Vacation rentals being hit for unpaid taxes

The state is going after the $1.5 million in an effort to regulate illegal tourist rentals

The state is going after $1.5 million in taxes unpaid by 68 companies operating vacation rentals and bed-and-breakfasts in Hawaii.

The businesses failed to pay a 7.25 percent tourist accommodation tax and a 4 percent general excise tax, according to the state Department of Taxation, which has been auditing hundreds of rental companies since 2005.

The uncollected money would have gone to the state's general fund, said Titin Liem, special assistant to Tax Director Kurt Kawafuchi. The department is investigating another 237 operators of short-term rentals flagged for not having paid required taxes, she said.

Names of the companies were given to tax officials by the public and the Hawaii Tourism Authority.

The investigation is part of a broader effort to regulate the short-term rentals, some of which have been operating without permits. In the past year, city inspectors issued about 80 notices of violations and 40 fines to homeowners on Oahu who were illegally renting out their properties to visitors.

Only about 1,000 homeowners on 0ahu have a certificate to rent rooms for less than 30 days. And while the city stopped issuing new permits in 1989, a recent state study found more than 2,000 online advertisements for short-term rentals on the island.

People who live near the residential rentals have complained the businesses create traffic and noise.

Kailua resident Don Bremner said he gave the Tax Department a list of 26 properties in his neighborhood that he says are either violating tax laws or lack permits. Bremner, of the community group "Keep It Kailua," said the recent crackdown on the businesses is working.

"The trend is definitely going in the right direction," he said.

To better monitor the industry, state Sen. Gary Hooser introduced a bill at the legislature that would require the Tax Department to share information about the rentals with counties.

"The main purpose is just to get an idea of the scope of the issue, and how much money is being made," said Hooser (D-Kauai, Niihau), noting that vacation rentals have disrupted neighborhoods across the state.

"In moderation it's fine, but in excess it changes the nature of a community," he said.

The Tax Department opposes the bill, saying it would be a burden on its workers.

Senate Bill 750 calls for the department to file annual reports estimating how much the state loses in general excise tax and transient accommodation tax because of a lack of county enforcement.

House and Senate lawmakers are discussing the bill in a conference committee.