Hoteliers push back on proposed tax hikes

Hospitality industry members from the Hawai‘i Hotel Alliance and the American Hotel & Lodging Association are seeking to draw attention to current and looming challenges facing their industry and are pushing back against proposed transient accommodations tax increases that are still moving forward in several bills at the halfway mark of this year’s state Legislature.

Their advocacy effort was upfront at the Hospitality Show: Hawai‘i, which HHA and AHLA put on Thursday in Waikiki. HHA President Jerry Gibson, AHLA Executive Vice President Troy Flan­agan and Kekoa McClellan, spokesperson for AHLA and chief advocate for HHA, were joined by a ballroom full of hospitality industry members. Other prominent speakers at the event included Gov. Josh Green, Honolulu Mayor Rick Blan­giardi, Maui Mayor Richard Bissen, Kauai Mayor Derek Kawakami, state Rep. Adrian Tam, Honolulu City Council member Tyler Dos Santos-Tam and more.

The event took place the same day that the state Department of Business, Economic Development and Tourism released preliminary tourism numbers, which indicated that visitor arrivals and visitor spending rose in January from January 2024. However, at this time in 2024, visitor arrivals were weak following the August 2023 Maui wildfires.

In January some 792,177 visitors came to the Hawaiian Islands, up 3.8% from January 2024, according to DBEDT’s preliminary statistics. Likewise, total visitor spending, without taking inflation into account, rose to $1.89 billion, up 4.7% from January 2024.

DBEDT Director James Kunane Tokioka said in a statement, “Hawai‘i’s tourism industry had a positive start to the new year with growth in both total visitor arrivals and visitor spending in January 2025, which marked the sixth consecutive month of increases in these key indicators.”

Hospitality industry members from HHA and AHLA, however, painted a less robust picture of statewide tourism performance, especially at hotels, and expressed concern about legislation that is still moving that would potentially increase the TAT, which they said is already too high.

The Senate Ways and Means Committee on Thursday amended and passed Senate Bill 1396, which addresses climate change and mitigates further impacts by authorizing the funding of resiliency projects. It establishes the Climate Mitigation and Resiliency Special Fund and the Economic Development and Revitalization Special Fund. It also increases the TAT and allocates a portion of it to support the fund.

WAM also amended and passed Senate Bill 1395, which establishes a Climate Mitigation and Resiliency Special Fund and allocates the interest earned on balances within the Emergency and Budget Reserve Fund to the special fund as well as allocating a portion of the revenue from the TAT to the special fund.

The House Finance Committee on Wednesday amended and passed House Bill 504, introduced by Rep. Linda Ichiyama (D, Fort Shafter Flats-Salt Lake-Pearl Harbor). The bill seeks to require a $20 TAT to be levied per night for each furnishing of transient accommodations in exchange for points, miles or other amounts provided through a membership, loyalty or rewards program. It also appropriates funds to the Department of Land and Natural Resources for protection, management and restoration of the state’s natural resources.

Green did not directly address these bills when he spoke at the event. He thanked hoteliers for their support during COVID-19 and in the aftermath of the Maui wildfires. Green told them that he understood that Maui had essentially “suffered a concussion” after the wildfires, and said that is why he released an extra $6.3 million to support tourism.

“What did Maui show us? It showed us that we are quite vulnerable. What did we see in Los Angeles? Exactly the same thing, that we’re vulnerable. This is an era where there are additional variables for us to consider. And I know that this is tough because this is our industry here, this is our lead industry,” he said. “What we know is that the state of our planet is more volatile. The storms are stronger. The land is drier, and I don’t think it’s just a cyclical change.”

Green has previously told the Honolulu Star-Advertiser that the state needs at least $200 million annually to respond to climate change, especially following the deadly Aug. 8, 2023, Maui wildfires, which killed 102 people and all but wiped out Lahaina.

“I do not want to panic people with the talk of the TAT increase. I just want to say that these are the things that we are discussing, and to the extent that that happens or that we allow it to happen or we work together to have it happen — make the case, and I will honor it to reinvest in the industry so that the benefit actually outweighs any of the pain,” he said during Thursday’s tourism event.

