How Hawaiʻi's Hotel Room Tax became the Lawmakers' Go-To Tax?

Aug 28, 2017

Credit Kazuhiko Teramoto/Wikimedia Commons / Creative Commons 2.0 License

The Transient Accommodation Tax or T-A-T is the buzzword of the week. At least it will be at the Hawai‘i State Capitol, where lawmakers are in special session to come up with a plan to finance the Honolulu rail project. HPR’s Ku‘uwehi Hiraishi tells us why this tax is so popular. 

Hawaiʻi’s Transient Accommodation Tax or T-A-T is a tax on hotel room revenue. Last year the tax raked in approximately $485 million, which isn’t a big chunk of Hawaiʻi’s $13 billion state budget. But as University of Hawaiʻi at Mānoa economics Professor Carl Bonham explains, this is the go-to revenue source for lawmakers in a bind.

Opening day of the 2017 Hawaii State Legislature.
Credit Wayne Yoshioka

“Yes, the TAT is a kind of easy thing to go to,” says Bonham, “The tourists don’t vote. This is kind of an easy target because if you raise the excise tax, you’re taxing your voting constituents.”

The legislature tapped TAT revenue in 2009 and again in 2011 to address the state budget shortfall, and when public pressure to preserve land near Turtle Bay Resort on Oʻahu’s North Shore hit legislators – it was the TAT to the rescue.  The state’s most politically feasible revenue source has come a long way. In fact, initially, Hawaiʻi didn’t even realize taxing tourists was a thing.

The Transient Accommodation Tax or TAT is a tax on hotel room revenue. Waikiki, one of the state's tourist hot spots, contributes a good chunk of change to the TAT pot.
Credit Wikimedia Commons

“We were pretty late to the game in terms  of this is a very common tax - a hotel room tax is usually what it’s referred to,” says Bonham, “It came to be accepted because there was a desire to have a funding source for general tourism promotion. So they started collecting tax in January of (19)87 and at the time the tax rate was at 5 percent.”

At the time, TAT revenue went straight into the state General Fund. The first change in TAT distribution went to the counties in 1990. Ninety-five percent of the TAT revenue collected through the early 90s was distributed to the counties.

“The counties pay for a large amount of services that are necessary to host visitors,” says Bonham.

Credit Honolulu Transit

Since then the county’s distribution rate has changed more than a dozen times. The current proposal on the table at the Hawai’i State Legislature seeks to fill a gap in the $10 billion Honolulu rail project, and TAT is part of that equation. But for county governments…

“You’re talking about a statewide tax to pay for an Oʻahu project,” says Bonham, “You’re imposing a burden on those counties that they’re not receiving any benefit from.”

Over the past 20 years, the legislature nearly doubled the TAT rate to 9.25 percent. Now, lawmakers are looking for another one percent increase in the TAT and a 13 year extension to 2030. And that raises additional questions says Bonham.

The legislature meets this week in special session to come up with a plan to finance a gap in the estimated $10 billion rail budget.
Credit Jim Bowen / Flickr

“One first question is do you believe that the TAT increase will actually sunset? Increases of one percent in 2009 and one percent in 2010 they didn’t sunset, right? They’re permanent now. So that’s one thing. Do you believe it? An important question is whether or not our taxes are too high relative to other destinations?”

Making competition for tourist part of the complicated equation of paying for Honolulu’s rail project.