Vacation Rentals – Part 2
I received a lot of responses to last week’s article on the big changes to this class of property in Hawaii County. There were a lot of questions asked, so this week I will try and clarify this issue a little further.
What is a short-term rental?
We are first going to define what a Transient Accommodation is. As defined by state law, a Transient Accommodation is any rental in which the initial rental period is less than 6 months. If you had a 1-year lease to rent a home, and after the 12 months it converted to a month-to-month lease, it would not be considered a Transient Accommodation because the initial period was for 6 months or longer. All owners who engage in renting their property as Transient Accommodations are required to not only pay the normal State General Excise Tax, but also collect and pay the Transient Accommodation Tax (TAT), also known as the Hotel Room Tax.
Before we move on to the next definition, it is important to know that the definition above is based on state law. Its sole purpose is to gouge tourists further by making them pay an addition tax on their already expensive Hawaii vacation.
What is the difference between a short-term rental and a vacation rental?
These two terms are just two names for the same thing. They refer to the same type of business – renting a property, generally for vacation purposes, and on a short-term basis. The important point to reference here is that these types of rentals are for periods of less than 30 days.
Am I allowed to rent my property?
This is where the County laws play a role and are different for each county.
In general, so long as you rent your property for periods of a minimum of 30 days, you have every right to rent it out.
What makes things confusing with short-term rentals/vacation rentals and transient accommodations is this: If the initial rental period is less than 6 months, the State will want its TAT tax.
Am I allowed to rent my property for short-term/vacation rentals?
The rules differ slightly from county to county, but in general, unless your home or condo is designated as “Resort” or in a designated resort area, you cannot rent out your property for periods of less than 30 days.
Each county in the past did grant licenses to homes outside the resort areas, and those homes are grandfathered in, but other than those few, you cannot.
Hawaii County’s new ordinance in many respects is the most forgiving compared to the other counties. If you have been actively renting your property for periods of less than 30 days, they will review to make sure you don’t have any neighbor issues, and that you’ve paid all your taxes, then supposedly give you the right to continue what you have been doing. As I pointed out in last week’s newsletter, if you haven’t been renting your property for short-term, after April 1st, you will not be able to get a permit.
Are there any exceptions?
The most glaring exception to all these rules is if you live at the property you are renting. If you live on site, most of the restrictions don’t apply to you. You still have to pay your taxes!
Please keep in mind that the above are the rules from the State and Counties. Do a web search of vacation rentals in Hawaii, and you will find thousands. Very few are playing by the rules. In last week’s newsletter I touched briefly on the issues Honolulu has with trying to nab owners breaking the law. As the law stands, it is virtually impossible.
I deal with a lot of people wanting to buy a slice of Hawaii. In most cases the only way they can afford to do so is by renting their property out when they are not here to use it. It is important to know the rules before you buy. My advice is to ask lots of questions. Your real estate agent will know the classification of your property to know if it is in a resort area, or check with the current owners to see if they have the required license. Get all the facts so you can make an educated decision on your upcoming home purchase.
