Kaua‘i vacation rental properties will see higher property tax rates in fiscal 2025

The rates were increased allegedly to support housing construction, but Grassroot pointed out there are better ways to achieve that goal

from Grassroot Institute, June 1, 2024

Despite concerns expressed by the Grassroot Institute of Hawaii, the Kaua‘i County Council approved on Wednesday Resolution 2024-13, which will increase the tax rates of the hotel and resort and vacation rental classes for fiscal 2025.

In testimony submitted to the Council, Grassroot policy researcher Jonathan Helton said the proposed higher tax rates "could harm the island’s economy since it is highly dependent on tourism."

In addition, he questioned the motive for the increase, which, according to the Council's proposed 2025 operating budget, would be to support housing construction.

"There are better ways to address the county’s housing problems than adding to the tax burden of residents and tourists," Helton said. "For example, removing some of the many regulations that hinder homebuilding would cost the county nothing and most assuredly result in an increase in the supply of homes."

He referred to Grassroot's recently policy brief “How to facilitate more homebuilding in Hawaii,” which can be downloaded for free from the Grassroot Institute website.

The higher taxes represent a $3.49 million tax increase on hotels and resorts and a $4.15 million increase on vacation rentals.

  *   *   *   *   *

Tourism-related tax hike a threat to Kauai economy

from Grassroot Institute of Hawaii

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Kauai County Council on May 29, 2024.
___________

May 29, 2024, 8:30 a.m.
Historic County Building

To: Kauai County Council
      Mel Rapozo, Chair
      KipuKai Kuali‘i, Vice Chair

From: Grassroot Institute of Hawaii
            Jonathan Helton, Policy researcher

RE: RESOLUTION 2024-13, DRAFT 1 — RESOLUTION ESTABLISHING THE REAL PROPERTY TAX RATES FOR THE FISCAL YEAR JULY 1, 2024 TO JUNE 30, 2025 FOR THE COUNTY OF KAUA‘I

Aloha Chair Rapozo, Vice-Chair Kuali‘i and other members of the Committee,

The Grassroot Institute of Hawaii would like to express its concerns about Resolution 2024-13, Draft 1, which at the moment would increase the tax rates of the hotel and resort and vacation rental classes for fiscal 2025.

The rates for properties in the hotel and resort class would increase from $10.85 to $11.75 per $1,000 in assessed value.

Vacation rental properties would see their rates increase from $9.85 to $11.30 on the first $1 million of a property’s value; to $11.75 on any value between $1,000,001 and $2.5 million; and to $12.20 on any of the property’s value exceeding $2.5 million.

These higher taxes would represent a $3.49 million tax increase on hotels and resorts and a $4.15 million increase on vacation rentals.

Table 1 shows the proposed fiscal 2025 tax rates.

According the the proposed 2025 operating budget, this new funding would be used to support housing construction[1] — a worthy goal. But we are concerned that higher taxes could harm the island’s economy since it is highly dependent on tourism.

Research indicates that higher tourism taxes can reduce both visitor arrivals and visitor spending, such as on food, lodging, rental vehicles, outdoor activities and more.[2]

In addition, there are better ways to address the county’s housing problems than adding to the tax burden of residents and tourists. For example, removing some of the many regulations that hinder homebuilding would cost the county nothing and most assuredly result in an increase in the supply of homes.

If you need any guidance on this issue, Grassroot recently issued a policy report titled “How to facilitate more homebuilding in Hawaii,” which can be downloaded for free from the Grassroot Institute website.[3]

Thank you for the opportunity to testify.

Jonathan Helton
Policy researcher
Grassroot Institute of Hawaii
_____________

[1] Kauai County 2025 operating budget, Bill No. 2916, Draft 1, p. 286 of PDF.
[2] Malia Hill, “Column: More tourist tax bad for Hawaii economy,” Honolulu Star-Advertiser, March 18, 2024.
[3] Jonathan Helton, “How to facilitate more homebuilding in Hawaii,” Grassroot Institute of Hawaii, December 2023.