Honolulu sends warning letters to 5,000 residents suspected of running illegal short-term rentals

Honolulu has sent warning letters to 5,000 residents suspected of violating a new law that prohibits short-term rentals outside of resort areas as well as advertising illegal short-term rentals.

The letters were based on online searches of vacation rental websites and comparison of photos on advertisements with actual addresses and city records. Hundreds of people who received the letters say they’ve never hosted short-term rentals; the city has provided a number to call if that’s the case.

The city explains the letters are a courtesy to give owners time to remove ads and cease any illegal activity. According to the city, “Owners of the property involved in illegal advertising will be notified, and if the advertisement is taken down in 7 days, no fine will be imposed for a first offense. If not taken down within this deadline, fines of between $1,000 and $10,000 can be imposed for each day the advertisement remains on display.”

According to the city, the number of online ads for Oahu vacation rentals has already dropped from 5,000 to 4,150, or a 17.7 percent decline, since mid-July.

Honolulu Mayor Kirk Caldwell recently signed the new law that went into effect August 1. The ordinance prohibits new permits for whole-home short-term rentals outside of resort areas, including Waikiki, Ko Olina, and Turtle Bay. A limited number of whole-home short-term rentals are already allowed in residential areas with a non-conforming use certificate (NUC), but no new NUCs will be issued. Starting in October of 2020, the law will allow 1,700 permits for hosted short-term rental units located in homes where the owner lives.

According to Caldwell, the first phase of implementing the new law has begun, with the second phase coming in August 2020. At that point, the city will implement registration regulations, limit the number of hosted vacation rentals, and require monthly reports from hosting platforms, such as Airbnb, to include host data such as names, addresses, tax identification numbers, length of stays, and amount paid.

Since the ordinance went into effect August 1, the Hawaii Vacation Rental Owners Association has sued the city over the law, calling it unconstitutional and claiming it violates laws governing zoning and administrative procedures. Owners at the Waikiki Banyan condos say they’ll also seek a temporary injunction to keep the city from enforcing the law.

In Hawaii, counties set short-term rental operation rules, but vacation rental owners are also required to pay lodging taxes. Short-term rental income in Hawaii is subject to transient accommodations tax (TAT) as well as general excise tax (GET). Vacation rental operators can pass these taxes on to guests, but hosts must register with the state, collect and pay the taxes, and file regular tax returns. 

While short-term rental platforms collect taxes for their listings in many states, they do not in Hawaii. This means hosts are responsible for lodging tax compliance. MyLodgeTax automates lodging taxes to simplify compliance for Hawaii short-term rental operators. For more on lodging taxes in Hawaii, see our state Vacation Rental Tax Guide.

Last month, Hawaii Governor David Ige vetoed a bill passed by state lawmakers that would require short-term rental platforms such as Airbnb and VRBO to collect taxes on bookings on behalf of their hosts. The bill also would have required vacation rental operators to include tax license numbers in all advertisements. 

Under the vetoed bill, state tax officials would not release information about short-term rentals to counties to assist in enforcement. Ige said a stronger law could be created that would allow the state and counties to work together on tax collection and regulation.