Taxes on travel rose across the country during the recession as cities and states tried to avoid increasing rates on constituents, and Hawaii was no exception, pumping the hotel room tax twice in recent years.
Gov. Neil Abercrombie acknowledges that it might not be necessary now to enact another increase, but has proposed one anyway for discussion purposes — an increase that comes precariously close to a tipping point and could harm our tourism industry.
Hawaii established the transient accommodations tax in 1986, beginning at 5 percent, on top of the general excise tax. After the economy suffered in recent years, legislators increased the hotel tax considerably, from 7.25 percent to 8.25 percent in 2009 and temporarily to 9.25 percent in 2010, with that higher rate intended to expire by July 2015.
Conventional wisdom points to the unlikelihood of the 9.25 percent hotel room tax ever coming down, especially since our tourism market has weathered the bump-up well. And with Hawaii tourist numbers at record levels and forecasts predicting continued robust activity, it’s mighty tempting for the state to squeeze the cash cow.
But Abercrombie’s feeler bill to increase the tax to 11.25 percent in July seems an overreach — even though it’s more politically expedient to tax visitors instead of local voters.
"Don’t tax you. Don’t tax me. Tax that fellow behind the tree!" the late Louisiana Sen. Russell B. Long is famously known to have declared.
Indeed, financially troubled cities and states turned to "bed tax" increases, in addition to ordinary sales tax, to cope with the recession. A year ago, Chicago joined New York and Las Vegas in hiking its hotel sales tax to 16.4 percent.
While that may have been felt by business travelers, they are expensed by employers or can write the few days off on their income taxes. The problem is that the family considering fortnight vacations in Hawaii might make other plans to avoid a two-figure hotel tax applied to some of the most expensive hotel rates in the country. The U.S. Travel Association confirms that many travelers have cited tourist taxes in deciding to stay at less expensive hotels or not visit a particular destination at all.
At the present hotel tax rate, Hawaii fared well. A record-setting nearly 8 million visitors in the islands last year spent a record of $14.3 billion, generating $323 million from the hotel tax in the last fiscal year.
Acknowledging a hotel tax increase is unnecessary, Kalbert Young, the state budget director, says the administration wants the current tax to extend beyond July 2015. Such an extension is reasonable, and is not opposed by the tourism industry. Kudos, at least, to the state administration for warning high in order to quell resistance for turning the 9.25 percent into the status quo.
Keith Vieira of Starwood Hotels and Resorts in Hawaii said he understands the financial pressures facing the state and could support keeping the current rate beyond the expiration date. He also asks that a larger share of the revenue from the tax be given to the Hawaii Tourism Authority for promotion, which makes sense especially given emerging new foreign markets.
High fuel prices and increasing hotel rates appear not to have been deterrent to Hawaii’s extraordinary tourism increase in the past year, but travelers are becoming cognizant of the variety of taxes and fees that cities and states levy on them. The tourism industry recognizes that a large increase in the hotel tax would be too much of a burden as it attempts to keep its growth alive.
