LIHU`E - A year-long effort by the Kaua`i Planning Department to draft zoning rules and regulations for Bed and Breakfast operators appears dead in the water.

But the county Finance Department is moving full speed ahead to begin taxing B&Bs as commercial property rather than residential property.

About 60 B&B owners who advertise in magazines, circulate rack cards or have web sites received a letter from the Finance Department asking them to complete a survey on the use of their property by Dec. 15.

Their property tax rate could more than double and the $40,000 tax exemption they receive for an owner-occupied dwelling could be revoked.

For a decade, the county pretended not to notice the B&B industry as it developed on Kaua`i. But as tax revenues dwindled, and with some nudges from the competing hotel and timeshare industries, the county started looking at unregulated, untaxed B&Bs.

A B&B is a commercial business in a private home. Yet it has no county zoning permit allowing it to operate in a residential neighborhood nor does it pay property taxes at the much higher commercial property rate.

Last year, the Planning Department asked B&B owners to voluntarily apply for use permits (and pay a $1,000 application fee).

Only a handful did. One application has been turned down by the Planning Commission and an appeal has been filed in Circuit Court.

In every case neighbors turned out in force to protest at public hearings. In one case, a Princeville couple had to take on the entire Princeville Homeowner's Association.

Last February, the Planning Commission announced draft rules and regulations had been put together and public hearings would be forthcoming.

As yet, the draft has not been made public and no hearing is even contemplated, let alone scheduled.

"We've been kind of busy with the General Plan," said Planning Director Dee Crowell. The update of the County General Plan has stretched from an 18-month exercise into two years and maybe longer.

In fact, Crowell said, the General Plan is where new B&B rules may surface, although that hasn't been decided yet, either.

There is no uniform state law on B&Bs. They're illegal in Honolulu and there are rules in place on the Big Island and Maui.

Unlike the Finance Department, the planners aren't searching the Internet for pirate B&Bs.

"It's a matter of time and money," Crowell said. "Investigating a complaint on one B&B turned into a major effort. We had to go to court and get subpoenas just to get on the property."

Crowell says if neighbors complain the department will investigate but there is no B&B Swat Team in his agency.

"There don't seem to be a whole lot of complaints," noted Crowell. "It really depends on how good a neighbor an operation is."

Meanwhile, over in the Finance Department, real property assessment chief Steve Hunt is finding it a little harder to ignore the openly-advertised B&Bs that are on the tax rolls as residential property.

"While you still may be entitled to a home exemption, the classification of your property would likely change if your home is not being exclusively used for your personal residence," says the letter sent out to numerous B&B operators.

Hunt says he cannot revalue the property because there are not enough B&Bs around to know what that kind of business is worth if it's sold.

But he can change the tax classification to commercial. That would boost the tax on the building from $3.49 per $1,000 of assessed valuation for a homestead, or $4.25 for a single family residence, to $7.90 for a commercial building. Taxes on the land the building sits on would about double.

He also can take away the homeowner's exemption. The value of an owner-occupied home automatically is cut by $40,000 every year.

Wally Rezentes Sr., chief aide to the mayor, said the questions of regulation and taxing B&Bs will be addressed.

He said he might consider lowering the $1,000 application fee for a zoning permit if it means more owners will voluntarily ask to be rezoned.

But he doesn't believe existing B&Bs can be grandfathered to the new rules and taxes would apply only to operations opened in the future.

"No way," he said. "Those guys all knew they were opening businesses in their homes and what the law is when they did it."