asserts the preeminence of a middleman in the vacation rental business by requiring

advertisements for every transient accommodation located in the State to include the name and phone number of a local point of contact for each transient accommodation, and establishing fines for noncompliance.

This would interject a middleman and consequently increase overhead costs, effectively ending the practice of vacation rentals by owner if you are running the rental as a non-resident.

Amendment 7 comes closest to a compromise. It states,

Permitting nonresident owners who obtain an annual tax clearance … to be exempt from the mandatory employment of a licensed real estate broker or salesperson or condominium hotel operator proposed by this measure.

However, there is no clear understanding what it takes to qualify for the exemption. While this gesture is viewed as a possible workaround for those non-residents targeted by Bill 2089, the amendment raises many new questions, mainly, What are the costs – both financial and labor?

Many vacation rental owners feel there are already sufficient measures in place at the local level to address taxation. In the words of Senator Baker, these measures “strengthen enforcement of tax laws and enhance consumer protection in the State’s transient vacation rental market….”

It seems the only proponents of the bill are those who will directly benefit financially from the Bill’s passage:

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.

On the other hand, testimony in opposition came from

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.

An analysis of testimonies of those in favor of the measure and those opposed turned up interesting findings.

Total votes to support – 28

Total votes to oppose – 706

1 vote to defer from Mike McCartney – Pres & CEO Hawaii Tourism Authority

Among these votes, the vast majority of those supporting only voted without adding comments or documentation. Those opposed were very detailed and fact oriented.

Gregory Kugle, who has been representing the Hawaii Vacation Rental by Owners Association, authored a letter in opposition to the bill on constitutional grounds. In part, he states:

The Constitution prohibits discrimination against non-residents through the Equal Protection, Privileges and Immunities and Commerce Clauses…. The statute is unconstitutional if it is not necessary to further a compelling state interest. Under the Commerce Clause, the inquiry is whether the law regulates evenhandedly with only incidental effects on interstate commerce, which means different treatment of in-state and out-of-state economic interests. “If a restriction is discriminatory, it is virtually per se invalid.”

Citing what he calls a “fatal flaw” in the Bill, Kugle writes,

it impermissibly infringes on the four Counties’ home rule powers, each of which can differently define transient accommodations for purposes of their zoning laws. In addition, property owners are statutorily exempt from using a licensed realtor when renting their own property.

Despite all this, the Bill may still pass. If it does, we can expect to see drastic changes in the Hawaiian vacation rental space that may include foreclosures, sales, and even a possible impact on tourism. This, in turn, might cause a drop in revenue for the Aloha State.

Who would be willing to invest in real estate in Hawaii if private property owners are not given a choice of how to run their businesses?

Eliminating competition usually results in price fixing. Are tourists of the Aloha state ready to bite a drastic price increase?

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