TAT Is Not Duct Tape

by Tom Yamachika, President, Tax Foundation Hawaii

When we look at the bills that have been introduced in this legislative session, we wonder if lawmakers aren’t thinking that the transient accommodations tax (TAT) is like duct tape, in that it fixes everything. 

Senate Bill 1396/House Bill 1077, for example, is a bill being pushed by the Governor’s office.  It would create two new special funds (those of you familiar with this column know that we detest many special funds), one to deal with climate change impacts and the other to help with economic revitalization. The funds would be fed by an increase in the TAT to 12% (it’s now 10.25%) starting in 2026.

House Bill 604 is a little more modest, proposing an increase in the TAT of “only” one percentage point.  The increase in revenues would go to the Hawaiian Home General Loan Fund established under the Hawaiian Homes Commission Act of 1920.  This fund can be used for the construction of homes, for construction of replacement homes, for home repairs or additions, or for the development and operation of a farm, ranch, or aquaculture operation, all on Hawaiian home lands.

Then there is House Bill 504, titled “Relating to Environmental Stewardship.”  It amends the TAT tax rate, but the new tax rate is left blank.  The first House committees to hear the bill, Tourism and Water & Land, didn’t bother to fill in the blank but wrote in their committee report that they intended a “modest, reasonable increase,” whatever that might be.  The same bill also proposes an additional tax of $20 per night on each furnishing of transient accommodations in exchange for points, miles, or other amounts provided through a membership, loyalty, or rewards program.  That $20 per night would be in addition to the TAT otherwise imposed, for example if a room were provided at a discount instead of complimentary, the TAT would apply to any room rate that the guest paid.  The  additional monies would be sent to the Department of Land and Natural Resources.

A slightly more subtle TAT hike is in Senate Bill 220, which would extend the “temporary” TAT surcharge now set to expire in 2030.  The bill would extend it to 2056.  Also extended would be the 0.5% county surcharges on the GET, which are now set to expire at the end of 2030 as well.  This bill would use the extra funds for transportation, like Honolulu rail for example.  This bill failed to get a hearing by the proper committees in the Senate and is dead for this session, unlike all of the other bills previously discussed, which are very much alive.

Any increased TAT would be imposed on top of county TAT, which would add another three percentage points, and the GET, which would be another 4.712%.  Under the Governor’s bills, then, almost 20% would need to be added to any room charge for taxes.

Compare that with gasoline taxes.  Even in the most expensive county (Maui), state fuel tax is 16 cents a gallon, county tax is 24 cents a gallon, and GET is about 20 cents of a base price that is a little higher than $4 per gallon.  All of the taxes together are about 15% of the total price of the product. And we say that gasoline is already loaded up with taxes.

Another irony in this whole situation is that we are paying lots of money to the Hawaii Tourism Authority and others to market Hawaii as a destination for tourists.  Trying to milk the tourists like cattle once they get here is, shall we say, not entirely consistent with our marketing campaign.

Maybe someone will introduce a bill to increase the TAT to fix this problem too.