Bill to increase lodging tax could stifle visitor industry, some say

  • CHELSEA JENSEN/West Hawaii Today A woman sits on the rocks at Kamakahonu Bay fronting an empty King Kamehameha's Kona Beach Hotel in March 2020 in Kailua-Kona.

HONOLULU — Hawaii’s hotel tax will likely go up by nearly 30% if legislation goes through giving the four counties the option of raising the fee.

State legislators have advanced House Bill 862 to Gov. David Ige. The bill eliminates the $103 million annual county share of revenue from the transient accommodations tax, or hotel tax. Instead of sending the money to the counties, the state will keep it.

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To make up for the loss of revenue to the four counties, the bill allows each county to increase its hotel tax up to 13.25% from the current 10.25% for up to 10 years. The counties would come out ahead, in terms of revenue collected, if the legislation becomes law.

Ige has until June 21 to veto the bill.

Tourism and government officials are debating whether the revenue gained from a 30% TAT hike would offset the potential negative impact of increasing the cost of a Hawaii vacation, especially now when the state is trying to recover from the pandemic plunge.

“If the four counties were to enact (the tax increase), it would make Hawaii the state with the highest lodging taxes in the nation, which will undoubtedly affect our ability to compete,” said Mufi Hannemann, president and CEO of the Hawaii Lodging &Tourism Association.

“Economically, we are far from being back to any kind of normalcy,” said Hannemann. “Now is not the time to further tax Hawaii’s greatest provider of jobs when it is still struggling as evidenced by the highest unemployment rate in the nation. Government didn’t do it in the aftermath of 9/11. Why would they choose this path now?”

Millions of dollars are at stake on both sides.

In fiscal year 2019 the lodging tax brought $631 million to the state. Kauai County received 14.5%, or $14.9 million, of the $103 million distribution to counties; Hawaii County got 18.6%, or $19.2 million; Honolulu County got 44.1%, or $45.5 million; and Maui County received 22.8%, or $23.5 million.

Issac Choy, director of the state Department of Taxation, said Friday that if the counties implemented the 30% TAT increase, “they would be doing better than the $103 million allocation.”

According to the tax office, the counties would conservatively collect $108.8 million the first year of the increase. In the second year they would get $138.7 million, and collections would take off from there.

State tax office estimates show that Honolulu and Maui are expected to make up for the loss of their TAT share the first year, but it would take Kauai more than two years and Hawaii Island more than three years to hit the 2019 distribution.

Tourism has enjoyed a spring-break rebound and is expected to see further gains this summer. Still, full recovery is some years out.

Keith Vieira, principal of KV &Associates, Hospitality Consulting, said the potential TAT increase comes on top of general excise taxes and other expenses like COVID-19 travel tests, which often cost $150 to $300 each. Additionally, Vieira said, the cost of doing business has gone up, and businesses already have been raising prices just to stay open.

“We are coming out of the worst time we ever had, and due to lack of legislative creativity and in some cases greed, we are putting our industry at risk,” Vieira said. “I can’t believe that they did this through gut-and-replace and didn’t allow for any discussion.”

Vieira said the proposed increase means visitors would pay more than 18% in GET and TAT taxes per night on their hotel rooms and resort fees.

“We are a 90% to 95% leisure destination, so visitors can’t pass these costs on to businesses,” he said. “At some point they’ll go elsewhere.”

State legislators have said cutting the county distribution was aimed at accountability.

House Finance Chairwoman Sylvia Luke (D-Oahu) said April 22 during a HB 862 conference, “This will incentivize counties to hold (bed-and-breakfast homes) more accountable and enforce (rules covering bed-and-breakfast homes).

“It also provides the counties another taxing authority other than just property tax and some of the motor vehicle fees,” Luke said.

State Rep. Richard Onishi (D-South Hilo, Keaau, Honuapo), chairman of the House Labor and Tourism Committee, said he supported ending county TAT distributions because he hasn’t been satisfied with their accounting of prior TAT spending.

Maui Mayor Mike Victorino is the only mayor who has publicly stated his intent to raise the county’s transient accommodations tax to 13.25% from 10.25%.

Victorino’s spokesman Brian Perry said Monday it was premature to discuss details.

“Mayor Victorino will clarify his intent on this legislation at a time when it becomes law,” Perry said.

Cyrus Johnasen, spokesman for Hawaii Island Mayor Mitch Roth, said, “Our administration is intent on asking the governor to veto HB 862.”

“We feel that the increased TAT collection will further strain an already fragile hospitality industry that employs a huge population of our residents,” Johnasen said. “Furthermore, we believe that the bill would not only impact tourism for malihini, but also affect our local families’ ability to staycation — something we often do here in Hawaii County.”

Kauai Mayor Derek Kawakami did not definitively respond to the legislation, but said: “The bottom line is that the county needs TAT revenue to balance our budget and provide critical services to both our residents and visitors, such as police, fire and ocean rescues.

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“We look forward to working with our state and county partners to determine the best way for our county to get our share of TAT.”

Honolulu Mayor Rick Blangiardi did not respond to the Honolulu Star-Advertiser’s request for comment.