County officials are trying to determine how to implement a new county Transient Accommodations Tax after a bill unexpectedly became law Tuesday.
House Bill 862 was vetoed by Gov. David Ige on Tuesday, but the state Legislature promptly overrode that veto mere hours later.
With that override, the bill became law, and Mayor Mitch Roth said he and other county officials are discussing what that means for the Big Island.
“We were caught off guard by how quickly the override came through,” Deputy Finance Director Steven Hunt said.
HB 862 abolishes the allocation of statewide TAT revenues to the individual counties and instead allows them to establish their own taxes on accommodations at a rate of up to 3%. Roth said the Big Island would have received about $19 million in TAT funds this year.
County Finance Director Deanna Sako said Wednesday that if the county establishes a 3% TAT, it would more or less make up for the loss of the $19 million in revenue. However, she added that this assessment is based on current tourism numbers at a time when the future of tourism is unpredictable.
“It depends on the sustainability of the industry, really,” Hunt said. “Tourism’s really strong right now, but who knows how it’s going to be next year.”
Roth said he is wary about going straight for the 3% option.
“A lot of people have money now, and they’ve been sitting at home for a year, and they want to travel,” Roth said. “But I don’t know what happens next year, when their vacation funds have been spent and they’re looking for a place to go and they think that Hawaii’s too expensive now.”
Sako also noted that the statewide TAT hasn’t gone away. Patrons of hotels and vacation rentals still have to pay the state TAT of 10.25%, and an additional 3% tax by the county could be the straw that breaks the camel’s back for some travelers.
The gap in county revenue has to be filled somehow, however. Hunt said there might be others options to make up the $19 million that don’t require implementing a county TAT, but said those could be “unpleasant” — such increasing real property taxes.
“This really is going to be a tax on local citizens,” Roth said, explaining that “staycations” or vacations to neighbor islands could become less common if the counties pass their own TATs.
Roth said he is discussing the matter with the other mayors and is waiting to see which county will make the first move. The mayor hopes all counties can set the same rate for logistical reasons.
Kauai might be the first county to act. Hunt said the Kauai County Council’s Finance Committee will discuss the matter later this month, although he added that the agenda does not specify a target tax rate.
Regardless of Hawaii County’s decision, it is still unclear how the program would be administered.
“It’s unfortunate that the veto was overridden, because they didn’t actually give us a mechanism for this,” Roth said. “Some of the legislators recommended last week that the counties seek a memorandum of understanding with the state so that the state would collect fees, but (Hawaii Attorney General Clare Connors) said that was not possible under state law.”
Sako said she believes the bill requires the county to collect the new TAT revenue, but wasn’t sure whether the county currently has the capacity to do so.
“If it was just the hotels we had to collect from, then probably,” Sako said. “But we’ve got to collect from every vacation rental on the island also.”
In any event, any TAT rate imposition must be discussed and approved by the Hawaii County Council. But although Hunt, Sako and Roth were uncertain how soon a bill could be brought before the council, Sako said the process will allow plenty of time for public comment.
Sako also said the county did not budget this year’s $19 million state TAT allocation, so the budget is balanced for the current fiscal year. The county therefore has some time to make a decision, she said.
Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.