City and County of Honolulu pursues illegal vacation rentals

Posted by Mike Bates on Saturday, August 6th, 2011 at 1:59pm.

It's a common misconception that it's okay to to buy a home or condo on Oahu and then rent it out short term. In most cases, such rentals are illegal. The thing is, the City and County of Honolulu has not been doing much to pursue and punish the offenders.

The City is proposing an ordinance to require owners of vacation rentals to post their permit numbers with all advertisements or face penalties of up to $1,000. Continued advertisement after being warned may result in penalties of up to $2,000 per day.

Residents of some communities have strongly opposed vacation rentals for years, arguing that the businesses increase noise and congestion in residential neighborhoods.

In 1989, the City put a moratorium on new vacation rental permits and grandfathered those who were in operation prior to October 22, 1986. At that time there were more than 2,000 permitted vacation rentals. In 2011, the number has dwindled to 875, of which about 200 are outside of Waikiki.

Definition of Transient Accommodations per the State of Hawaii Revised Statutes:

§18-237D-1-07 “Transient accommodations”, defined. (a) In general. “Transient accommodations” means the furnishing of a room, apartment, suite, or the like which is customarily occupied for less than one-hundred-eighty consecutive days for each letting by a hotel, apartment hotel, motel, condominium property regime or apartment as defined in chapter 514A, HRS, cooperative apartments, or rooming house that provides living quarters, sleeping, or housekeeping accommodations, or other place in which lodgings are regularly furnished to transients for a consideration. (b) Applicable presumptions. If the room, apartment, or the like is customarily occupied by transients and the hotel or condominium regularly furnishes such accommodations to transients, the following apply:

It shall be presumed that accommodations are transient accommodations if the accommodations are let for a period of less than one-hundred-eighty consecutive days; and
No presumption applies if the accommodations are let for a period of one-hundred-eighty consecutive days or longer.
See section 18-237D-15-01 for further discussion of the one hundred-eighty day presumption set forth in section 237D-15(b), HRS. (c) “Customarily”, defined. “Customarily” means: (1) By virtue of common usage, the hotel room, apartment, suite, and the like is occupied for less than one-hundred-eighty consecutive days, such as the following: (A) Hotel rooms which are customarily rented to guests who stay for short periods of time, such as periods of consecutive days and nights which are generally less than a week; or(B) Condominium apartments which are customarily rented to guests who occupy theapartments for longer periods, such as thirty consecutive days or more.(C) There may be situations where a hotel room or a condominium apartment is customarily rented to transients, but also is periodically rented for more than one-hundred-eighty consecutive days. For example, a hotel room or condominium which is customarily rented totourists for periods averaging thirty days, but at times is rented to a construction company for temporary housing of its employees. This temporary housing may last for one year or more whenever the companies have jobs in the Neighbor Islands and housing is required to be provided. Whether the hotel, condominium, or apartment operator periodically rents the room, apartment, or suite for one-hundred-eighty consecutive days or more shall not change an accommodation from a transient to a non-transient accommodation. For the period in which the hotel or condominium is rented for one-hundred-eighty consecutive days or longer, however, the revenue from the rental is not subject to the transient accommodations tax.

Conclusion

Without the proper permit, a residence should be rented for no less than 30 days at a time to comply with the law.

If a dwelling is rented for less than 180 days, it may be considered a transient accomodation. For that reason, it is advisable for owners to lease their properties out for at least 180 days (six months) at a time.

All rentals are subject to General Excise Tax (GET) at 4.5% of rent collected on Oahu. If a rental is deemed a transient accomodation, a tax of 9.25% of rent collected also applies. That's a total of 13.75% of rent collected owing to the State for transient rentals. Net income is subject to Hawaii State and U.S. Federal taxes.

Owners blissfully unaware of the consequences of operating short term rentals stand to lose a lot. Don't be one of them!