LIHUE — The state Legislature is considering taking money generated by the transient accommodations tax away from the counties.
On Tuesday the House Tourism Committee voted 7-to-1 to pass HB 1586, which seeks to phase out the allocation of TAT funds to the four counties over a period of three years.
Lawmakers hope to shift the burden of high property taxes from residents to non-residents who own property in the state.
While Rep. Jimmy Tokioka, (D-15, Wailua, Hanamaulu, Lihue, Koloa, Omao) voted in favor of the measure, he has reservations.
“I had strong concerns about what it is attempting to do. I don’t know how the county is going to make up for the loss of revenue,” said Tokioka, vice chairman of the Tourism Committee.
Taking away the TAT subsidy would make up for part of the reductions in personal income tax collections and encourage the counties to raise property taxes for non-residents and other categories that affect the rising housing costs, said Rep. Kyle T. Yamashita (D-12, Pukalani. Makawao, Kula), who introduced the measure.
“Our residents, especially low- and middle-income taxpayers, are paying too much income tax,” he said. “At the same time, non-residents can buy homes in Hawaii, with the nation’s lowest property tax rates, and yet in most cases they pay no income tax to the state. This has the effect of keeping the cost of buying a home out of the reach of many of Hawaii’s people and causing property valuation to continuously rise.”
Tokioka said he voted in favor of the bill at the committee level to let it go through the legislative process.
“If I have to vote on it later, I’ll vote no, if it’s still in the same form as the draft is now,” he said.
On Kauai, Councilman Ross Kagawa said the measure, if passed, would be devastating to the county.
“My hope is that our Kauai legislators realize this fact and kill this measure at the appropriate time,” he said.
Councilman Mason Chock believes the measure may have unintended consequences.
“It’s short-sighted to think this measure will not affect prospective first-time local homeowners in the long-run,” he said. “If the goal is to increase taxes on non-resident home buyers, then that should be its primary focus, not hoarding the TAT.”
In 2014, the state Legislature capped county appropriation of TAT funds to $103 million.
If HB 1586 is passed, the counties will be allocated $93 million for fiscal year 2017-18, $62 million for fiscal year 2018-19 and $31 million for fiscal year 2019-20, according to the bill.
Kauai gets 14.5 percent of TAT, which currently equates to $14.9 million. If passed, Kauai will receive about $4.5 million by fiscal year 2019-20.
Removing TAT would be detrimental to Kauai, said County Council Chairman Mel Rapozo.
“It’ll force our county to do some drastic measures to make up for the loss of revenue,” he said. “This will result in increased taxes and fees and a reduction of services to the county.”
Mayor Bernard Carvalho submitted testimony in opposition of the bill at Tuesday’s meeting.
“On an island where approximately one in four is a visitor, to eliminate the very revenue stream that is used to offset the impacts of our visitors on our parks, infrastructure, public safety as it relates to frequent search and rescue, seems counterintuitive to a collaborative working relationship between the county and the state,” Carvalho said in his testimony.
Rapozo believes the new measure is a strategy to force counties to increase the general excise tax, or GET.
“The bottom line is that I’m disappointed with the Legislature for even considering removing or phasing out TAT,” he said. “Each and every one of them knows the counties rely on it heavily. I think it’s very unprofessional.”
In 2015, the Legislature granted counties the right to establish a 0.5 percent surcharge on the GET. Last year, the Kauai County Council voted 4-to-3 not to raise GET by 0.25 of a percent.
But increasing GET is not an option, Rapozo said.
“Until I’m convinced it’s the last resort, I’m not going to support it,” he said.
The bill doesn’t take into account the importance visitors have on Hawaii’s economy, Chock added.
“While this bill seeks to assist low to medium and senior earners, it fails to realize the impact our visitors have on our local infrastructure and places the burden of county operations solely on property owners,” he said.
The bill also addresses Hawaii’s high cost of living by reducing personal income tax brackets for low- and middle-income earners and seniors, but also looks at how the counties’ property tax rates are one of the primary reasons for the state’s high housing costs, according to a release from the state Legislature.
“We need to restructure how we tax to fuel positive economic outcomes. We cannot continue to make Band-Aid changes to our tax structure and think anything will really change,” Yamashita said.
“This bill is the first step in making taxes more equitable for residents and, if the counties follow suit, will make investors buying homes in Hawaii pay their fair share.”
Rapozo wants Kauai residents to speak out against the proposal.
“I hope the people impacted will reach out to the Legislature and let them know it’s not a good thing,” he said.