The idea of forming a Climate Mitigation and Resiliency Special Fund was supported in testimony to WAM and the House Finance Committee by many conservation and sustainability groups and state agencies, especially those that deal with natural resources, climate change and emergency resilience.

Hawaii’s short-term rental advocacy groups did not provide testimony. But the hotel industry and its partners continue to push back on any increase in the TAT, which industry leaders like Gibson describe as regressive, especially given a recent “Travel & Leisure article saying right now, as is, we are the priciest tourism tax in the world.”

Gibson said as tax inclusions rise, visitors might opt for less expensive, illegal short-term rentals or move to a competitive destination.

“The unintended consequence of any TAT increase could reduce total taxes or backfire if it undermines the overall tourism market. A reduction in hotel stays reduces all ancillary income, dining, entertainment and services,” he said.

Gibson said he and other leaders from HHA instead support earmarking a percentage of existing general fund collections, to which the TAT contributes more than $1.1 billion of revenue, to fund climate change and Department of Hawaiian Home Lands efforts. Gibson said the industry also supports models like Hanauma Bay Nature Preserve, which protects resources by utilizing a reservation system and charging visitors to enter.

They also suggest making cruise ships pay the TAT when their guests are spending the night in ships that are docked in Hawaii.

But Gibson said the low-hanging fruit when it comes to funds is to crack down on illegal short-term rentals by building on Act 17, which passed in 2024 and empowered county governments to effectively enforce short-term rentals.

Stephanie Donoho, administrative director of the Kohala Coast Resort Association and an HHA consultant for Hawaii island, said data from software firm Granicus shows that enforcement of short-term rentals in Hawaii County could generate millions more in transient accommodations tax revenues.

She said Hawaii County’s 3% TAT collections resulted in $24 million for the 2023-2024 fiscal year, and of that amount, $17 million was for the Kohala Coast Resort Association alone, and she said she talked to other hoteliers in Hilo and Kona whose properties paid more than $1 million each.

Donoho said Granicus data shows that there are 8,737 unique short-term rentals in Hawaii County and that TAT revenue generated for the county would hit more than $22.5 million at 68% occupancy.

“That tells me that there’s a vast underpayment by short-term rentals,” Donoho said.

Increasing short-term rental enforcement is one point where Green and Hawaii’s hospitality industry are in strong agreement.

“We all want to jack up short-term rentals, and the reason, if I may be blunt, is that we simply have too few homes in our community and we are struggling to find homes for local families,” Green said.

AHLA’s Flanagan said illegal short-term rentals are an issue for the hotel industry and communities nationwide but that the stakes are higher in Hawaii, where land and affordable housing are limited and the impacts on the community and traffic are greater.

“Hawaii is like the extreme example,” Flanagan said.

Gibson said several headwinds have emerged during and since the COVID-19 pandemic, and most recently, he said, federal job cuts are a concern.

“In January we have already seen a 55% drop in government, military and government contractors to the islands,” he said. “This is excellent base business for many of the hotels that has simply dried up and gone away.”

He added that the Hawai‘i Convention Center’s closure for repairs in 2026 for large groups, known as citywides, also will “really hurt Oahu, which will miss those 15% to 20% incentive and association groups.”

Gibson said these new and coming challenges are on top of the continued lag in international business, particularly Japan, “which is still 45% of what it was in 2019.”

He said the negative impact of the Maui fires on tourism continue to remain front of mind, as do the Los Angeles fires, since 42.6% of Hawaii’s total hotel room nights come from California.

While DBEDT’s January visitor numbers show year-over-year improvement, they still don’t reflect a full recovery to the pre-­pandemic 2019 level, which Gibson said is concerning given that there has been no cumulative growth for the past six years.

When compared with pre-pandemic 2019 levels, January visitor arrivals were recovered to only 96.9%. While DBEDT reported visitor spending rose 17.2% from 2019, Gibson said that isn’t adjusted for inflation and hasn’t kept up with new expenses, which he says have increased at least 25% during the same period.

A major expense has been new union collective bargaining agreements, which Gibson said over the course of the contract includes a $10-per-hour raise in every employee category. He said that brings the average housekeeper’s annual earnings with benefits and tips to $85,040. He said the average bartender will earn $165,000 a year in wages, tips and benefits.