On Friday, the State House of Representatives surprised everyone with a last-minute proposal to raise the Transient Accommodations Tax revenue to fund the Honolulu rail project and education. To be clear, we are not opposed to rail or to improvements to our public education system; however, we believe that this tax should not be targeted solely at the tourism industry.
This proposal to amend Senate Bill 1183 came at the eleventh hour during conference committee and provided no opportunity for the public to provide input or testimony as is the case when bills are heard, particularly when of this magnitude and impact.
The proposed tax increase would raise our 9.25 percent TAT to 12 percent, a 30 percent hike that is unprecedented for our industry. The proposed TAT in combination with the General Excise Tax (GET) would impose a 16.7 percent tax on visitors and residents who patronize our accommodations, adding to Hawaii’s unfortunate reputation as one of the most expensive places to visit. With the proposed tax increase, Hawaii would surpass New York City (16.5 percent), Los Angeles (15.8 percent), and Miami Beach (14.0 percent), on the list of highest lodging tax rates in the nation. San Francisco is only marginally higher at 16.8 percent. This puts us at a competitive disadvantage that could lead to fewer visitors and less visitor spending, and cause a ripple effect that may negatively impact small businesses in our community.
To remain competitive, it is likely that hotels will not pass the increased tax on to guests and instead absorb some of the burden, ultimately leading to staffing cutbacks.
Though Hawaii’s visitor industry is strong right now, there are growing signs of a tourism downturn on the horizon. With the TAT being a highly volatile and much smaller revenue source than the GET, it would be unwise to depend solely on the hotel room tax to fund the city project. On the other hand, the GET is a much fairer tax as it is paid by both residents, who will largely benefit from rail, as well as visitors.
We are strongly urging the legislature to reject Senate Bill 1183 and encourage you all to submit opposing testimony as well. For more information on how to reach your legislators, please contact our Director of Government Affairs Jared Higashi at email@example.com.
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