Tax hike on tourism would create ‘unintended consequences for all’

by Keli'i Akina, Ph.D., Grassroot Institute, March 23, 2025

For the third year in a row, Hawaii policymakers are considering a bill that suggests they believe tourists are an endless source of funds.

Two years ago, state lawmakers made waves for contemplating an initiative supported by Gov. Josh Green to levy a $50 “visitor impact fee” on tourists who visit a state park, beach, trail or natural area. 

Ultimately, they struggled to agree on how not to impose the fee on Hawaii residents — and the U.S. Supreme Court frowns on taxes that treat nonresidents differently anyway.

The idea resurfaced last year, morphing into a $25 “check-in” surcharge to the state’s transient accommodations tax.

As the Grassroot Institute of Hawaii pointed out, any TAT hike would also affect locals who stay in hotels for pleasure, business or even medical procedures.

Thankfully, the effort failed again.

This year’s version of a so-called “green fee,” as embodied in HB1077, aims to increase the TAT instead — by almost 20% — from 10.25% to 12%. 

For a $400 hotel room, that would amount to increasing the nightly TAT by $7 a day, from $41 to $48, or $49 total for a seven-night stay. 

That’s nearly double the $25 “check-in” fee proposed last year — at a time when Hawaii already has the highest tourism taxes in the world. 

The extra $49 might not seem like much in the grand scheme of vacation spending, but studies show that increasing those expenses would give visitors another reason to go elsewhere — or spend less if they still come.

A 2017 study from the European Union found that coastal and leisure destinations were especially affected by higher costs brought on by higher tourism taxes.

Additionally, a study of the Maldives, which gets about 70% of its revenue from tourism taxes, found that a 10% increase in those taxes reduces demand by 5.4%. The proposed increase for Hawaii’s TAT would be almost double that.

But it’s not only tourists we should care about. It should be painfully obvious by now that a massive TAT hike would also impose a burden on those of us who live here.

In addition to locals having to pay the higher tax themselves, visitors are likely to decide either to not come here or else at least adjust their vacation budgets to spend less on other Hawaii businesses besides their accommodations.

And when restaurants, retail outlets, boat rentals and other tourism-related attractions fall on tough times, it affects the entire community. Ironically, that domino effect also can result in decreased tax revenues.

Simply put: Imposing a tax hike on a major industry in order to pay for more government-funded programs will not boost Hawaii’s economy. 

Plus, climate issues should be dealt with more forthrightly and through a more direct funding and accountability process.

Let’s hope the third time is not the charm for this shape-shifting fee targeted at tourists that is sure to have unintended consequences for all.