HB1242.DOC

SECTION 1. The legislature finds that there is a proliferation of short-term rentals in the State that are circumventing applicable laws, with many run by commercial operators. These short-term rentals negatively contribute to the high cost of housing in Hawaii by taking units off the market that would otherwise be available to residents. Hawaii's affordable housing crisis and its extremely high per capita rate of homelessness exemplify the need for more transparency and accountability with respect to short-term rentals.

The legislature further finds that, to eliminate illegal short-term rentals by commercial operators, it is necessary to impose limits on the number of short-term rental units that may be registered by any one owner or operator. To ease the burden of tax collection, a hosting platform of short-term rentals should be allowed to collect and remit transient accommodations tax and general excise tax payable on behalf of operators and transient accommodations brokers that furnish short-term rentals through the hosting platform. Hosting platforms acting as tax collectors must provide sufficient and detailed information to the department of taxation about the short-term rental operators on whose behalf they collect taxes, including the operators' registration information, the locations of each short-term rental unit registered, and sufficient and detailed information about the underlying booking transactions. Tax collection by hosting platforms must not compromise the ability of the department to determine whether taxes are being properly remitted and reported, and must not provide a shield for illegal short-term rentals at the expense of Hawaii residents.

The purpose of this Act is to hold short-term rentals accountable for applicable taxes in the State, with a particular focus on putting an end to short-term rentals run by commercial operators. Specifically, this Act:

(1) Limits the number of units that can be registered for short-term rental use by any one operator, capping the number of nights permitted for short-term rental use;

(2) Requires de-listing from hosting platforms of short-term rentals that fail to comply with local and state laws;

(3) Provides for greater accountability for hosting platforms that materially contribute to illegal rentals;

(4) Creates a surcharge on short-term rentals in the State to help fund supportive services for Hawaii's homeless;

(5) Allows hosting platforms registered with the department of taxation to act as tax collectors on behalf of short-term rental operators with respect to booking transactions made through such hosting platforms, without compromising the ability of the department to verify that taxes are being properly paid and reported; and

(6) Makes aggregated stay information available to state and local tourism offices.

Except as expressly provided, this Act is not intended to preempt or otherwise limit the authority of counties to adopt, monitor, and enforce local land use regulations, nor is this Act intended to transfer the authority to monitor and enforce regulations away from the counties.

SECTION 2. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§237- Collection and remittance of general excise taxes by registered hosting platforms on behalf of short-term rental operators. (a) The director may permit any hosting platform to register with the department for the collection and remission of any state or county tax imposed pursuant to this chapter on any booking transaction facilitated by the hosting platform on behalf of a short-term rental operator within the State and any county or counties within the State so authorized to collect taxes.

(b) Any hosting platform shall, with respect to each booking transaction facilitated by the hosting platform on behalf of a short-term rental operator within the State and any county or counties within the State for which the hosting platform has registered to collect and remit the tax imposed pursuant to this chapter:

(1) Provide written notice to the operator that the hosting platform has been registered to collect, report, and pay over the tax imposed by this chapter on the operator's behalf;

(2) Collect any taxes due under this chapter and remit the total amount collected to the department on a monthly or other periodic basis, together with a return, as required under section 237-30;

(3) File an annual return for the taxes collected and remitted under this section in accordance with section 237-33; and

(4) With each return filed pursuant to this subsection, provide a schedule listing:

(A) The name, address, and general excise tax number of each operator from whom the hosting platform collected taxes;

(B) With respect to each operator, the address of each short-term rental unit for which a booking transaction was facilitated by the hosting platform during the applicable period; and

(C) For each short-term rental, for the applicable period, the total number of booking transactions, the total number of days rented, and the gross rental or gross rental proceeds.

The director may require the hosting platform to provide any additional information required.

No operator shall be responsible for collecting or remitting any taxes due under this chapter on any booking transaction if it has received notice from a hosting platform that it will be collecting and remitting the taxes.

