2025 Legislative Wrap-Up
by Tom Yamachika, President, Tax Foundation Hawaii
Our legislature is done for the year. Bills that survived the last-minute scramble are now on their way to the Governor‘s desk, where he has until the latter part of next month to decide whether he will veto any bills. And yes, there were a few revenue raisers (meaning tax increases) and a bill that is kind of a tax cut.
Senate Bill 1396, if signed into law, is going to raise our Transient Accommodations Tax by 3/4 of a percentage point. Until the year 2030, our base TAT rate goes up from 10.25% to 11.0%. In a new twist, the TAT will also apply to cruise ships. This bill started off as a submission from the Governor’s office. The idea was to raise more funds to fight the effects of climate change.
In prior years, the administration had submitted bills to impose a “visitor green fee” similar to those charged in places like the Caribbean Islands and the Galapagos Islands. But some folks, including us, raised objections that the fee would be tough to collect or would be unconstitutional. Lawmakers settled on the TAT. Coincidentally, TAT also stands for tried-and-true. The cruise industry wasn’t happy about the tax expanding to its neck of the woods, and a court fight may be on the way.
Senate Bill 1434, a bill sponsored by the state Department of Health, create a universal immunization program. The idea is for the Department of Health to buy essential vaccines in bulk and store them, so the vaccines could be made available at lower cost and to more people. Although the program contemplates giving free vaccines to parts of the population, those vaccines do cost money, and there are costs incident to administering the program. These costs will be paid by assessments against health plans. In other words, most working people in Hawaii, who are required to be covered under the Prepaid Health Care Act of 1974, will be paying for this. Overall, it may on balance be a good deal if more widespread vaccinations result in fewer people needing hospitalization or extensive health care…but there will be short-term pain. Like tariffs.
House Bill 441 hoists the regressive cigarette tax from 16 cents to 18 cents per cigarette. The extra 2 cents are earmarked for the Cancer Research Special Fund. As predicted, programs that have been fed by earmarks from the tobacco tax, like the Cancer Research Center, have become a victim of the success of tobacco cessation programs and publicity. Revenues produced by the tobacco tax have been in steady decline over the past few years despite tax rate increases. The Cancer Research Center has again complained about funding drying up, so we continue to goose the tax, hoping that the fewer and fewer people who aren’t responding to the tobacco cessation programs have a few more bucks to feed their smoking habits.
House Bill 422 will repeal the construction cost component of school impact fees. We have written before about school impact fees and their predecessor, fair share contributions. The problem has been that the Department of Education is able to assess and collect these fees but, for all practical purposes, can’t spend them. As a result, the Department has been forced to hoard about $30 million. Earlier in the session, the bill proposed to kill off the school impact fee program altogether, but the Department of Education, after lots of begging and pleading, managed to get the bill watered down to cut only part of the program.
In the coming weeks, the Governor will be deciding which bills to sign and which to veto. We will be back with updates when we hear more.