HB820 HD1: Doubling TAT on short-term rentals dubious on many levels

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the House Committee on Finance on Feb. 24, 2023.

February 24, 2023
1:30 p.m.
Conference Room 308 and via videoconference

To: House Committee on Finance
       Rep. Kyle Yamashita, Chair
       Rep. Lisa Kitagawa, Vice Chair

From: Grassroot Institute of Hawaii
           Joe Kent, Executive Vice President


Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer comments on HB820 HD1, which would increase the transient accommodation tax on transient vacation units to 25%, up from the current 10.25% rate.

This is more than a doubling of the tax, and is inexplicably aimed at just one segment of Hawaii’s tourism industry — dwelling or lodging units that host occupants for less than 30 days, other than bed and breakfast homes.

Hawaii already has some of the world’s highest tourism taxes,[1] and combined with the county TAT surcharges and the state and county general excise taxes, short-term rental owners under this bill would face a levy of close to 33% on their gross earnings.

In short, HB820 would make doing business much harder for short-term rental operators, who are mostly Hawaii residents and provide substantial economic benefits and thousands of jobs across the state.[2]

Some things to consider for this measure:

>> Tourists are not the only ones who pay the TAT. For example, neighbor island residents who stay on Oahu for medical care and families in need of a temporary dwelling after a natural disaster must book either a hotel or a short-term rental. Likewise, medical professionals must stay somewhere while practicing in Hawaii.

And then there are just residents who want to enjoy a “staycation” — a vacation in Hawaii, whether on their own island or one of the others. All of these individuals and families might prefer a short-term rental to a hotel for a myriad of reasons.

>> This bill would help cut local residents out of Hawaii’s top economic driver — tourism. It would favor the large corporations that operate hotels and those that could afford to keep operating short-term rentals over everyday residents.

>> The state TAT started out in 1987 at 5% and was supposed to be only temporary.[3]

>> This bill could face a legal challenge on the grounds that it discriminates against a certain class of property owners offering short-term lodging.

Looking at the broader picture, tax increases in general are not a good idea for Hawaii’s economy, especially not now when it already has one of the highest tax burdens in the nation.[4]

Hawaii’s population has been suffering a net decline for each of the past six years, with the state’s high cost of living and lack of employment opportunities being among the most cited reasons.[5]

Other issues to consider as you deliberate on this measure include the fact that:

>> Hawaii is predicted to enter an economic slowdown later this year.[6] Tax hikes might only exacerbate this slowdown, since entrepreneurs will be less likely to want to invest their capital — or “wealth assets,” as the case may be.[7]

>> Hawaii has a progressive income tax that taxes high-income earners at 11%, second only to California at 13.3%.[8] Hawaii’s top 1% already pays 24.9% of all income taxes in the state.[9]

>> Hawaii’s continuing population decline leaves remaining residents with a higher tax burden. Many residents leaving Hawaii move to states without income taxes. Washington, Nevada, Texas and Florida — four of the top five destinations for Hawaii residents moving to the mainland — do not have income taxes.[10]

>> State lawmakers increased taxes and fees substantially following the Great Recession of 2007-2008,[11]despite a windfall in revenues from an economic boom over the past decade. Taxes and fees ballooned on motor vehicles, transient accommodations, estates, fuel, food, wealthy incomes, property, parking and businesses.

Hawaii’s residents and businesses need a break from new taxes, fees, surcharges and tax hikes. Whether this bill increases the TAT to 25% or 35%, this is not the time to make Hawaii a more expensive place to live and do business.

Thank you for the opportunity to testify.


Joe Kent
Executive vice president
Grassroot Institute of Hawaii

[1] Alison Fox, “These Cities — Including 3 in the U.S. — Have the Most Expensive Tourist Taxes in the World, Study Shows,” Travel + Leisure, Aug. 12, 2022.

[2]Economic Impact of Alternative Accommodations on Oahu,” Kloninger & Sims Consulting, LLC, July 23, 2018, p. 1; and Prahlad Kasturi and Thomas Loudat, “Economic Impact of Transient Vacation Rentals (TVRs) on Maui County, Hawaii,” Global Journal of Management and Business Research, Vol. 14, Iss. 1, 2014.

[3] Lowell Kalapa, “Jerking The Hotel Industry Around, You Can’t Trust Lawmakers,” Tax Foundation of Hawaii, Feb. 17, 2013.

[4] Jared Walczak and Erica York, “State and Local Tax Burdens, Calendar Year 2022,” Tax Foundation, April 7, 2022.

[5] Maria Wood, “Where People from Hawaii Are Moving to the Most,” 24/7 Wall Street, Jan. 23, 2022.

[6] Annalisa Burgos, “Experts: Hawaii’s economy poised to slow down ‘significantly,’ but stop short of recession,” Hawaii News Now, Jan. 22, 2023.

[7] Aaron Hedlund, “How Do Taxes Affect Entrepreneurship, Innovation, and Productivity?” Center for Growth and Opportunity at Utah State University, Dec. 23, 2019; Ergete Ferede, “The Effects on Entrepreneurship of Increasing Provincial Top Personal Income Tax Rates in Canada,” Fraser Institute, July 10, 2018; Robert Carroll, Douglas Holtz-Eakin, Mark Rider and Harvey S. Rosen, “Personal Income Taxes and the Growth of Small Firms,” National Bureau of Economic Research, October 2000.

[8] Timothy Vermeer and Katherine Loughead, “State Individual Income Tax Rates and Brackets for 2022,” Tax Foundation, Feb. 15, 2022.

[9]Hawaii Individual Income Tax Statistics,” Hawaii Department of Taxation report for Tax Year 2020, Sept. 29, 2022, Table 13A.

[10] Katherine Loughead, “How Do Taxes Affect Interstate Migration?” Tax Foundation, Oct. 11, 2022.

[11]Tax Acts (by Year),” Tax Foundation of Hawaii, accessed Jan. 30, 2023.

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