(c) Information provided to or obtained by the department by a hosting platform pursuant to this chapter, including information contained in a return filed by a hosting platform, information on underlying booking transactions, and information relating to an audit or investigation, shall be considered confidential pursuant to section 237-34 and may not be disclosed; provided that general, aggregated information shall not be considered confidential and may be provided by the department to state and county tourism authorities for the purpose of assisting with tourism promotion.

(d) Nothing in this section shall limit the ability of the department, in accordance with section 231-7, to conduct audits, investigations, or hearings, or to issue subpoenas, with respect to any hosting platform, any operator of short-term rental, or any underlying booking transaction.

(e) Any hosting platform that fails to file a return required or pay the full amount of applicable tax due as required under this chapter shall be subject to penalties and interest as provided in section 237-32.

(f) Registration under this section shall be effective until it is cancelled in writing. A hosting platform may cancel its registration by delivering written notice of cancellation to the director and each of the operators on whose behalf it collects and remits taxes not later than ninety days prior to the effective date of cancellation.

The director may cancel a hosting platform's registration under this section for any cause, including any violation of this chapter or rules adopted, or for violation of any applicable agreement with the department, by delivering written notice of cancellation to the hosting platform no later than ninety days prior to the date of cancellation.

(g) Registration of a hosting platform shall be separate from registration of a hosting platform under this chapter with respect to its own business activities, and separate licenses shall be issued under this chapter with respect to each such registration.

(h) For the purposes of this section:

"Booking transaction" has the same meaning as in section 237D-1.

"Hosting platform" has the same meaning as in section 237D-1.

"Operator" has the same meaning as in section 237D-1.

"Short-term rental" has the same meaning as in section 237D-1."

SECTION 3. Chapter 237D, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§237D- Collection and remittance of transient accommodations taxes by registered hosting platforms on behalf of short-term rental operators. (a) The director may permit any hosting platform to register with the department for the collection and remission of any state or county tax imposed pursuant to this chapter on any booking transaction facilitated by the hosting platform on behalf of a short-term rental
operator within the State and any county or counties within the State so authorized to collect taxes.

(1) Provide written notice to the operator that the hosting platform has been registered to collect, report, and pay over the tax imposed by this chapter on the operator's behalf;

(2) Collect any taxes due under this chapter and remit the total amount collected to the department on a monthly or other periodic basis, together with a return, as required under section 237D-6;

(3) File an annual return for the taxes collected and remitted under this section in accordance with section 237D-7; and

(4) With each return filed pursuant to this subsection, provide a schedule listing:

(A) The name, address, and general excise tax number of each operator from whom the hosting platform collected taxes;

(B) With respect to each operator, the address of each short-term rental unit for which a booking transaction was facilitated by the hosting platform during the applicable period; and

(C) For each short-term rental, for the applicable period, the total number of booking transactions, the total number of days rented, and the gross rental or gross rental proceeds.

The director may require the hosting platform to provide any additional information required.

(c) Information provided to or obtained by the department by a hosting platform pursuant to this chapter, including information contained in a return filed by a hosting platform, information on underlying booking transactions, and information relating to an audit or investigation, shall be considered confidential pursuant to section 237D-13 and may not be disclosed; provided that general, aggregated information shall not be considered confidential and may be provided by the department to state and county tourism authorities for the purpose of assisting with tourism promotion.

SECTION 4. Section 46-4, Hawaii Revised Statutes, is amended to read as follows:

"§46-4 County zoning. (a) This section and any ordinance, rule, or regulation adopted in accordance with this section shall apply to lands not contained within the forest reserve boundaries as established on January 31, 1957, or as subsequently amended.

Zoning in all counties shall be accomplished within the framework of a long-range, comprehensive general plan prepared or being prepared to guide the overall future development of the county. Zoning shall be one of the tools available to the county to put the general plan into effect in an orderly manner. Zoning in the counties of Hawaii, Maui, and Kauai means the establishment of districts of such number, shape, and area, and the adoption of regulations for each district to carry out the purposes of this section. In establishing or regulating the districts, full consideration shall be given to all available data as to soil classification and physical use capabilities of the land to allow and encourage the most beneficial use of the land consonant with good zoning practices. The zoning power granted herein shall be exercised by ordinance which may relate to:

(1) The areas within which agriculture, forestry, industry, trade, and business may be conducted;

