Enforcement Unpermitted Vacation Rentals

Advertised Unpermitted Vacation Rentals to be Taxed at the TVR Rate
August 20, 2012

Portions of this Blog courtesy of Dave DeLeon, Community Affairs, Realtors Association of Maui

Recently Maui County passed its Short Term Rental Ordinance. The Ordinance includes a tough enforcement section. Specifically, the ordinance provides that if you are actively advertising a vacation rental on a residential property, that advertisement will be deemed as conclusive evidence that you are in fact doing that.

This enforcement aspect of the ordinance was driven by the complaints from Maui residents that the County was not making any effort to enforce its residential code. The Council took that testimony to heart and balanced the creation of the new permitting system with a strong enforcement section. The Council funded new enforcement personnel to give the Planning Department the capacity to actually implement this new enforcement approach.

The Arakawa Administration has made it clear: this was not going to be a return to the Tavares Administration’s war on vacation rentals. The effort would start with a soft touch – those found to be violating the rule will be given notice that there is now ordinances for both B&Bs and Short Term Rentals (STRs) and if you are going to continue to provide those services, then you need to apply for a permit.

Additionally, those found to be operating will also be taxed at the rate for Short Term Rentals, which actually has not been set by the Council yet.

County Finance Director Agsalog is working with a 200-page document authored by the Planning Department that provides him with a list of non-permitted short term rentals being advertised on the internet. As is required by the Short Term Rental ordinance, the Planning Department created this list to ensure that the appropriate real property tax was being assessed to these property owners. The list would also be shared with the state Department of Taxation” so that department could make sure these businesses were paying the appropriate General Excise Tax and Transient Accommodations Tax for the advertised rentals.

The Planning Department identified 270 unpermitted vacation rentals advertising on the web.

For those owners who are advertising vacation rentals but have not applied for the required permits, they may receive a letter from the County giving them notice that vacation rental activities require a permit, which is now available. Enforcement will follow if the owner fails to comply.

The Real Property Tax Division will be assessing the “appropriate” tax rate for this tax year for properties found advertising. So even without a permit, vacation rental operators can expect to see their taxes going up. If an owner gets such a notice, they will have 30 days to appeal if they believe the finding is not correct.

Short Term Rentals are investment properties which are usually totally rented for vacation use. By contrast, by definition the owners of Bed & Breakfast operations must actually live on the subject property. In recognition that these properties are the owners’ homes, the Council has given them a rate below the existing Residential (non-homeowners) rate. The Commercialized Residential (aka B&B) rate is $4.50. The Residential rate is $5.75. So if an owner is vacation renting on a property where he lives, it would make sense to get a B&B permit rather than be forced into the higher yet-to-be-determined STR rate as a result of enforcement.