There's more trouble in paradise for Hawaii's vacation homeowners.

On the Hawaiian island of Oahu, the Honolulu City and County Council is considering legislation that would more than triple the property tax on homes used as vacation rentals.

That could undermine the mom-and-pop vacation rental industry, which has long been an accommodations mainstay for the Aloha State's tourist industry.

If approved, the new ordinance would reclassify some 1,000 homes, cottages and condos on the island of Oahu as if they were hotels or resorts.

That would mean, for example, on a property valued at $600,000, property taxes would soar from about $2,000 a year to more than $7,500.

This is the second blow to Hawaii's vacation home rental industry early in the New Year.

Effective January 1, 2008, Maui County officials ordered hundreds of vacation home owners on the islands of Maui, Molokai and Lanai to shut down because they were operating without a permit. For years county officials allowed the practice so long as homeowners were in the permit applications process.

It's not clear what Hawaii's tourist industry is thinking, given the increased demand from abroad for U.S. vacation homes both as investments and as travel accommodations.

The weak U.S. dollar is expected to bring more foreign tourists to America this year. Also, foreigners with stronger foreign currencies, are snatching up American vacation homes.

Hawaii has long been both a popular travel destination and a lure for vacation home investors.

Honolulu Councilman Gary Okino, who proposed the property tax change in Bill 96, said vacation home owners get unnecessary tax break and in all fairness should pay the same rate as hotels.

Vacation homeowners say the change would be unfair because vacation home properties don't rake in the same incomes as hotels and resorts and they offer fewer amenities.

Placing additional financial burdens on vacation home rentals could also reduce the availability of accommodations for those who want to stay in a more homey atmosphere and interact with local residents.

Published: January 24, 2008

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.