TATmas Tree

by Tom Yamachika, President, Tax Foundation Hawaii

We wrote last week about how our Department of Hawaiian Home Lands is facing the outright cancellation of a 2026 Native Hawaiian Block Grant because of our good friends in the federal government.

DHHL proposes to make up for it by hiking our Transient Accommodations Tax.  Again.  We just hoisted it as a result of our Governor’s “Green Fee” plan, the argument goes, so why not add another one point to the tax rate for tourists (them, not us) to advance the noble cause of the Native Hawaiians?

The TAT is one of our most abused taxes.  It is filled with earmarks, like aphids on a flowering plant, that divert money from the tax even before it gets to our budgeting process.  HRS section 237D-6.5 takes $1.5 million a year for Turtle Bay debt service, $11 million for the Hawaii Convention Center, up to $5 million for the tourism emergency special fund, and another $3 million for the Department of Land and Natural Resources.  (The Green Fee bill, SB 1396 of 2025, directs the Administration to request further funding for Green Fee projects through the regular budget process.)  In HRS 237D-2 there is a further diversion of one percentage point of the tax to pay for Honolulu rail and comparable projects on the Neighbor Islands.

In previous years, another $150 million or so was skimmed off the top for distribution to the counties.  After the counties and the State squabbled for years about whether the counties would get a fixed dollar amount or a percentage of the TAT revenues, our lawmakers ended the dispute during the pandemic by shutting off the spigot entirely, followed up with legislation authorizing the counties to add up to 3 percentage points to the TAT and keep that amount for themselves.

The aphids on the TATmas tree show a number of problems that lawmakers need to address.

First, let’s get rid of the earmarks.  Pull the aphids off the tree.  Revenues from this tax, like other taxes, should go into the general fund for lawmakers to divvy up using the normal budget process.  No department or program should be in a “holier than thou” position by which it gets off-budget tax money automatically without annually justifying it to our elected representatives.  There should be no such thing as a “dedicated source of funding.”  The same goes for the “barrel tax” on imported fossil fuels, which also has been a favorite target of lawmakers to load down with earmarks.

Second, we need to worry about the overall level of taxation.  We can’t simply keep going back to the tax well over and over again and not expect consequences.  If we keep beating up the resort industry, they will pass on the increased costs and we will see tourism numbers go down.  (Maybe that’s what some people want.). If we keep beating up the general population with higher taxes like income tax and the GET, people and perhaps businesses will buy one-way tickets out of here.  This, by the way, should not be news to anyone because it has been happening for the last several years.

Third, we need to worry about whether we are efficiently using the money that we do have and are using resources that the federal government has made available to us.  To make inroads on this goal, we need greater transparency to address the waste and bloat in the government that we do have, to make sure we are aware of resources that are available to us, and to use those resources unless we have good reasons not to.  “Oh, the federal rules are too hard to understand” doesn’t count as an excuse.  It couldn’t be tougher than the tax rules, in the TAT and otherwise, that we are making ever more complicated.