B&B, vacation rental tax bill goes forward

Article Photos

WAILUKU - Taxes and a little confusion led the debate as the Maui County Council's Budget and Finance Committee on Tuesday began the heated and tricky process of potentially raising property taxes for bed-and-breakfast and transient vacation rental owners.

Or maybe lowering them.

Members voted 5-3 to forward to the entire County Council a bill from committee Chairman Joe Pontanilla that would establish a "commercialized residential" real property tax classification for both bed-and-breakfasts and transient vacation rentals. Council Member Mike Victorino was absent.

Committee members took no action on a second bill from the administration of Mayor Charmaine Tavares that set a real property tax classification for only bed-and-breakfasts. Pontanilla said later that it was a redundant proposal.

The leftover bill also created some confusion among about 60 people in the audience who own transient vacation rentals and bed-and-breakfasts.

Meanwhile, the bill that passed technically will put transient vacation rentals and bed-and-breakfasts at the same tax rate, which is $8.20 per $1,000 of assessed value. By comparison, a homeowner's tax rate is $2 per $1,000.

If it becomes law as is, the measure means vacation rentals and bed-and-breakfasts would pay the same rate as hotels, Pontanilla said after the meeting.

However, Pontanilla noted that the new bill doesn't go into effect until fiscal year 2011. And before that - during the next county budgeting process - the same committee will probably reset the real property tax rates for transient vacation rentals and bed-and-breakfasts, he said.

What those rates will be, no one could say on Tuesday.

The Budget and Finance Committee could set the real property tax rates for bed-and-breakfasts and transient vacation rentals based on what kind of business it is, its site size, number of rooms or even income, council members suggested.

"This is just the first step in many steps," Pontanilla said as he tried to calm the audience, which included some jittery vacation rental owners.

But Finance Director Kalbert Young and Pontanilla said that if the County Council doesn't at least approve some form of real property tax classification for the vacation rentals and bed-and-breakfasts before the end of the year, the council will have missed the deadlines for action.

The owners would then have to pay the hotel tax rate in the next fiscal year.

Council Members Jo Anne Johnson, Gladys Baisa and Mike Molina voted no on the commercialized residential tax classification, saying they'd like more time in committee to work on the measure.

Whatever solution council members find, Johnson said, they are committed to making it equitable for the business owners.

Many owners pleaded and demanded that their taxes not be raised arbitrarily, especially in this terrible tourism economy.

In addition, Young said there was some confusion in the audience about the bill that was not voted on. The bill stated that it would "clarify" that bed-and-breakfasts do not receive the homeowner's exemption.

Young said, apparently, the bed-and-breakfast operators who were previously operating illegally didn't know that once they became legal operations, no matter what, they would no longer receive the homeowners' exemption.

Legal bed-and-breakfasts have not been eligible to receive the homeowners' exemption for years under the Maui County Code, Young said.

The homeowners' exemption slashes $300,000 in assessed value from a home for property tax purposes. That exemption often saves people thousands of dollars a year in real property taxes.

"To me, these new rules would unfairly tax the working poor," testified Cheryl Corbiell, who is one of about 50 people who operate bed-and-breakfast businesses on Molokai.

In order to live in her home full time, Corbiell said, she has three part-time jobs. Any more taxes, and she said she could see her life crumble and lose her home.

Taxes for some homeowners might increase by up to $8,000 annually under some scenarios, testified Tom Croly, spokesman of the Maui Vacation Rental Association. Most owners are retirees. Almost no one can afford a significant property tax increase, he said.

Croly called on the committee to set tax rates based on size of operation and whether it's a transient vacation rental or bed-and-breakfast.

Based on the comments made Tuesday, there seemed to be an understanding among the audience and some council members that the transient vacation rentals would likely have a higher tax rate than bed-and-breakfast operations since the vacation rentals don't double as homes.

The necessity for changing the tax language and rates emerged with the new bed-and-breakfast ordinance, which the County Council passed in late December. The ordinance capped the number of operations allowed in each district and created what's supposed to be a simplified permitting process as well as rules meant to protect neighbors from noise and a lack of parking.

The council's Planning Committee still needs to tackle a new ordinance for transient vacation rentals, which are considered more plentiful and often more controversial since the owner doesn't live there to keep an eye on things.

In the meantime, bed-and-breakfast owners have recently started getting approved.

But anyone operating either kind of establishment without a permit remains illegal in Maui County and is subject to fines.

* Chris Hamilton can be reached at chamilton@mauinews.com.