Visitor industry provides unrecognized support

CHAIR'S 3 MINUTES

During the County Council’s deliberations on the county’s fiscal year 2019 budget, comments were made stating the visitor industry should pay a greater share of taxes. This is somewhat understandable, since most Maui residents do not realize the level of support the industry already provides and the additional costs incurred by the lodging industry.

Costs the industry bears include marketing Maui and paying Hawaii’s general excise tax (GET), transient accommodations tax (TAT) and county real property tax (RPT). Consequently, the industry pays more for county services than is paid by residents and other commercial businesses.

By far the largest expense for most visitor operations are the wages and benefits paid to the tens of thousands of local residents that work in the visitor industry. The next largest cost is out-of-state marketing, which focuses on North America, Oceania, Europe and Asia, to keep Maui prominent in the mind of those planning vacations.

Marketing costs include margins or commissions to wholesalers or agents, direct advertising, websites, salaries and other expenses. These costs amount to more than 20 percent of the total amount paid by visitors to accommodation providers.

In comparison, the contribution to out-of-state marketing by all non-airline and non-accommodation businesses that benefit from visitor spending was approximately $140,000 in 2017. Individually, most hotels spend more for this purpose in two weeks than all other businesses spend annually.

Marketing expenditures by the lodging industry directly support restaurants, tourism activities, retail and transportation companies, and indirectly support all businesses that provide goods, services and health care to Maui companies.

The visitor industry pays significantly higher taxes than any other type of business due to the state TAT and county RPT. The 10.25 percent TAT on Maui accommodations generates $190 million with $23.5 million coming back to support Maui services and $20.2 million funding the rail project on Oahu. The remaining Maui visitor dollars go to the state’s general fund, even though a majority of visitor services are provided by the county.

When the counties took responsibility for establishing RPT rates in 1981, all classifications paid the same tax rate. Today, visitor accommodations pay effective rates at least five times higher than homeowners and 30 percent higher than the businesses that depend on visitors for their revenue.

At any given time, visitors account for around 26 percent of the county’s population with 21,250 lodging units generating approximately $136 million in RPT and $190 million in TAT. As a comparison, around 27,600 homeowners bring in about $32 million in RPT.

Taxes generated through the visitor industry reduce the amount remaining to cover other business expenses, such as labor costs. A recent estimate shows that the GET, TAT and RPT taxes generated by a hotel amount to approximately $21,000 per employee, which is higher than any other type of business.

It’s not just about taxes. Hotels, condominiums and timeshares also pay significantly higher fees for sewer and water services. These higher payments effectively reduce the amounts that are charged to our residents for these same services.

There is good reason for the industry to pay much more in taxes than our residents. Most industry folks I know are more than willing to pay their fair share. The challenge is determining what level is fair before our prices become too high for visitors, or it takes too much of a toll on the ability for the lodging industry to properly compensate employees.

* 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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