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by Pearl Hahn

Raising taxes on the tourism industry has forced several hotels to absorb hundreds of thousands of dollars in losses because it is too late to change rates already quoted to booked guests. (Check out the Advertiser’s “Impact of Raising Hotel Tax”).

People on both sides of the debate over increasing the tax have mistakenly referred to the tax as a “hotel room tax”. The term “hotel room tax” is actually used to refer to hotel rentals only, whereas the tax in question, the transient accommodations tax (TAT), applies to all transient accommodations. Another difference is that a hotel room tax is imposed on the guest or “transient” while the TAT is imposed on the operator of the accommodations.

The TAT is similar to the general excise tax (GET) in that it is a tax levied on gross income. The TAT is imposed on gross rental income derived from the ‘renting’ of transient accommodations. The state Department of Taxation defines a transient accommodation as: a hotel room or suite, apartment, condominium, house, beach house, or similar living accommodation which is rented for less than 180-consecutive days by and regularly furnished to a transient, or a person who has a permanent home elsewhere.

In 1996, the TAT was 6 percent. It has since risen to 6.25 percent. On July 1, the increase to 7.25 percent went into effect. Here’s the kicker- the Legislature successfully passed an additional tax hike to go into effect next July, bringing the TAT up to 8.25 percent.

Lawmakers have defended their legislation as an increase of “only 2 percentage points”, which is highly misleading. The increase is actually over a fourth of the tax, or a 28 percent increase.

It’s easy to see why the tourism industry so strongly opposed the tax. Their expenses will rise, forcing them to cut employees and pass on the additional costs to consumers, who will look elsewhere for cheaper vacation destinations. Revenues will shrink, which means less wealth for everyone, including the state government.

The Advertiser article shows a negative 9.4 percent change in TAT collections from FY 07-08 to FY 08-09. If legislation like this continues, we will only see Hawaii go deeper into the red.