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Counties May Be Tasked With Collecting Their Own Hotel Room Tax

Olya Adamovich

After state lawmakers overrode Gov. David Ige's veto of a bill that changes how the state allocates tourism tax revenue to the four counties, the counties are figuring out how to collect the taxes.

Instead of providing the counties with a share of transient accommodations tax revenue, the legislation gives the counties authority to levy their own surcharge up to 3%, and keep the money.

A possible setback in collecting that tax, the state Attorney General’s office says the state tax office does not have the authority to collect the taxes for the individual counties.

Kauaʻi Mayor Derek Kawakami said setting up a new county tax office seems inefficient since there's already a state tax office.

"We already have a process set in place, where the state can collect it, charge us for the administrative costs, they disperse the money to the counties — and we don't create all these redundancies," Kawakami said.

"We're scratching our head on why reinvent the wheel and grow government in a way that there's no really good reason to. So we're hoping that some way or another, we can just stay status quo and have the state Department of Taxation collect it, we pay state DOTAX for the manpower that's needed, and the system that exists and already works."

Maui Mayor Mike Victorino had been eager to raise the tax and get things rolling in September or October. Now he says that probably won’t happen until later in the year.

"They won’t collect it for us, but we can probably look to utilize that so that we have more consistent and accurate information. And we are looking to hire three or four people to do that tax collection, to monitor all the taxes that are due to us as a county. And so yes it’s not easy — nothing is easy but I think we have the resolve and the capability of making that, with the assistance of the budget director and the state budget department," Victorino said.

"So we are trying to collaborate. But I can tell you right now according to the attorney general, they are not allowed to collect the money for us. So we have to emulate their system because it's there in place and they have all the data, and utilize it from that point," he added.

Hawaiʻi County Mayor Mitch Roth has been critical of the new system since before the bill was passed by the state Legislature.

"I asked the governor to veto it and he did. Unfortunately, our legislators overruled his veto and this bill became law," Roth said. "We do not have the funds to create another tax division. We’re hoping to either work together with one of the other counties or the state. Unfortunately, we’re told that by state law, the state cannot collect the tax at this time. So it really puts us in a very bad situation — we’ll find a way out of this. But it's really unfortunate that the Legislature took these funds, which were really meant to help offset the counties in things like rubbish and wastewater and police services and fire services, and decided to use them for the state."

Finance chairs from the state House of Representatives and Senate told Hawaiʻi Public Radio they had been assured by the state tax office that it could work out a memorandum of understanding with the counties. But if that is not workable, Finance Chair Sylvia Luke says, if need be, legislators could fix the law in a special session.

She says lawmakers have been weighing going back into session to deal with the pending infrastructure bill.

As for the City and County of Honolulu? Could the city collect the tax for the other counties? Will any of the taxes go to rail? Those answers are yet to be seen.

This segment aired on The Conversation on Aug. 25, 2021.

Catherine Cruz is the host of The Conversation. Originally from Guam, she spent more than 30 years at KITV, covering beats from government to education. Contact her at ccruz@hawaiipublicradio.org.
Sophia McCullough is a digital news producer. Contact her at news@hawaiipublicradio.org.
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