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State, counties should
rein in black market B&Bs

THE ISSUE The state is reviewing Hawaii bed-and-breakfasts advertising on the Internet to determine if they have paid taxes.

OPERATORS of unauthorized bed-and-breakfast vacation rentals might soon receive state tax bills on what is essentially black-market revenue. The collision should lead to a fresh assessment and possible scaling back of Hawaii's B&B stampede, which has some neighbors up in arms.

Governor Lingle has directed the state Tax Department to make B&B operators, including the illicit, pay the 4 percent general excise tax and the 7.25 percent general excise tax. The state has every reason to seek back taxes from those who have been snubbing zoning and tax laws.

The city stopped issuing B&B zoning about 20 years ago, permitting those in operation to continue but disallowing any new ones in residential neighborhoods. The Internet has nourished a growth in the business in Hawaii and elsewhere, despite restrictions.

Seattle's city council recently began allowing bed-and-breakfast operations in single-family neighborhoods. They had been limited to multifamily and commercial areas, and homeowners are complaining that increased noise and traffic is depriving them of the American Dream -- a home in a quiet neighborhood.

Lingle told the Kailua Chamber of Commerce last week that she has received e-mail from Kailua residents with similar complaints. They say numerous bed-and-breakfasts are "turning their nice residential community into one where people come and they are partying all day and night. People ask whether they are paying their appropriate taxes."

An Internet search found 9,000 vacation units in the state, including 333 in Kailua. The governor says state officials have turned the names over to the Tax Department to determine if people advertising their B&Bs on the Web have paid taxes on their revenue, and whether they are in homes with a zoning exemption allowing vacation rentals.

Gary Slovin, who has lobbied for legislation that would direct counties to draft rules for all vacation rentals, says a "substantial number of people" are engaged in "essentially illegal" B&B businesses. "Government is saying, 'We won't let you be legal, but we want you to pay taxes on it.'"

Prosecution of tax violators for fraud may be excessive. New York City recently took a more restrained approach: Operators of rental units were given amnesty if they registered with the city Department of Finance and settled back taxes by last Sunday.

Tax cheaters in Hawaii should be given similar amnesty, but they should not be allowed to continue using their homes as vacation rentals in violation of zoning laws. All Hawaii counties are experiencing problems from the growth of the B&B industry and should act to bring it under control.