Hotel tax share could shrink

HILO — Counties face a drop in their share of the state’s transient accommodation tax next fiscal year if the state Legislature doesn’t take action this session.

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HILO — Counties face a drop in their share of the state’s transient accommodation tax next fiscal year if the state Legislature doesn’t take action this session.

But depending on which bill lawmakers favor, no action might be their best option.

How revenue from the TAT, also known as the “hotel tax,” is distributed is a perennial issue at the Legislature.

Counties are frustrated that their share has been capped since the Great Recession, first at $93 million and then at $103 million, despite rising tax collections. Of that, Hawaii County currently gets $19.2 million, making the TAT the largest revenue source after property taxes.

On the other side are lawmakers who say the state should get the lion’s share because of the amount of services it provides.

Without any action, the counties’ share would drop back to $93 million for the 2017 fiscal year that starts in July.

Bills lawmakers are considering offer different paths, with the counties getting more or nothing at all.

The bill counties want lawmakers to pass was introduced by Sen. Kai Kahele.

His legislation follows the recommendations of a TAT working group the state formed a few years ago. That would provide the state with 55 percent of remaining TAT revenue after about $110 million in contributions to special funds, with the rest dispersed between the counties. Hawaii County would receive 18.6 percent of the counties’ share.

Industry forecasters believe the TAT, a 9.25 percent tax on hotel stays, will bring in $475 million this year. If the bill passes, the county could receive more than $30 million.

Kahele, D-Hilo, said he doesn’t think the counties are getting their fair share. But he noted it’s not an easy argument to win.

“Every year we deal with this,” Kahele said.

“It’s a big fight at the Legislature because of the amount of money it generates for the general fund.”

His legislation, Senate Bill 1290, passed a joint committee and will next be considered by the Ways and Means Committee, which Kahele sits on. The bill would not increase the tax.

The bill the counties fear is House Bill 1586. That would phase out their share of the TAT revenue over three years, while also simplifying the state’s income tax brackets and doubling a personal exemption.

Rep. Richard Onishi said that would provide a tax break to low- and middle-income residents. He co-sponsored it along with Big Island Reps. Mark Nakashima and Nicole Lowen.

“Everybody is talking about the need for tax relief for the lower and middle class,” said Onishi, D-Hilo, Keaau, Kurtistown, Volcano, last week. Regarding taking away the counties’ share of the TAT, he said the state covers services that “across the United States are paid for by property taxes or municipal taxes.”

But it also would mean an approximately $19 million hole in Hawaii County’s budget. Mayor Harry Kim said that would force the county to cut services or raise property taxes.

Kim called it “devastating” and said it would not be good for low-income residents.

“It takes away from the whole intent of the bill,” he said.

Onishi said the counties could increase taxes on non-resident property owners to cover the difference.

“That’s a decision the counties have to make,” he said. “Because we do know there are properties for people that don’t live in Hawaii. There are investment properties.”

The bill will next be heard by the House Finance Committee.

Another option to help cover the loss of TAT is for the counties to raise the general excise tax, a power the Legislature granted them a few years ago.

Kahele, who is against the HB 1586, said some lawmakers are frustrated that more counties have not chosen that route.

“The state’s resources are lean right now,” he said. “There’s not much money to go around.

“Everyone is looking into somebody else’s pocket to grab money to fund their programs.”

But there might be a third way. Call it the fall back.

HB 830 keeps the funding formula the same but with the amounts left blank. That could allow lawmakers to reinsert the current $103 million cap or come up with another figure.

Either way, Kahele said the Legislature needs to pass something this year to keep the amount from dropping.

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“I would hope, if anything, they would maintain it at $103 million this year,” he said.

Email Tom Callis at tcallis@hawaiitribune-herald.com.

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