Amid ongoing efforts to regulate short-term vacation rentals on Hawaii Island, the Hawaii County Council Committee on Finance considered a proposal last week to create a new tax class for certain hosted short-term rentals.

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Amid ongoing efforts to regulate short-term vacation rentals on Hawaii Island, the Hawaii County Council Committee on Finance considered a proposal last week to create a new tax class for certain hosted short-term rentals.

It would apply to homeowners who rent out a portion of their primary residence, such as a bedroom or ohana unit, for short-term stays, which the county defines as less than 180 days.

Introduced by Hamakua Councilwoman Heather Kimball, Bill 173 would add a “bed and breakfast” tax class to the county code, allowing qualifying properties to be taxed at a rate to be determined by council.

“I would envision this rate being somewhere above the long-term rental category, but below the residential classes, which is where these properties, for the most part, fall at this time,” she said.

The goal of the measure, Kimball said, is to allow those who live on the island and rely on income from short-term rentals not be subject to the same level of taxation as people who rent out entire properties and might not live locally.

“… a hosted rental or a bed and breakfast is different from an unhosted rental, and because it also serves as somebody’s primary residence, perhaps they should get some tax relief as compared to a short-term unhosted vacation rental,” she said.

The bill would also provide amnesty for property owners who have not registered their rental units to avoid rollback taxes, penalties and interest as long as they do so or stop operating by Dec. 30, 2026, which Kimball said she hoped would incentivize registration.

The bill originally included a clause setting a 3% annual assessment increase cap. However, the committee voted to amend the bill to remove the cap after county Real Property Tax Administrator Lisa Miura said it would be challenging for her department to implement.

Miura fielded questions and provided pros and cons about the proposal to the Finance Committee at last week’s meeting.

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“This would create your 11th tax class for real property tax, and that doesn’t include your tiers,” she told the council members. “If you include the tiers, that would be 13 tax classes. So, I believe a question would be is if it provides more clarity or confusion for the taxpayers and for yourselves.”

While she said it was logistically feasible to implement the measures in the bill, she questioned whether there would be time to notify the estimated over 2,000 property owners who may qualify for the new classification and amnesty, in addition to 40,000- plus other homeowners.

“Without the cap, it’s possible (to implement it) in the current program without any major cost,” she said. “It would just be the time and informing the public of this change and who would go into the program. And then that would bring up: Is December 31 a realistic deadline?”

While council members were generally supportive of the goal of the bill, some questioned whether it was the best way to address the core issue of incentivizing more affordable long-term housing options in the county without harming residents who rely on rental income.

“We struggle — all of us, constituents included — with this dance of tax rates, tax brackets, the variety of nuanced usages of private property … ,” said Kona Councilwoman Rebecca Villegas. “We also have a community, on the one hand, that struggles to pay their mortgage and gas and all those things, while also having — in my district, in particular — a disproportionate amount of newer community members who have utilized this opportunity for predatory behaviors, which have disproportionately imbalanced our housing market, the price of real estate, just about everything, top to bottom.”

Kohala Councilman James Hustace took issue with the amnesty element of the proposal.

“I understand, you know that the amnesty piece, but waiving the back taxes — I understand the penalties and the fees — but trying to bring it into compliance with waiving the back taxes may be a little bit too far, and it could (be unfair to those) that have complied with the law previously, and kind of create some imbalance there in terms of the equity piece.”

Ultimately, the committee voted 4-4 on the bill, with council members Matt Kaneali‘i-Kleinfelder, Michelle Galimba, Jenn Kagiwada and Kimball in favor, and Hustace, Villegas, Dennis Onishi and Ashley Kierkiewicz voting against. Councilman Holeka Inaba was excused.

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The bill will be sent to the full council with an unfavorable recommendation.

Email Grace Inez Adams at [email protected].