Hawaii tax authorities cracking down on short-term rental operators

Tax authorities in Hawaii have collected millions of dollars from vacation rental hosts who have failed to pay transient accommodations taxes (TAT) and general excise taxes (GET).

So far this year, the state Department of Taxation has collected $4.1 million in taxes, penalties, and interest from short-term rental operators who owed back taxes. The department expects to collect $12 million by the end of the year, nearly double the $6.2 million it collected in 2020.

Short-term rental income in Hawaii is subject to TAT and GET. Vacation rental operators can pass these taxes on to guests, but hosts must register with the state, collect and pay the taxes, and file regular tax returns. Beyond back tax payments and penalties, civil fines for tax violations can be steep, starting at $500 a day and going up to $5,000 per day.

The state currently has 13 investigators working on vacation rental taxes, and the department is also getting more help from short-term rental marketplaces than in the past. According to Isaac Choy, director of the Department of Taxation, the state found that 5,100 out of 7,300 hosts on one short-term rental marketplace were not paying TAT or GET.

Airbnb — after several court battles — agreed in 2019 to share some information on its short-term rental hosts with the state, making it easier for authorities to enforce tax regulations.

In 2020, Airbnb and Expedia Group (parent company of HomeAway and Vrbo) also agreed to help Oahu and Kauai authorities enforce short-term rental laws. Under those agreements, the marketplaces require hosts to provide government-issued property identification and/or tax registration numbers in order to be listed.

Currently, state and local governments do not share information on short-term rental tax collections. However, Honolulu’s Department of Planning and Permitting has asked the state to pass on this data so that the city can more easily identify illegal vacation rentals. Honolulu has passed strict regulations on short-term rentals in recent years.

The state does offer a voluntary disclosure program in which taxpayers can reach out to the department about back taxes and receive lower penalties, but few vacation rental hosts have used it.

While short-term rental marketplaces collect taxes on behalf of their hosts in many states, they’re not allowed to do so in Hawaii. That means hosts are responsible for taking care of tax obligations. MyLodgeTax can help Hawaii short-term rental hosts automate registration and filing for TAT and GET.

For more on lodging taxes in Hawaii, see our state Vacation Rental Tax Guide. If you have tax questions related to vacation rental properties, drop us a line and we’ll get back to you with answers.