On May 8, the Democrat-controlled Hawaii State Legislature successfully voted to override Republican Gov. Linda Lingle's veto of a bill that will raise hotel room tax rates across the state.
The override required a two-thirds majority in both the State Senate and House of Representatives and now clears the way for an increase of Hawaii's Transient Accommodations Tax from the current 7.25% per day to 8.25% beginning July 1. That rate will be raised again in July 2010 to 9.25%.
"There's no question that we're disappointed that the legislature chose to override Governor Lingle's veto," insisted State Tourism liaison Marsha Wienert. "We fully believe that any increase in taxes is not in the best interest of the visitor industry, especially at this time."
In addition to the TAT per-day rate, Hawaii visitors must also pay a 4% daily general excise tax (4.5% on Oahu) on the cost of a hotel room. Many in the state's travel industry feel the current combined room tax of 11.25% (11.75% on Oahu) has given Hawaii a considerable edge over competing markets such as Mexico, Las Vegas or the Caribbean.
"One of the biggest concerns the hotel industry has here in Hawaii is that when these new taxes go into play starting July 1, it's going to make us one of the highest-taxed destinations around," said Henry Perez, director of owner relations and operations for Aqua Hotels & Resorts. "We feel that with this new tax law, we are just going to see a prolonged decline. We've spoken to our wholesale partners, and they have stated that because of this tax they feel that people are going to go to other destinations."
Hawaii's constitution includes a mandate requiring lawmakers to present balanced budgets every two years. According to state Sen. Donna Mercado Kim (D-14th District), legislators used a combination of budget cuts, federal stimulus money and tax increases to address this year's unprecedented $2 billion revenue shortfall.
"While we don't like to raise taxes, we still have to balance everything out, and we've got to balance the budget," said Kim. "So we raised the income tax on the wealthy, we raised the conveyance tax on properties over $2 million, we raised tobacco taxes. So we looked at taking a little bit from various different mechanisms so that we could balance our budget and still hopefully not be detrimental to our visitor industry."
Rep. Marcus Oshiro (D-39th District), chairman of the Hawaii state House Finance Committee, echoed Kim's concerns about doing unnecessary damage to the state's visitor industry while trying to put the TAT rate increase into perspective.
"Let's say an average room is around $185 right now, so at 1% you're paying an extra $1.85 a day and $3.70 for two days and less than $10 over five days," Oshiro said. "We don't think that paying an extra 2 bucks a day is going to stop anyone from visiting Hawaii, especially in light of the bargain-basement prices of accommodations and packages that are being offered right now."
Both Kim and Oshiro were quick to point out that a significant portion of the newly generated annual income from the TAT rate hike -- an estimated $28 million in additional funds the first year and $60 million the next -- would go to the Hawaii Tourism Authority's marketing and promotion efforts.
"In fiscal year 2010, for example, because of the 1% increase in the TAT, it will generate an additional $28 million," Oshiro said. "So roughly about half of that will go to the Tourism Authority in additional marketing money."