(2) The areas in which residential uses may be regulated or prohibited;

(3) The areas bordering natural watercourses, channels, and streams, in which trades or industries, filling or dumping, erection of structures, and the location of buildings may be prohibited or restricted;

(4) The areas in which particular uses may be subjected to special restrictions;

(5) The location of buildings and structures designed for specific uses and designation of uses for which buildings and structures may not be used or altered;

(6) The location, height, bulk, number of stories, and size of buildings and other structures;

(7) The location of roads, schools, and recreation areas;

(8) Building setback lines and future street lines;

(9) The density and distribution of population;

(10) The percentage of a lot that may be occupied, size of yards, courts, and other open spaces;

(11) Minimum and maximum lot sizes; and

(12) Other regulations the boards or city council find necessary and proper to permit and encourage the orderly development of land resources within their jurisdictions.

The council of any county shall prescribe rules, regulations, and administrative procedures and provide personnel it finds necessary to enforce this section and any ordinance enacted in accordance with this section. The ordinances may be enforced by appropriate fines and penalties, civil or criminal, or by court order at the suit of the county or the owner or owners of real estate directly affected by the ordinances.

Any civil fine or penalty provided by ordinance under this section may be imposed by the district court, or by the zoning agency after an opportunity for a hearing pursuant to chapter 91. The proceeding shall not be a prerequisite for any injunctive relief ordered by the circuit court.

Nothing in this section shall invalidate any zoning ordinance or regulation adopted by any county or other agency of government pursuant to the statutes in effect prior to July 1, 1957.

The powers granted herein shall be liberally construed in favor of the county exercising them, and in such a manner as to promote the orderly development of each county or city and county in accordance with a long-range, comprehensive general plan to ensure the greatest benefit for the State as a whole. This section shall not be construed to limit or repeal any powers of any county to achieve these ends through zoning and building regulations, except insofar as forest and water reserve zones are concerned and as provided in subsections (c) and (d).

Neither this section nor any ordinance enacted pursuant to this section shall prohibit the continued lawful use of any building or premises for any trade, industrial, residential, agricultural, or other purpose for which the building or premises is used at the time this section or the ordinance takes effect; provided that a zoning ordinance may provide for elimination of nonconforming uses as the uses are discontinued, or for the amortization or phasing out of nonconforming uses or signs over a reasonable period of time in commercial, industrial, resort, and apartment zoned areas only. In no event shall such amortization or phasing out of nonconforming uses apply to any existing building or premises used for residential (single-family or duplex) or agricultural uses. Nothing in this section shall affect or impair the powers and duties of the director of transportation as set forth in chapter 262.

(b) Any final order of a zoning agency established under this section may be appealed to the circuit court of the circuit in which the land in question is found. The appeal shall be in accordance with the Hawaii rules of civil procedure.

(c) Each county may adopt reasonable standards to allow the construction of two single-family dwelling units on any lot where a residential dwelling unit is permitted.

(d) Neither this section nor any other law, county ordinance, or rule shall prohibit group living in facilities with eight or fewer residents for purposes or functions that are licensed, certified, registered, or monitored by the State; provided that a resident manager or a resident supervisor and the resident manager's or resident supervisor's family shall not be included in this resident count. These group living facilities shall meet all applicable county requirements not inconsistent with the intent of this subsection, including but not limited to building height, setback, maximum lot coverage, parking, and floor area requirements.

(e) Neither this section nor any other law, county ordinance, or rule shall prohibit the use of land for employee housing and community buildings in plantation community subdivisions as defined in section 205-4.5(a)(12); in addition, no zoning ordinance shall provide for the elimination, amortization, or phasing out of plantation community subdivisions as a nonconforming use.

(f) Neither this section nor any other law, county ordinance, or rule shall prohibit the use of land for medical marijuana production centers or medical marijuana dispensaries established and licensed pursuant to chapter 329D; provided that the land is otherwise zoned for agriculture, manufacturing, or retail purposes.

