New tax category for Oahu bed and breakfasts

The latest development in the ongoing vacation rental debacle on Oahu has seen the City Council pass and Mayor Kirk Caldwell sign into law a new tax category for Oahu bed and breakfast properties.

Back in July, a law was passed making unlicensed transient vacation units (TVU) illegal across the island, except for in the resort areas of Waikiki, Ko Olina, and Turtle Bay. City officials promised “online sweeps” to identify and penalize property owners operating illegal TVUs (up to $10,000 per day). The same law allows for up to 1700 permits to be made available island-wide in October 2020.

Bill 55, passed in early December, creates a new tax category for bed and breakfasts and classifies them as hotel-resort properties. A bed and breakfast is defined as a “hosted” property on which the owner lives and offers rooms and services to guests for less than 30 days. TVUs are un-hosted “whole-homes” and also offer stays of less than 30 days.

By designating B&Bs their own tax classification, the law virtually assures that residential property owners operating bed and breakfasts will face taxes higher than $3.50 per $1,000 of property value. The hotel-resort rate is $13.90 per $1000 of property value. Such rates are set by the City Council in June each year. The new B&B tax rate is expected to fall somewhere between the two.

And while no new bed and breakfast permits have been issued on Oahu since 1989, many thousands of B&Bs and TVUs have opened all over the island. Support and opposition to increased regulation and enforcement have been impassioned, and the new tax designation for B&Bs is just one part of an increasingly divisive issue on Oahu.

The law passed in July has already had an impact on the tourism industry on Hawaii and other sectors that serve it. Visitors have been forced to seek last-minute options for accommodations as reservations made months in advance have been cancelled. Visitors with airline tickets already purchased have been left in the lurch. While many TVUs have stopped operations, data indicates that the law has not resulted in a significant selloff of those properties.

What the new B&B tax classification means for incoming visitors remains to be seen, at least until the B&B tax rate is set in June 2020. It seems likely that visitors can expect to pay more, as property owners adjust their prices to compensate for an increased tax rate.

The November Hawaii Tourism Authority November Hawaii Hotel Performance Report notes a significant increase in revenue per available room (RevPAR in industry parlance) and in overall occupancy. This is likely attributable to the crackdown on illegal vacation rentals and hotel and resort closures for renovations.

It’s a complicated and complex issue for property owners and visitors alike, and one that remains fluid and changing. Our experts at Hawaii Aloha Travel can help you navigate finding suitable (and legal) accommodations during your Oahu vacation. Give us a call.

Posted by: Jamie Winpenny on Dec 22, 2019