You Want to Raise the TAT by HOW Much?

by Tom Yamachika, President, Tax Foundation Hawaii

We are past the halfway point in our current legislative session, and there are still plenty of bills to watch out for.

Two of them that are still alive propose a rate change in the Transient Accommodations Tax, or TAT.  I say “change” rather than “hike” because the bills replace the current 10.25% tax rate with a blank, so we technically can’t tell whether they propose to increase or decrease the tax.

These bills are House Bill 504 and Senate Bill 1396.  We are assuming that the intent is a tax increase, and not a small one either, because previous drafts of the bills replaced the 10.25% with 12%.  The bills also make the tax applicable to stays in cruise ships, which would be a new twist on the tax.

HB 504 is titled “Relating to Environmental Stewardship.”  SB 1396 is “Relating to Economic Development.”  Both bills are concerned with the environment.  The basic idea is that we have to do things to address climate resiliency, such as sustainable land use practices, shoreline protection, and forestry projects.  These projects cost money, so we need to raise the money to fund them.

Climate resiliency is important.  Not many people would disagree with the basic proposition that we need to take care of the land before it takes care of us.  But the question is why the TAT is being singled out to raise this money.  It’s a problem for all of us, not only those staying in transient accommodations.  Some commentators are saying that this problem shows that our recent tax cuts were ill-advised and should be rescinded.

Another big problem is the blanks in the bills.  The most important information in the proposals, namely the new tax rates, is blanked out.  Not surprisingly, there has been little or no discussion to date at the committee level on what the proper new rates should be.  The tacit understanding seems to be that a conference committee will fill in the blanks, where there is no public input and, for the most part, no public discussion until it is time to take pro forma votes on the agreed upon conference draft.

We have written before that blanks in key places preclude meaningful discussion about the bills and prevent revenue estimation, among other things.  We have written about Blankety Blank bills before, here and here.  We are thinking that bills going through the legislature with blanks in key places shouldn’t be counted as “read” in the legislative process and can’t be passed under the Constitution of Hawaii.  (The same reasoning led the Hawaii Supreme Court to kill the then-all too common practice of “gutting and replacing” bills.  More here.)

And even if the bill passes with a hefty tax hike and is held to be valid, what kind of economic impact would it have?  Currently, our state is basically an economic  one-trick pony.  We make money from tourism.  We do some other stuff too, all of which scratches the surface, but tourism is the economic driver.  How many more feathers can we pluck from this golden goose before it gets sick or dies on us?  We are already taking 10.25% tax on transient accommodations charges.  The counties take another 3%.  And then, we have out ubiquitous general excise tax taking another 4.712% (the tax rate is 4.5% but the tax passed on is also taxable).  These three items add up to almost 18%, a tremendous burden.  It’s tough for us to be competitive with other tourist destinations with our government putting its thumb on the scales and pressing very strongly.

So, what’ll it be, Hawaii Legislature?