Bill 108 and How it Affects Vacation Rentals in Hawaii

December, 2018

I had a long talk with Karen Eoff, the co-sponsor of Bill 108. A few things stand out. First and foremost for condo owners along Alii Drive, the bill exempts condos created under the Condominium Property Regime, as defined & governed by chapters 514-A and 514-B of the Hawaii Revised Statutes located within V, CG & CV districts (Resort) zones. But here’s the kicker, it also exempts said condos within the RM (multi-family) zones.  That is, all the rest of the condos along Alii Drive.  So if you own a condo anywhere along Alii Drive, and your Association By-Laws do not mandate 30-day or longer rentals, then you can vacation rent that condo WITHOUT having to file for a Non-Conforming Use (NCU) Certificate.  This is great news because it means you won’t have to notify all your neighbors within 300 feet of your rental. You will, however, have to apply for a permit to run the vacation rental and pay a $500 fee.  But unlike homes in the RS (residential) zones, you won’t have to re-apply and pay another $500 every year.  I suspect, for the initial permit application you will have to prove that you have been paying your GET and TAT taxes.

Speaking of taxes, providing Hawaii State Income taxes is not specifically mandated by the Bill as part of the NCU certificate application.  But just an aside, the state of Hawaii requires you to pay income taxes on income generated in Hawaii. Then, when you file your taxes in your home state, you can take the amount you paid in Hawaii as a deduction, or exemption, on your home state income taxes.  This probably varies state by state (I’m speaking about California), so best to check with your accountant on all tax matters.

Next, and this is a direct quote from an email I received from Karen Eoff:

“The Planning Department has to draft Rules and go out to public hearings before they can implement Bill 108.  So April will be the earliest people will be able to register and get the Non-Conforming Use Certificate. The Bill doesn’t regulate hosted rentals at all. My understanding is that the Finance Dept is looking at giving people an incentive to rent long term – so they want to place short term rentals in their own category.  I think the approach will be to reduce real property tax rates for those in the long term (over 30 day) rental category.”

What this means is that, if you live on the property, you can rent a portion without having to apply for the NCU certificate. I am sure many HOA’s are going to have a problem with this.  They will probably have to fall back on their CC&R’s and sue the homeowner to get them to stop (if the CC&R’s say “for single family residences only”). Still up in the air is whether a property with a live-in caretaker is considered “hosted”. Owners who have full-time caretakers living on the property should call the Planning Department when the final rules are announced and ask if you are exempt from the NCU certificate requirement.

The other thing is that it looks like they will eventually raise property taxes for those people who have received NCU certificates. Karen said “lower for long term rentals”, but we all know that taxes never go down.

So for non-hosted residences in the RS zones, once the Planning Department finalizes their rules, owners will have six months to apply for the Non-Conforming Use Certificate. Owners will be required to prove that they have been vacation renting the property and receiving income, that they have been paying their GET, TAT and real property taxes, that there is ample off street parking for the number of persons typically renting the premises and that everything built or remodeled on the premises was done with building permits and is not in violation of any laws. The NCU certificate application fee is $500 and must be renewed once a year.  If you miss the deadline for renewal, you lose permission to vacation rent the property and you can never re-apply.  As part of the application process, the applicant must notify in writing, all neighbors within 300 feet of the vacation rental property. What is important to the applicant is that these neighbors have no say in whether your application is approved. However, problems could arise the following year when it’s time to re-apply.  If the neighbors have called the police on your tenants, or sent photos of multiple vehicles parked on the street, etc., the Planning Department has the authority to not re-new your certificate. There is an appeal process.  But if you lose the appeal, you can never re-apply for another NCU Certificate.

(c) 2018 Harry Pritikin, All Rights Reserved.

Draft 7 of Bill 108: 112-BIL 108 Draft 07 2016-2018 (PDF)