Mayor Mitch Roth on Wednesday called a proposed 3% tax to be added to hotel and vacation rental charges “a necessary evil.”
During a livestreamed interview, Roth discussed a bill introduced during last week’s meeting of the Hawaii County Council’s Finance Committee that proposed levying a 3% transient accommodations tax across all gross rental proceeds in the county.
At that meeting, Hamakua Councilwoman Heather Kimball, who introduced the bill, said the tax would add $9 to the average $280 nightly room rate on the island.
“We’re in a situation where we need to pass an ordinance about this,” Roth said Wednesday. “We have about a $19 million hole right now that we need to fill, and the amount of money the county has and the needs of the county has are miles apart.”
That $19 million hole is the gap in the county’s budget caused when the state Legislature passed a bill earlier this year that redirected the counties’ share of the state TAT — which imposes a 10.25% on gross rental charges — to the state while allowing the counties the option to pass a local tax of up to 3%.
Maui and Kauai already have introduced bills proposing a local TAT. Both counties’ bills would establish the tax at 3%, the maximum possible amount.
“Those funds eventually have to be paid,” Roth said. “If we have a year like we had in 2019, which was the year we did best, we’ll break even, but if we have years like we had in 2018, 2017, 2016, 2015, then we’ll be short on funds. So (the county TAT) is a necessary evil.”
However, Roth was critical of the Legislature for pushing the option onto the counties without providing a “road map” for how the they will actually implement their TATs.
Roth said counties might have to hire additional employees to handle collection of the proposed tax, but it is still unclear as to precisely how the tax would be administrated.
Roth said the ordinance will take a few months to pass one way or another. As it stands, the ordinance would take effect Jan. 1, but Roth went on to say that it will take several additional months to begin collections.
If the ordinance is passed — the Finance Committee will continue its discussion of the bill next week, but council members were largely supportive of the proposal at last week’s meeting — Roth said he hopes the funds can be collected without earmarking them for specific purposes.
Some council members at the meeting argued for earmarking some of the funds for projects that benefit residents and visitors alike.
Roth added that the Legislature should revisit the issue during the 2022 legislative session in the hopes of making improvements such as somehow exempting kama‘aina from the tax.
“But I think we have to pass the bill, and we have to collect the funds, even at a time when that may put a dent in tourism,” Roth said. “For some people, it may price them out of a trip to Hawaii.”
Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.