Hawaii Eyes Tax Hikes to Boost Tourism Promotion

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HONOLULU -- Hawaii is considering increases in its hotel and excise taxes to fund a doubling of state spending on tourism promotion to at least $60 million.

The tax package, which is supported by Gov. Ben Cayetano, would increase the hotel room tax from 6% to 7% and the general excise tax from 4% to 5 1/4%.

The average room rate in the state is $131, with the average increased cost per person, per week, expected to be about $22 under the proposal.

Most business and labor groups, among them the Hawaii chapter of ASTA and the Hawaii Hotel Association, said the package is vague on details, and they are unsure of its implications. They also are awaiting other tax proposals from the administration. "[Tax restructuring] will either be a travel agent's best friend or worst enemy," said Danny Casey, who chairs the chapter's government affairs committee.

Agencies here are mostly small businesses and, like other small businesses, are opposed to the proposed excise tax increase. They must pay that tax on all revenues, including airline commissions, and cannot pass the cost on to consumers.

The tax package, which also calls for cuts in income and corporate taxes, is a series of recommendations by the Governor's Task Force on Economic Revitalization, a group of 26 business, labor and government leaders.

Despite opposition, especially from small-business owners against the excise tax increase and from experts split on the package's effectiveness in reviving an economy that has been stagnant for the past six years, the task force didn't budge from its proposal.

However, the task force recommended a reduction in the "pyramiding" of the excise tax. Unlike a sales tax, it is paid at each of the various levels of services -- taxpayers, in effect, paying taxes on taxes, and at more than 4%.

A few sectors, mainly in the distribution of manufactured products, pay only a 0.5% excise tax, and the task force recommended that this percentage be extended to more types of businesses. "If we could get a reduction to 0.5%, agencies would be greatly helped and [chapter] members would support the tax changes," Casey said. He added that a reduction in income and corporate taxes also would help, "and more money in consumers' pockets would mean more people traveling."

Tony Vericella, president and chief executive officer of the Hawaii Visitors & Convention Bureau, said the bureau supports the tax measure. "We've been pushing for a long time for a dedicated level of globally competitive funding that will get us back into the game. We support the whole package." He added that $60 million is close to what the HVCB had asked for in previous years.

HVCB, a private, nonprofit group, has a budget of almost $26 million from the state this fiscal year and $24 million for 1998-99. Without a dedicated source of funding, the bureau annually lobbies the Legislature for money.

Also, tourism industry leaders long have complained that Hawaii is outspent by competitor destinations. A lack of funding is given as a major reason the number of visitors -- which plummeted in the early '90s -- still is running below the 1990 peak of 6.97 million.

The Legislature opens Jan. 21 for the three-month 1998 session. In addition to grappling with a complicated set of proposed tax laws, it also will need to cut state programs -- for the fourth consecutive year -- in the face of a 1998-99 revenue shortfall.

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