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To hotel companies, the growth of the shared economy — specifically vacation rentals — poses a serious threat. How they respond to losing market share varies. Read more

To hotel companies, the growth of the shared economy — specifically vacation rentals — poses a serious threat.

How they respond to losing market share varies.

Many are demanding that operators of vacation rentals pay their fair share of taxes and follow the same permitting and other requirements that apply to hotels. Others say, “if you can’t beat them, join them.”

New research from AllTheRooms, a New York-based search engine, shows there are about 3,300 vacation rental units in Waikiki. Most of those would be entire condominium units or rooms in condominiums rented out by the owner.

That’s approaching the number of rooms at the Hilton Hawaiian Village Waikiki Beach, which is among the world’s largest single-property hotels.

“It’s like a gigantic new hotel just sprang up in Waikiki,” said Sean Dee, Outrigger executive vice president and chief marketing officer.

Waikiki vacation rentals were filled on average 263 days over 12 months ending Jan. 31, according to AllTheRooms. The units took in gross revenue of nearly $128 million and averaged occupancy of 72%, an average daily rate of nearly $173, and revenue per available room — the average earned for all nights, occupied or not — of more than $123.

WHO PAYS LODGING TAXES? Hawaii’s transient accomodations tax (TAT) applies to all transient accommodations (rentals less than 180 consecutive days), not just hotel rooms. TAT is levied on the operator of the transient accommodation, on the fair market rental value of a time share vacation unit, and on transient accommodations brokers, travel agents and tour packagers who arrange to furnish transient accommodations at noncommissioned negotiated contract rates. Besides the TAT, operators of transient accommodations and transient accommodations brokers, travel agents and tour packagers who arrange to furnish transient accommodations at noncommissioned negotiated contract rates must also pay the general excise tax (GET) at the rate of 4% plus any applicable county surcharge. Source: Hawaii Department of Taxation

Hawaii Tourism Authority statistics indicate stays in entire-unit vacation rentals rose nearly 8% and bookings of private rooms and shared rooms in private homes are up by double-digits in the year to date through February. At the same time, hotel use among visitors has dropped more than 2%.

Last week about 10 Hawaii hotel companies joined with a coalition of affordable housing advocates, labor unions and private organizations to urge legislative solutions for what they call “Honolulu’s illegal short-term rental epidemic.” The coalition includes global hotel companies like Hilton, Marriott International, Kyo-ya Company LLC, and Host Hotels & Resorts, and individual Hawaii properties such as Turtle Bay, Courtyard Marriott Oahu North Shore, Fairmont Kea Lani and the Hilton Hawaiian Village Waikiki Beach Resort.

The hotel industry is urging lawmakers to better regulate vacation rentals, which broadly are already under fire for reported disruptions to residential neighborhoods and unreported taxable revenue.

It’s unclear how many vacation rentals are paying the general excise tax and transient accommodations tax, which hotels pay.

The state Department of Taxation said over the last 500 days there were more than 29,000 accounts for payment of transient accommodations taxes. The number of properties or units connected to each of those accounts is undetermined. There are only about 150 hotel properties in the state.

To compete with the shared lodging economy, Cara Goodrich, Castle Hotel & Resorts vice president of sales and revenue development, said the company has invested in technology that allows it to promote individually-owned legal units in its condominium hotels across different distribution platforms — including Airbnb, VRBO (vacation rental by owners) and HomeAway.

“Arrivals were at a record high, but our performance wasn’t the same,” Goodrich said during a Pacific Asia Travel Association luncheon Wednesday at the Prince Waikiki Hotel. “We found that vacation rentals were a significant part of Hawaii’s visitor plant. In our world, it’s adapt or die. We are now the only hybrid condominium hotel rental, vacation rental company in the state.”

Last year the state drew nearly 10 million visitors and about 1 million of them stayed in a vacation rental, said Erik Kloninger of Kloninger & Sims Consulting LLC, the company that prepared Hawaii Tourism Authority’s 2018 visitor plant inventory study.

“Consumers are voting with their feet,” Kloninger said.

Dee, the Outrigger executive, said the AllTheRooms studies, which Outrigger subscribes to, indicate vacation rental companies like Airbnb, VRBO and HomeAway are much bigger players in Hawaii’s visitor industry than originally thought.

AllTheRooms measured Waikiki’s 12-month supply of vacation rentals, including entire homes, private and shared rooms, at 3,332 vacation rental units for the year ended Jan. 31.

“At 3,375 units, we are one of Waikiki’s larger hotel companies and vacation rentals are almost as big as us now,” Dee said.

“The statistics combat the argument that vacation rentals aren’t available all the time. These operate like traditional hotel inventory,” Dee said. “If they are subject to the same regulation, taxes and fees that traditional hotels are, that’s fine, but that’s not their model and that’s not what’s occurring. ”

Deborah Kwan, spokeswoman for the Hawaii Department of Taxation, said it’s difficult for the department “to identify how many taxpayers are not complying because we don’t know who these people are. However, we do have records that there are currently over 29,000 TAT (transient accommodations tax) accounts.”

The state tried earlier this year to subpoena records from Airbnb to determine how many vacation rental owners have TAT accounts, but was unsuccessful due to privacy concerns. Airbnb has said that it doesn’t have a way to tell how many of the owners who advertise on its site are paying, either.

Kwan said the tax department supports bills in the Legislature — including House Bill 1042 and Senate Bill 1268 — which require persons who collect rent on behalf of others to report gross rental proceeds.

“If taxpayers know that the department has information detailing how much rent they received, they will be more likely to complete returns and pay their taxes voluntarily,” Kwan said.

The House Finance Committee still hasn’t scheduled Senate Bill 1268, but the The Senate Ways and Means committee Thursday amended and passed House Bill 1042.

Airbnb Hawaii Policy Director Matt Middlebrook did not take a position on the bills, but said the company is committed to working with the state “on clear, fair tax legislation that allows short-term rental platforms to collect and remit taxes on behalf of users, ensuring the state receives this important revenue and that our community is paying its fair share of taxes.”

“Alternative accommodations are a key part of the state’s biggest industry, supporting the local economy, residents and small businesses,” Middlebrook said.