By Malia Zimmerman | Hawaii Reporter
HONOLULU – Are Hawaii lawmakers killing the golden goose and the golden egg?
Hawaii relies on tourism, its most lucrative industry, to fuel the economy. A record 8 million visitors to Hawaii last year spent a collective $14 billion. On average they spend $196 per person per day, or $1,800 per trip.
But now Hawaii lawmakers are considering a proposal to increase the tax on hotel rooms from 9.25 percent to 11.25 percent. Lawmakers say they need the increase to pay for items like social services and education.
Tourism officials and those who work in the industry are warning lawmakers that the added tax could severely damage an industry employing an estimated 166,000 people and drive visitors away.
“Hawaii is a leisure destination, where the visitor’s spending is discretionary,” said Mike McCartney, president and CEO of the Hawaii Tourism Authority and a former legislator. “As such, our visitor market is price-sensitive, and any increase could drive a traveler to a competing destination.
“An increase to the (tax) will only diminish Hawaii’s ability to compete in a price-sensitive market.”
The tax that lawmakers are eyeing – the transient accommodation tax, or TAT – is levied on top of a general excise tax imposed on all transactions and services in Hawaii.
Lowell Kalapa, president of the Tax Foundation of Hawaii, has testified against the proposed increase at the state legislature. He agrees if lawmakers are going to compare rates and say Hawaii’s tax on hotel room rentals is low, they need to consider the combined impact of both taxes.
“Unfortunately, or perhaps intentionally, what lawmakers forget is that the 7.25 percent – currently 9.25 percent – rate is over and above the 4.16 percent general excise tax which is also levied on hotel room rentals,” Kalapa said. “Thus, the current tax rate on hotel room rentals nears 12 percent or 13 percent” depending on locale.
The TAT has already been increased “temporarily” from 7.25 percent to 9.25 percent, an additional tax that is supposed to sunset in 2015.
“Three years ago in the midst of the worst economic meltdown since the Great Depression, state lawmakers turned to the hotel industry and asked them not to stand in the way of a rate increase of the state’s hotel room tax or transient accommodation tax to help bail out the state general fund as the budget shortfall was forecasted to top $1 billion,” Kalapa said.
“Now both the administration and some legislators would like to hang onto that money and have proposed making the two percentage point increase permanent. The administration also has a proposal in to increase the rate yet another two percentage points to 11.25 percent.”
Kalapa has been following the TAT debate since the inception of the tax.
The tax was originally adopted to build a state convention center in 1986, he said. The industry originally agreed to a 2 percent rate, but at the end of the 1986 session, lawmakers increased the rate to 5 percent and did not earmark the proceeds for building a convention center.
When a site was selected five years later, Kalapa said lawmakers had spent much of the money set aside for the convention center on other programs and services, so they increased the tax again to 6 percent.
A task force recommended the rate be increased to 7.25 percent so legislators could decrease the state income tax, but lawmakers increased both the TAT and income tax rate.
Hawaii now has the highest income tax rate in the nation.
The state convention center sits largely empty on the edge of Waikiki.
Contact Malia Zimmerman at email@example.com.