Evaluation of the Assessment and Collection of Maui County Transient Accommodations

EXECUTIVE SUMMARY

from Maui County Auditor, Tax Report No. 23-01, December 2023

The Maui County Transient Accommodations Tax (“MCTAT”) took effect on November 1, 2021, and requires any person providing transient accommodations to report and pay 3% on all gross rental proceeds to the County of Maui (“County”).

Given that MCTAT was being assessed and collected by the County for the first time, the Office of the County Auditor set out to evaluate the effectiveness and fairness of how this new tax was implemented and administered.

For Fiscal Year 2022, the County recognized over $56.9 million of MCTAT revenue on its financial statements. However, as of June 30, 2022, only $40 million (1) was actually deposited into the County’s treasury.

While the County deposited over $40 million in MCTAT revenue, the Director and Deputy Director of the County Department of Finance (“Management”) never established the groundwork required to successfully administer the MCTAT for the long term. The cause appears to be the misguided mindset of Management that MCTAT was a “voluntary tax”. That mindset resulted in less than desirable outcomes. For example:

• The County’s financial statements needed to be corrected by $16.7 million because Management failed to estimate MCTAT due but not yet collected;

• After only a few months, the Deputy Director of Finance abandoned efforts to reconcile County and State records and, therefore, was unable to properly establish an accurate receivable list and issue collection letters; and

• As of April 2023, the County Department of Finance’s MCTAT Section had a vacancy rate of 75%, having filled only two out of eight positions.

We also found that over $9.3 million of MCTAT was delinquent as of June 30, 2022, and the County made little to no effort to collect it. The lack of efforts to collect is rooted in Management’s failure to establish and maintain an accurate receivable list. We acknowledge the difficulties involved in administering a new tax, but there is no excuse for County government to levy a tax without fully knowing how much is due and who has or hasn’t paid.

Finally, the Office of the County Auditor was denied access to complete, detailed MCTAT information. As a result, we were unable to complete a portion of our work. An agreement made between the State Department of Taxation and the County Department of Finance restricted access to those detailed MCTAT information to only two (2) County employees--the Director of Finance and the Deputy Director of Finance.

We anticipated providing County stakeholders with a deeper understanding of the MCTAT tax base beyond just hearing how much tax was collected. However, since only Management has access to detailed MCTAT information, we recommend written quarterly reports be provided to the Maui County Council. Those reports should, at minimum, include:

1. The number of and estimated MCTAT due from County transient accommodation units, grouped by the respective County Council district in which the unit is located.

2. The number of County transient accommodation units, grouped by the taxpayer’s mailing address as follows:

a. Within Maui County.

b. Outside Maui County and within the State of Hawaii.

c. Within the United States, including Alaska and U.S. territories.

d. Outside the United States.

3. An aged accounts receivable list of delinquent County transient accommodation units, grouped as follows:

a. 1-30 days past due.

b. 31-60 days past due.

c. 61-90 days past due.

d. Over 90 days past due.

It is our opinion that such reporting would increase transparency relating to the County’s taxation practices, as well as support the County’s zoning and affordable housing initiatives.

read … Full Report 

1  $56.9 million less $16.7 million recognized as due but not yet collected.

HNN: Audit reveals the Maui County Finance Department failed to collect millions of dollars in taxes (hawaiinewsnow.com)