(g) Each county may require nonconforming use certificates, special use permits, conditional use permits, or other approvals for short-term rentals, as defined in section 237D-1, as may be determined by each county; provided that as a condition of granting approvals, a county shall require:

(1) All short-term rentals to be registered with the county;

(2) The operators of short-term rentals to annually provide evidence of collection and remittance of all applicable state and county taxes related to the short-term rentals; and

(3) Penalties for failure to register short-term rentals with the county; provided that the short-term rental shall not exceed sixty calendar days total per year for each dwelling unit in the State.

The counties may establish more stringent caps on the number of days for which a unit may be used for short-term rental within each county zoning district as the counties may determine and with respect to multi-family buildings, such as caps on the number of rooms or portion of the building that may be used for short-term rentals as the counties may determine. Only units that are in compliance with applicable county ordinances may be advertised or used as transient accommodations, as defined in section 237D-1.

(h) If the owner or occupant of a dwelling has received affordable housing funds from the federal, state, or county government, including section 8 housing assistance, housing choice vouchers or rent supplements pursuant to chapter 356D, low or moderate income homeowners loans for home repair, rehabilitation, down payments, solar installation, or other similar programs, then the dwelling shall not be advertised or used as transient accommodations, as defined in section 237D-1, unless the owner or occupant is residing in a residential dwelling unit while renting out other bedrooms in the dwelling."

SECTION 5. Section 235-20.5, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) There is established a tax administration special fund, into which shall be deposited:

(1) Fees collected under sections 235-20, 235-110.9, and 235-110.91;

(2) Revenues collected by the special enforcement section pursuant to section 231-85; provided that in each fiscal year, of the total revenues collected by the special enforcement section, all revenues in excess of $700,000 shall be deposited into the general fund; and

(3) Fines and fees assessed pursuant to section 237D-4."

SECTION 6. Section 237D-1, Hawaii Revised Statutes, is amended as follows:

1. By adding four new definitions to be appropriately inserted and to read:

""Booking transaction" means any transaction where there is a charge to an occupant or short-term lodger by an operator.

"Dwelling unit" has the same meaning as in section 521-8.

"Hosting platform" means any person or entity that facilitates reservations or collects payments for a booking transaction on behalf of or for an operator or transient accommodations broker through an online digital platform.

"Short-term rental" means the furnishing of a room, apartment, suite, single family dwelling, or the like to a transient for no more than sixty consecutive days for each letting in an apartment hotel, motel, condominium property regime or apartment as defined in chapter 514A or unit as defined in chapter 514B, cooperative apartment, dwelling unit, or rooming house that provides living quarters, sleeping, or housekeeping accommodations, or other place in which lodgings are regularly furnished to transients. "Short-term rental" shall be subject to the taxes imposed by this chapter."

2. By amending the definitions of "local contact" and "transient accommodations broker" to read:

""Local contact" means an individual residing on the same island as the transient accommodation, short-term rental, or resort time share vacation unit or an entity with a place of business and at least one employee, officer, partner, member, or other person working on behalf of the company who is residing on the same island as the transient accommodation, short-term rental, or resort time share vacation unit.

"Transient accommodations broker" means any person or entity, including but not limited to persons who operate online websites, online travel agencies, hosting platforms, or online booking agencies, that offers, lists, advertises, or accepts reservations or collects whole or partial payment for transient accommodations or resort time share vacation interests, units, or plans."

SECTION 7. Section 237D-2, Hawaii Revised Statutes, is amended to read as follows:

"§237D-2 Imposition and rates. (a) There is levied and shall be assessed and collected each month a tax of:

(1) Five per cent for the period beginning on January 1, 1987, to June 30, 1994;

(2) Six per cent for the period beginning on July 1, 1994, to December 31, 1998;

(3) 7.25 per cent for the period beginning on January 1, 1999, to June 30, 2009;

(4) 8.25 per cent for the period beginning on July 1, 2009, to June 30, 2010; and

(5) 9.25 per cent for the period beginning on July 1, 2010, and thereafter;

on the gross rental or gross rental proceeds derived from furnishing transient accommodations.

(b) Every operator shall pay to the State the tax imposed by subsection (a), as provided in this chapter.

