Hawaii Supreme Court rules against short-term rentals on agricultural land

A Hawaii County ordinance that prohibits short-term rentals (STRs) on agricultural land was upheld by the state Supreme Court after years in the courts. The Hawaii Supreme Court was unanimous in its ruling that Hawaii law does not permit farm dwellings to be used as STRs.

“Using agricultural lands for genuine agricultural purposes and ensuring that housing is allocated for our residents are two of the most crucial issues facing our state today,” said Governor Josh Green in a statement on the decision.

The Hawaii County Council passed short-term rental regulations in 2018. The law created a new zoning classification for short-term vacation rentals (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 in residential and agricultural zones are required to obtain a nonconforming use permit from the county within 180 days. Homes on agricultural land aren’t allowed to operate as STVRs unless the house had been built before 1976.

In 2020, a group of 20 West Hawaii landowners challenged the ordinance, saying the county law allowed rentals of 30 days or less since it didn’t specify an allowed length for farm dwelling rentals. The state Land Use Commission denied their petition in 2021, but the Third Circuit Court reversed the commission’s ruling on appeal in 2022. Further appeals landed the case at the Hawaii Supreme Court.

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.

STRs in Hawaii have been a hot-button issue for years amid concerns about the state’s housing crisis and overtourism. In May, Gov. Green signed a bill that provides counties more powers to regulate short-term rentals, including banning them. Several counties are considering legislation to change local STR rules.

Hawaii STR income is subject to state and county transient accommodations tax (TAT) as well as general excise tax (GET). STR operators must pay the taxes based on their gross rental proceeds but can pass these taxes on to guests. Hosts must be registered with the state’s Department of Taxation and file lodging tax returns. 

While STR 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 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.

Avalara 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.