HAWAII HOUSE REJECTS ADDITIONAL HOTEL TAX

Source: Honolulu Star Bulletin

February 11, 1999
The House Tourism Committee yesterday rejected a bill that would have allowed counties to set their own tax on hotel rooms and time-share accommodations after hearing objections from Gov. Ben Cayetano's administration, the Hawaii Hotel Association and a Kauai councilman. The rejected measure would also have lowered the state's hotel room tax of 7.25 percent to 3.75 percent on Jan. 1, 2002. The state's tax of 7.25 percent on the fair market rental value of time-share units would also have been lowered to 3.75 percent.

Maui County Council Chairman Patrick Kawano said that "During a period when counties are facing tremendous fiscal challenges, the bill may offer a reasonably effective way to broaden the counties' revenue bases without burdening our residents through real property taxes."

But Murray Towill, Hawaii Hotel Association president, disagreed. "By our calculations," said Towill, "the only way for the counties to get more funds via the (hotel room tax) is to increase it beyond the existing level. We would like to point out that Hawaii is already currently ranked No. 1 in the nation on the total taxes collected per hotel room in the resort markets."

Towill noted that in addition to the high hotel room taxes visitors are also hit with a general excise tax of 4.16 percent.

Under the bill introduced by Rep. Bob Nakasone (D, Kahului), the counties' share of the state room tax would be eliminated. Kauai Councilman Billy Swain, a former House member, pointed out that "What this (bill) does is compete county against county." He said Kauai, the county with the fewest hotel rooms, would likely have to set a higher hotel room tax just to get the same amount it now receives from the state room tax.

An identical measure has been introduced in the Senate by Sen. Jan Yagi Buen (D, Waihee). It has not yet been scheduled for a hearing.

The Tax Foundation of Hawaii, a nonprofit research organization, issued a scathing critique of companion bills introduced by Nakasone and Buen.

The Foundation stated that the counties have used their share of the statewide hotel room tax as a crutch to avoid raising property taxes "to fund a plethora of county programs that perhaps should never have been established at the county level." According to the Foundation, when the counties asked in 1978 for control over property taxes so that they could be financially self-sufficient, they got it. But county officials never liked "the discomfort" of being held accountable for raising property taxes.