HONOLULU (KHON2) — One of the fastest recoveries in tourism is in the vacation rental sector, which is on pace to beat pre-pandemic booking volume in some areas.

Always Investigating looked into whether Hawaii is getting its share of taxes from all those operators.

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The Hawaii State Tax Department tells KHON2 that the vacation rental sector has become a lucrative source of revenue, with much better compliance nowadays, ever since they teamed up with the big booking platforms to track the money. Advocates of keeping tourist accommodations in resort districts say there’s still a big gap of scofflaws.

If you’ve noticed the bed-and-breakfast down the street looking busier these days, your eyes aren’t deceiving you.

“Things are booking up fast and furious,” said Pamela Knudsen of Avalara MyLodge Tax, which tracks, collects and pays vacation rental taxes for the big booking platforms. “There’s a lot. If you try and book now, you may find that you don’t have space. There’s no nothing left to get because it’s all been booked for the summer.”

According to Avalara, the Big Island is ranked fourth in the nation with occupancy topping well into 70%, and this summer statewide is already going to be gangbusters.

“In some cases, we’ve seen it the bookings almost equal 2019,” Knudsen said. “But in some cases, in some of the more rural areas, it’s been like 160% of what was happening in 2019.”

In 2019 — just prior to the pandemic — a record 10.4 million people visited Hawaii, and several million stayed in vacation rentals.

“The legal hospitality industry around the state can really only accommodate 7 million to 8 million visitors,” explained Rick Egged of the Waikiki Improvement Association. “So that other 2 million to 3 million visitors that the community is concerned about are almost entirely staying in vacation rentals, and most of those are illegal.”

Around the end of 2019, more county regulations about permits and zoning were starting to come down. Collections of transient and general excise taxes — which have always been owed whether permitted or not — got a boost when the big platforms made a deal with the state to help track the properties and bookings.

“Vacation rental is a great industry. It is going to bring in a lot of money for the state,” said Hawaii State Tax Director Isaac Choy, “and it’s my job to make sure that they pay their fair share. Trust me, it’s on the front burner.”

So much so, Always Investigating found out, that a group of 10 tax staff working just on vacation rentals has even been clawing back for past taxes owed, thanks in part to the big platforms having to share information about 1,000 Hawaii hosts that made the most money on bookings from 2016 through 2018.

“One person who was running a vacation rental just brought in a $400,000 check just the other week,” Choy said.

That one big check was for taxes and penalties on about $2 million to $3 million in previously unreported revenue, just from one operator.

“I think the word is getting out that we are enforcing this particular area, and we’re going to keep the pressure on for the fairness issue, to be fair to all the residents,” he said.

That’s just for transient and revenue related taxes, though. Hawaii has one of the lowest property tax rates for residential real estate – where many of these rentals operate — and one of the highest property tax rates for hotels. Critics of the industry say compliance with everything from permitting to fees and taxes is just scratching the surface.

“There are approximately 10,000 units on Oahu — there was pre pandemic anyway — and only 1,000 of them are legal,” Egged said.

More folks using the major booking engines to market their rooms and homes have been going along with all the new rules, especially as posting permit numbers and sharing of revenue records becomes the norm.

“Definitely compliance is on the rise,” Knudsen said, “and it’s on the rise for a few different reasons, when people are realizing that they stand a risk and the jurisdictions are getting stricter about this. If you’re not compliant, and a neighbor complains, there could be some pretty severe repercussions.”

“I always tell people no, the tax office can’t catch everybody,” Choy said, “but don’t be the one that I catch.”

So far all tourism-related tax collections are lagging a bit compared to the arrival numbers, but the state tax department expects that to catch up in due time.

Always Investigating will continue to follow up on whether the new zoning, permit and tax regulations for vacation rentals are working as intended.

Transient Accommodations Tax Revenues
*Includes ALL sources of TAT revenues (hotels, booking platforms, timeshares, etc.)

2019
JAN – $58,903
FEB – $63,730
MAR – $49,336
APR – $56,407
MAY – $51,557
JUNE – $42,571
JULY – $59,885
AUG – $60,833
SEP – $55,720
OCT – $48,985
NOV – $46,313
DEC – $46,334

2020
MAR – $59,046
APR – $37,144
MAY – $4,315
JUNE – $5,057
JULY – $5,666
AUG – $3,942
SEP – $3,334
OCT – $3,266
NOV – $5,655
DEC – $13,273

2021
JAN – $21,341
FEB – $16,988
MARCH – $20,016

Source: Hawaii State Tax Collector