Counties, the TAT is now your problem too!

For many years, the counties and the state have been bickering about how much support from the state’s transient accommodations tax (TAT) they should get to help fund county infrastructure. County systems like fire, police, and parks maintenance undeniably help tourists, too, and the argument was that the tourist tax should help the counties out. In 2009, for example, the law provided that 44.8% of the tax, after satisfying earmarks, would be distributed to the counties using specific percentages. That was when the TAT rate was 7.25%. The rate crept up to 9.25% in 2013, but the percentage was changed to a fixed dollar amount. The counties complained about their allocations, and in the following year the Legislature had a state-county functions working group recommend an appropriate allocation of TAT revenues. The working group recommended to the 2015 Legislature that the percentage allocation of the TAT be restored, but the Legislature balked. The fixed amount allocated to the counties went up and down slightly over the years, and is now at $103 million, while the TAT rate is 10.25%.

When the COVID-19 pandemic hit, Governor Ige, in a questionable use of his emergency powers, completely shut off distribution of TAT money to the counties. But it’s not like that much money was being saved by that move, because TAT collections had fallen through the floor. According to a “Preliminary Comparative Statement of State General Fund Tax Revenues” for March 2021, TAT revenues for fiscal 2021 (July 2020 to March 2021) are down more than 80% compared to the comparable period for fiscal 2020.

In the conference draft of House Bill 862, the allocation of TAT funds to the counties will be eliminated entirely and permanently, but the counties will be given authority to adopt by ordinance a TAT surcharge, up to 3%. House Finance Chair Sylvia Luke said that would “incentivize counties to hold B&Bs accountable, and enforce B&B” ordinances, and it “also provides the counties another taxing authority other than just property tax and some of the motor-vehicle fees.”

This is a tax increase. The state is proposing to scoop up the $103 million it previously shared with the counties and keep it all. The counties, just to keep up, would need to enact additional taxes, perhaps on visitor accommodations or on real property.

In either case, a tax increase on the visitor industry may amount to kicking that industry when it’s down. As mentioned earlier, TAT revenues are down 80%. Businesses in that industry weren’t simply toying with the idea of furloughs; they already have experienced layoffs and business closures. State unemployment reached almost 24% just one year ago. As stated by Hawai‘i Lodging &Tourism Association President Mufi Hannemann in testimony on House Bill 321, which contains provisions that would move to House Bill 862, “now is not the time to place additional cost burdens on local businesses. Everybody is desperately working to recover an economy that has been disproportionately affected by the COVID-19 pandemic, and we should be looking to support these businesses rather than saddling them with additional costs.”

The counties, not surprisingly, don’t want to be a part of this increase either. The Hawai‘i State Association of Counties, and some individual counties, testified against House Bill 321. Maui Mayor Victorino wrote:

“Since the state and the counties serve the same constituents, it is important that we continue to work as partners in meeting the needs of our communities. As demand for services is ever increasing (and so is the cost of those services), it is equally important that revenue be appropriately shared so that the needs of our residents and visitors can be met to the best of our combined abilities.”

That seems to be another way of saying, “Don’t make us do this. Both of us will get hurt.”

Now we wait to see if Governor Ige will go along with this.

•••

Tom Yamachika is president of the Tax Foundation of Hawai‘i.

3 Comments
  1. Doug May 3, 2021 9:04 am Reply

    We are on the right track. I read this morning that Kauai now has the 6th most expensive rental car pricing of all vacation destinations, now we need the TAT to go up and the County to crack down on the illegal vacation rentals that disrupt our RESIDENTIAL neighborhoods. Hopefully that will get rid of the dollar store tourists that think it’s okay to ignore the rules (no mask wearing, abusing the turtles and seals, selfies past the fence at the falls so they have to be rescued, the list goes on and on). We need to be upscale and safe for the tourists that actually aren’t here right now, the ones who value the island and are waiting for the pandemic to subside to come. Those are the visitors that stay in hotels, eat at restaurants, and spend money at local businesses.


  2. Mike May 3, 2021 10:10 am Reply

    Doug,
    I truly hope you get your wish and they make Hawaii so expensive you lose 70% of tourism which is (by your definition, dollar store tourists) Then you can pay enough property taxes to support your teachers. You can pay the taxes it takes to fix your roads. You can pay the taxes to have any measurement of keeping up your parks because they are all trash right now, just like your roads. Maybe the right questions to ask your politicians is: WHAT ARE THEY DOING WITH THE BILLONS OF DOLLARS TOURIST HAVE ALREADY SPENT THERE IN THE LAST 3 YEARS?
    Visitors to the Hawaiian Islands spent $17.75 billion in 2019, an increase of 1.4 percent compared to 2018, according to preliminary year-end statistics released today by the Hawaii Tourism Authority. Visitor spending includes lodging, interisland airfare, shopping, food, car rental and other expenses while in Hawaii.

    Spending by visitors generated $2.07 billion in state tax revenue in 2019, an increase of $28.5 million (+1.4%) from 2018. Additionally, 216,000 jobs statewide were supported by Hawaii’s tourism industry in 2019.

    If you think the “elite” will spend as much as the “dollar store people” you flunked kindergarten buddy. Numbers & statistics don’t lie.

    WHERE HAS ALL THAT TAX MONEY GONE? Ask your politicians if you have the courage, if not, enjoy unemployment and your high tax rates because you’ll be the only one left to pay them!


  3. Business Owner May 3, 2021 2:13 pm Reply

    I’ve been in agreement with most of what Mr. Yamachika has been writing on the tax issues that have been on the table in State Legislature this year, including personal income tax increases, conveyance tax increases, and removal of certain general excise tax exemptions. While I’m not a proponent of bloating State government for the sake of doing so and taxing anyone and everything to pay for it, it does seem to me that post-COVID there will be tax increases. Of all of them, pushing another 3% of TAT onto tourist accommodations is a way of minimizing all the other taxes that residents and small business owners have to pay at both local and state levels. If Hawaii is going to sell its soul to cash in on the tourism industry, why not make tourism, which comes with all manner of negative consequences, pay the extra tax burden here. I’m anything but an expert in the hotel and lodging industry, but seems to me tourism demand will not be impacted in any real way by an additional 3% surcharge on lodging. Feel free to correct me if I’m wrong on that, Tom (I mean this openly and not in a combative rhetorical way), and also, aside from having fewer taxes, is there another solution that does not in fact hurt residents and business owners more? I’m sure the mega resort corporations would prefer not to have the increase, as they have marketing departments that figure out how to squeeze every last dollar out of tourists and they’d rather not have to pass through another 3%. But other than dissatisfying that rather politically power entity, if taxes must be paid, why not TAT?


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