State’s hunger for TAT is out of control

CHAIR'S 3 MINUTES

For many years, travel companies marketing Hawaii on behalf of hotels and other accommodations charged our visitors the state’s general excise tax and transient accommodations tax on their share of the sales price of a unit. The companies then pocketed the taxes collected rather than paying them to the state. About 15 to 20 percent of the taxes paid by our visitors benefitted these companies and never made it to the state general fund.

In 2015, a Hawaii State Supreme Court decision required these companies to pay their portion of the GET to the state. Unfortunately, the court ruled the companies did not have to pay the state their share of the TAT because only “operators” of accommodations were required to pay the tax to the state.

During the special legislative session to fund the Honolulu rail system, the Neighbor Island counties testified that our share of the TAT, if needed, could be generated by closing the tax loophole identified by the court three years earlier rather than a 1 percent TAT increase. After passing the new 1 percent tax despite our objections, the House promised to take care of Hawaii, Maui and Kauai counties during the regular session.

Legislation proposed this past session by Maui County evolved into Senate Bill 2868, which, once signed into law by the governor, will likely generate revenue in excess of $70 million next year. Because these TAT payments were new revenue, our bill included a provision that the funds would be added to the $103 million received by the counties. That provision did not survive.

Over the last 10 years, the counties’ share of the TAT increased by just $2.2 million while the state increased its share from $17 million to nearly $300 million in 2017.

Providing a significant increase to the counties seems only fair. With SB 648, the House kept its promise by allocating about $36 million in new funds to Neighbor Island counties. Unfortunately, the Senate did not agree. The state’s share of the revenue generated by SB 2868 will increase by the entire $70 million annual amount while the counties will receive no added benefit.

So, here is the scorecard. With the 1 percent increase for the rail and the new tax from SB 2868, Maui’s visitors will be generating about $207 million in TAT annually, up $60 million from 2017. But Maui will still get back the same $23.5 million, or just 11 percent of what we will generate. The other Neighbor Islands will receive about 20 percent of the TAT they will generate, while Oahu will get back 41 percent of the TAT it will generate.

Maui has always been supportive of the other Neighbor Islands getting a larger percentage of their TAT. Maui has also been comfortable being a couple of points behind Oahu. But, now that Oahu is receiving a percentage almost four times higher than Maui’s, it is time to demand that our legislators take another look at what they have created and commit to working for Maui and the Neighbor Island counties in the next legislative session.

* Mike White is chair of the Maui County Council. He holds the council seat for the Paia-Haiku-Makawao residency area. “Chair’s 3 Minutes” is a weekly column to explain the latest news on county legislative matters. Go to mauicounty.us for more information.

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