(c) There is levied and shall be assessed and collected each month, on the occupant of a resort time share vacation unit, a transient accommodations tax of:

(1) 7.25 per cent on the fair market rental value until December 31, 2015;

(2) 8.25 per cent on the fair market rental value for the period beginning on January 1, 2016, to December 31, 2016; and

(3) 9.25 per cent on the fair market rental value for the period beginning on January 1, 2017, and thereafter.

(d) Every plan manager shall be liable for and pay to the State the transient accommodations tax imposed by subsection (c) as provided in this chapter. Every resort time share vacation plan shall be represented by a plan manager who shall be subject to this chapter.

(e) In addition to any other taxes imposed by this section, there shall be imposed upon each booking transaction for a short-term rental in the State a surcharge of four per cent of the gross rental or leasing charge; provided that up to eight per cent of the revenue from the surcharge shall be used for the administration of the surcharge. The surcharge is a part of the tax imposed by this chapter, and all references to the tax shall be deemed to include the surcharge, to the extent applicable."

SECTION 8. Section 237D-4, Hawaii Revised Statutes, is amended to read as follows:

"§237D-4 Certificate of registration. (a) Each operator or plan manager as a condition precedent to engaging or continuing in the business of furnishing transient accommodations or in business as a resort time share vacation plan shall register with the director the name and address of each place of business within the State subject to this chapter[.] and shall indicate whether the registration is for short-term rental; provided that an operator of short-term rentals shall provide the director with the address of each unit covered. No operator shall be permitted to register more than two short-term rentals; provided that an operator may supplement its registration to add or remove short-term rentals so long as the total number of short-term rentals registered to an operator does not exceed two short-term rentals. The operator or plan manager registering pursuant to this section shall make a one-time payment as follows:

(1) $5 for each registration for transient accommodations consisting of one to five units;

(2) $15 for each registration for transient accommodations consisting of six or more units; and

(3) $15 for each resort time share vacation plan within the State;

upon receipt of which the director shall issue a certificate of registration in such form as the director determines, attesting that the registration has been made. The registration shall not be transferable and shall be valid only for the operator or plan manager in whose name it is issued and for the transaction of business at the place designated therein. Acquisition of additional transient accommodation units after payment of the one-time fee shall not result in additional fees.

(b) The registration, or in lieu thereof a notice stating where the registration may be inspected and examined, shall at all times be conspicuously displayed at the place for which it is issued. The name, phone number, and electronic mail address of the local contact shall at all times be conspicuously displayed in the same place as the registration or the same place as the notice stating where the registration may be inspected and examined. Failure to meet the requirements of this subsection shall be unlawful. The department may issue citations to any person who fails to conspicuously display the registration or notice, or the local contact's name, phone number, or electronic mail address as required by this subsection. A citation issued pursuant to this subsection for each transient accommodation or resort time share vacation interest, plan, or unit in violation of this subsection shall include a monetary fine of not less than:

(1) $500 per day, for a first violation for which a citation is issued;

(2) $1,000 per day, for a second violation for which a citation is issued; and

(3) $5,000 per day, for a third and any subsequent violation for which a citation is issued.

(c) Any advertisement, including an online advertisement, for any transient accommodation, short-term rental, or resort time share vacation interest, plan, or unit shall conspicuously provide:

(1) The registration identification number or an electronic link to the registration identification number of the short-term rental unit operator or plan manager issued pursuant to this section; and

(2) The local contact's name, phone number, and electronic mail address, provided that this paragraph shall be considered satisfied if this information is provided to the transient or occupant prior to the furnishing of the transient accommodation, short-term rental, or resort time share vacation unit.

No short-term rental shall be listed on a hosting platform unless the operator demonstrates and attests to the hosting platform that the operator and the short-term rental are in compliance with this chapter and other applicable land use, zoning, and tax requirements, including by providing the hosting platform with the registration identification number as required by this subsection.

(d) Failure to meet the requirements of subsection (c) shall be unlawful. The department may issue citations to any person, including operators, plan managers, and transient accommodations brokers, who violates subsection (c). A citation issued pursuant to this subsection for each transient accommodation or resort time share vacation interest, plan, or unit in violation of subsection (c) shall include a monetary fine of not less than:

(1) $500 per day, for a first violation for which a citation is issued;

(2) $1,000 per day, for a second violation for which a citation is issued; and

(3) $5,000 per day, for a third and any subsequent violation for which a citation is issued.

