Ruling: Owner-occupied short-term rentals allowed on Hawaii County agricultural land

Hawaii County agricultural landowners can rent their farm dwellings out for short terms, as long as the owners live on the property, according to a county Board of Appeals decision.

The ruling was a response to a petition by a group of neighbors of a vacation rental property in Captain Cook called Kohania Villas. The neighbors said the property owners did not register or receive a nonconforming use certificate as required by the county’s short-term vacation rental (STVR) law.

The Hawaii County Council passed short-term rental regulations in 2018. The law created a new zoning classification for STVRs, defined as dwelling units with no more than five bedrooms for rent, where the owner does not live on site, and which are rented for 30 consecutive days or less. Under the ordinance, STVRs are barred in residential and agricultural zones and only allowed in hotel, resort, and commercial zones.

County officials said that the short-term rental law did not apply to the owners of Kohania Villas because they lived on the property, making it a bed-and-breakfast rather than an STVR, and they complied with the property’s agricultural zoning because they grow fruit. The county maintains that there is no provision that limits the landowner from renting a portion of their residence within the agricultural district.

The Board of Appeals agreed and dismissed the neighbors’ complaint.

In a related case in May, a Kona judge overturned the county’s rules against STVRs in agricultural districts, but the county has appealed that ruling. The decision came in response to a petition by a group of family trusts that own land in the agricultural district and want to develop nonowner occupied short-term rentals.

According to a state law that went into effect on June 4, 1976, houses built on land classified as part of an agricultural district must be farm dwellings and have a connection to agriculture. The county Planning Department allows nonconforming use permits for short-term rentals in agricultural districts only on lots created before that date.

The judge agreed with the petitioners that state land use law doesn’t specify the allowable duration of leases of farm dwellings. He granted the petition from the group of family trusts and denied a petition by the county to uphold the rules while the county appeals.

Hawaii County’s short-term rental rules require short-term vacation rental operators to show that all property and lodging taxes are paid. In Hawaii, short-term rental income is subject to state and county transient accommodations tax (TAT) as well as general excise tax (GET). Vacation rental operators must pay the taxes based on their gross rental proceeds, but they can pass these taxes on to guests.

Hawaii transient accommodations operators must be registered with the state’s Department of Taxation, file regular tax returns, and pay county taxes to Hawaii County tax authorities and state taxes to state authorities.

While vacation rental marketplaces such as Airbnb and Vrbo collect taxes on behalf of their hosts in many states, they’re not allowed to do so in Hawaii. That means Oahu hosts are responsible for taking care of all tax obligations, including registering, filing lodging tax returns, and paying taxes to both the state and the county.

MyLodgeTax can help Hawaii short-term rental hosts automate registration and filing for state and county TAT and state GET. For more on lodging taxes in the state, see our Hawaii vacation rental tax guide. If you have tax questions related to vacation rental properties, drop us a line and we’ll get back to you with answers.