Bed and Breakfast Updates

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Over the last couple of years, THE Maui Real Estate Blog has provided pretty extensive coverage of the battle over Bed and Breakfasts and Transient Vacation Rentals on Maui. Most of the island’s non-permitted rentals were shut down back in 2007. A heated two year debate ensued with the end result being a new county Bed and Breakfast ordinance that was signed into law just after the first of this year. The new law expanded the definition of bed and breakfasts and was supposed to have created a more efficient process for approving qualified applicants. What had been a multi-year process was expected to be reduced to months. A story ran in the Maui News in May heralding the first B and B to be approved under the new process. This approval was touted as a positive sign that the new B and B process a clear improvement.

The one bed and breakfast that was featured in the Maui News article had in fact been an applicant for far longer than the initiation of the new bed and breakfast process. It does not appear as if any of the B and B’s that have submitted applications under the new process have been approved to date. Conversations with some who are going through the B and B process suggest that there still may be considerable inefficiencies. The approval process includes getting individual approvals from a variety of county agencies. Applicants have found that some of these departments have been very slow to turn around applications.

Some have said that uncertainty over tax rates has also been a factor in the lack of new Bed and Breakfast permits.The Maui County Council has been reviewing whether Bed and Breakfast and transient vacation rental properties should be subject to a different tax classification greater than the homeowner rate. If uncertainty over tax has been a reason for delay, this week’s events is a classic case of good news/bad news for potential bed and breakfast owners. The debate appears to be over with the county council approving a new tax classification. The council voted that Bed and Breakfasts were no longer eligible for homeowner exemptions. Ag properties that have bed and breakfasts would also loose their agricultural tax classification. The actual tax rate is yet to be determined. It will be interesting to see what the new rate may be for B and B’s. It sounds like some members of council are looking at using the hotel/resort rate. This would mean property taxes could quadruple for some bed and breakfast owners.

It will be interesting to see how this continues to play out. The impact on agricultural properties could be particularly bad. It is hard to eek out a profit as a small farm. Some farms were depending on bed and breakfast income to keep their farming operations viable. If the tax burden is increased too much, it may have the unintended consequence of shutting down some of the smaller organic farming operations that were starting in the Upcountry, North Shore and East Maui areas. There is also a question as to whether it is fair that homeowners can see tax rates quadruple when they may be renting as little as one room within their home. We will continue to provide status and news on the bed and breakfast approval process on The Maui Real Estate Blog.

Please note, another Realtor contacted me on Twitter alerting me to another Bed and Breakfast that was approved recently in the Maui Meadows area of South Maui. That operator originally applied in 2004 and reapplied in January under the new rules. It appears as if those who have done some legwork prior to the new application process are getting approvals done at a quicker pace. It will be interesting to continue to monitor the pace of approvals for Bed and Breakfasts.

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