(e) The registration provided for by this section shall be effective until canceled in writing. Any application for the reissuance of a previously canceled registration identification number shall be regarded as a new registration application and shall be subject to the payment of the one-time registration fee. The director may revoke or cancel any license issued under this chapter for cause as provided by rule under chapter 91.

(f) If the license fee is paid, the department shall not refuse to issue a registration or revoke or cancel a registration for the exercise of a privilege protected by the First Amendment of the Constitution of the United States, or for the carrying on of interstate or foreign commerce, or for any privilege the exercise of which, under the Constitution and laws of the United States, cannot be restrained on account of nonpayment of taxes, nor shall section 237D-14 be invoked to restrain the exercise of such a privilege, or the carrying on of such commerce.

(g) Any person who may lawfully be required by the State, and who is required by this chapter, to register as a condition precedent to engaging or continuing in the business of furnishing transient accommodations or as a plan manager subject to taxation under this chapter, who engages or continues in the business without registering in conformity with this chapter, shall be guilty of a misdemeanor. Any director, president, secretary, or treasurer of a corporation who permits, aids, or abets such corporation to engage or continue in business without registering in conformity with this chapter, shall likewise be guilty of a misdemeanor. The penalty for the misdemeanors shall be the same as that prescribed by section 231-35 for individuals, corporations, or officers of corporations, as the case may be, for violation of that section.

(h) Any monetary fine assessed under this section shall be due and payable thirty days after issuance of the citation, subject to appeal rights provided under this subsection. Citations may be appealed to the director of taxation or the director's designee.

(i) A hosting platform shall remove any listing for a short-term rental unit located in the State that fails to comply with subsection (c) or upon written notice from the State or county that the operator or short-term rental has failed to comply with applicable land use, zoning, or tax requirements. The department may issue citations to any hosting platform that violates this subsection. A citation issued pursuant to this subsection for each failure of a hosting platform to remove a listing in violation of this subsection shall include a monetary fine of not less than:

(1) $500 per day, for a first violation for which a citation is issued;

(2) $1,000 per day, for a second violation for which a citation is issued; and

(3) $5,000 per day, for a third violation for which a citation is issued.

(j) In addition to any other registration costs imposed under this chapter or chapter 237, a hosting platform shall be assessed an annual fee of $10,000 for the right to do business in the State as a hosting platform. All fees collected under this subsection shall be deposited in the tax administration special fund pursuant to section 235-20.5."

SECTION 9. Section 237D-12, Hawaii Revised Statutes, is amended to read as follows:

"§237D-12 Records to be kept; examination. (a) Every operator and plan manager shall keep in the English language within the State, and preserve for a period of three years, suitable records of gross rental, gross rental proceeds, or fair market rental value relating to the business taxed under this chapter, and such other books, records of account, and invoices as may be required by the department, and all such books, records, and invoices shall be open for examination at any time by the department or the Multistate Tax Commission pursuant to chapter 255, or the authorized representative thereof.

(b) In addition to the records required to be kept under subsection (a), every short-term rental operator shall keep within the State, and preserve for a period of three years, suitable records in the English language of the dates of any short-term rental use, along with information regarding each booking transaction, including the number of occupants and number of days associated with each booking transaction and the rental charged. All records shall be open for examination at any time by the department or the multistate tax commission pursuant to section 255-1."

SECTION 10. By January 1, 2018, the director of taxation shall make available to hosting platforms a form of application for registration for collection and remittance of taxes on behalf of short-term rental operators under the new section of chapter 237, Hawaii Revised Statutes, added by section 2 of this Act, and under the new section of chapter 237D, Hawaii Revised Statutes, added by section 3 of this Act.

SECTION 11. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the invalidity does not affect other provisions or applications of this Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 12. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 13. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2016.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	1242
TWENTY-NINTH LEGISLATURE, 2017
STATE OF HAWAII