Vacation rental tax bill passes by 1 vote

Water bill is dead this legislative session

Tourists are shown on Lanikai Beach in Kailua, Oahu, a town with a large number of vacation rentals. State lawmakers eager to gather tax revenue from the state’s flourishing, yet mostly unpermitted, vacation rental sector passed legislation that would require websites like Airbnb to collect and pay taxes on behalf of short-term rental hosts. AP file photo

The Associated Press and The Maui News

HONOLULU — The state Senate on Tuesday narrowly passed a bill that would require websites like Airbnb to collect and pay taxes on behalf of short-term vacation rental hosts, sending the measure to the governor.

The Senate also took no action to bring a controversial water bill that would allow Alexander & Baldwin to continue to divert water from East Maui to the floor for a vote. Opponents of the measure say the bill is dead for the session, which ends Thursday.

The Senate approved the Airbnb measure by a 13-12 vote Tuesday after an impassioned debate. Those in favor warned about the need to boost state tax revenue to pay for preschool and other programs. Opponents cautioned the bill would enable illegal vacation rentals to proliferate, which they said would change communities and reduce the availability of affordable housing.

The House-approved bill now goes to Gov. David Ige for consideration. He hasn’t indicated whether he will sign it.

A spokesman for Expedia Group, which owns vacation rental platforms and, said in a statement the company was concerned about the bill’s requirement that platforms submit confidential information about customers to the state. Philip Minardi said this violates federal law and the U.S. and state constitutions. He said the company would be exploring “all options.”

Airbnb said in a statement that it makes sense for Hawaii to pass the legislation “so the state can effectively capture tax revenue from the industry.”

The bill failed to pass with a 12-12 vote on Friday, when Sen. Kurt Fevella of Ewa Beach, the Senate’s only Republican, was absent because of a medical emergency. He voted against the bill Tuesday, but the measure passed when Sen. Clarence Nishihara voted “yes” instead of “no” as he had on Friday. Nishihara, who represents Waipahu and Pearl City, didn’t immediately return a voicemail message seeking comment.

Sen. Donovan Dela Cruz, the chairman of the Ways and Means Committee, told his colleagues that lawmakers would have to cut funding for programs if the state doesn’t get the revenue the bill would generate. He said that’s because lawmakers went ahead and budgeted spending for the $46 million that the bill was estimated to generate.

He said he wished senators had debated the bill earlier on the floor so less money could have been allocated for those programs.

“We can’t really go back and open all those bills and figure out: How can we adjust all those bills so we can make $46 million disappear,” he said.

Sen. Michelle Kidani said 550 children might not be able to go to preschool without the measure.

“Are you willing to tell those kids, ‘Go home, stay home. We don’t have room for you. We can’t afford it,’ ” she asked.

Sen. Russell Ruderman said the bill would have a short-term benefit of boosting tax revenue but raise long-term costs for society by reducing affordable housing, increasing homelessness and forcing more people to move to the Mainland when they can no longer afford to live in Hawaii.

“It’s a very bad bargain to take what money you can get now and leave the disaster for future years,” Ruderman said.

Sen. Laura Thielen said the bill would make it extremely difficult for Hawaii’s counties to enforce their regulations restricting vacation rentals. She said it would allow websites to shield those who illegally rent properties on a short-term basis.

Thielen preferred a different bill that the Senate had passed earlier, which would have required those who rent properties on a short-term basis to be listed on a county registry. This provision was designed to help the counties to crack down on illegal operators. But the House failed to pass this bill.

The House and Senate separately passed dozens of other bills, including legislation reforming how bail is used by the justice system, decriminalizing marijuana possession in small amounts and establishing a working group to study how to reduce the use of plastics by the food service industry.

The Senate did not take any action on controversial House Bill 1326, which would allow revocable one-year water permits to be extended while applicants seek long-term leases. The Sierra Club of Hawaii, an ardent opponent of the measure, said Tuesday that the measure is officially dead this year. The bill, which failed to clear Senate committees, would require two votes 48 hours apart, which cannot happen given that the Legislature closes Thursday.

The Sierra Club and East Maui taro growers and Native Hawaiian practitioners were the leading opponents of the measure, saying Alexander & Baldwin was behind the measure. East Maui Irrigation company, owned jointly by A&B and Mahi Pono, diverts water from East Maui streams to Upcountry and Central Maui. Mahi Pono purchased all of A&B’s old sugar lands in December.

A&B has a revocable permit that expires at the end of the year.

“Today, justice prevailed, and it has been a long time coming,” said Ed Wendt, a long-time East Maui taro farmer who has been fighting for the return of the water to East Maui streams for more than two decades. “The people of Hawaii have a constitutional right to this water that Alexander & Baldwin has been stealing from us for 100 years.”

A&B currently holds a one-year revocable permit to divert water, including for the county water system and the Kula Agricultural Park, until December. The Sierra Club says the water for county uses will continue to flow, but county officials say the East Maui source is in jeopardy.