Big Island residents will not be exempt from a proposed extra 3% tax on hotel, timeshare and transient vacation rental charges, despite efforts from County Council members.
When the state Legislature passed a bill in July that took away the counties’ share of the state Transient Accommodations Tax, directing those funds instead toward the state, it also gave counties the authority to pass their own local tax up to 3% on top of the state’s 10.25%.
County Deputy Finance Director Steve Hunt said that, based on data from the state Department of Taxation’s Council on Revenues, the 3% tax could generate $13.1 million for the county, which is still less than the more than $19 million that the county would have received as its share of the state TAT.
Although the tax increase is controversial, Hamakua Councilwoman Heather Kimball introduced a bill in October that would implement the 3% tax beginning Jan. 1.
The council ultimately voted Thursday to pass on first reading a draft of Kimball’s bill that requires all taxpayers who pay the state TAT to also pay the 3% county tax, with collections to be carried out by a third party.
However, two council members unsuccessfully attempted to amend Kimball’s bill.
First, Kohala Councilman Tim Richards proposed an amendment that would earmark some of the county TAT funds collected each year: $1 million would be allocated to the Department of Parks and Recreation to provide for the maintenance and upkeep of county parks and facilities, $250,000 would be allocated to the Department of Finance to pay for additional staffing to administer the tax, and $500,000 would be allocated to the Department of Research and Development to “develop and implement a program that would manage the impact of tourism on community assets.”
“The TAT was intended as a tourism impact fee,” Richards said. “I don’t want to get prescriptive, but our Parks and Recreation Department is in sore need of money.”
However, Richards’ amendment ran into pushback. Finance Director Deanna Sako said she was opposed to any earmarking of funds, even for her own department.
“We are going to need additional finance staff, but we don’t know how much we’ll need yet,” Sako said.
Hawaii County Corporation Counsel Elizabeth Strance said the amendment may not be legally permissible. The county charter, Strance said, prohibits the council from making financial appropriations from the county’s general fund or earmarking payments to special funds without approvals from the Office of the Mayor.
Richards withdrew his amendment, but reiterated the need for “guardrails” to ensure the proper use of the TAT funds.
After Richards’ withdrawal, Puna Councilman Matt Kaneali‘i-Kleinfelder introduced his own amendment aimed at shielding local residents from the brunt of the tax. His amendment would split the county TAT into two tiers: nonresidents would pay the 3% tax, while residents would only pay a 0.25% tax.
Most of Kaneali‘i-Kleinfelder’s fellow council members supported the spirit of his amendment, but were once again concerned by its legality.
Strance said that the measure passed by the state legislature authorizing the county tax did not authorize the counties to exempt anyone from that tax. Furthermore, she said, the state and county TATs operate under a legal definition of “transient person” that she said conflicts with Kaneali‘i-Kleinfelder’s amendment.
According to state documents, a “transient person” is, for the purposes of the TAT, a “person, including a Hawaii resident, (who) has a permanent home elsewhere or does not intend to make the accommodation a permanent place of residence.” Under this definition, Strance said, even a Hawaii County resident staying at a Hawaii County hotel would still be a transient person, and therefore subject to the TAT.
Kaneali‘i-Kleinfelder disagreed with this assessment, but withdrew the amendment. No sooner had he done that, however, than he introduced a second amendment that would similarly allow Big Island residents to pay a smaller TAT.
This second amendment would once again allow Hawaii County residents to pay a 0.25% tax, but would shift the remaining 2.75% tax to the person providing the transient accommodation.
Kaneali‘i-Kleinfelder said he introduced this amendment purely for discussion’s sake, but there was little discussion to be had. Strance said she believed that the amendment would likely fall afoul of the same legal pitfalls as Kaneali‘i-Kleinfelder’s first amendment, and the amendment was also withdrawn.
With no further amendments, the council voted to pass the bill to second reading without any changes, although not unanimously. Both Richards and Kaneali‘i-Kleinfelder voted against the bill.
Mayor Mitch Roth issued a statement about the TAT issue Thursday: “We take in stride the state’s decision to leave the counties with no choice but to impose an additional tax to make up for millions of dollars of shortfall to continue providing vital services for our communities. At this point, we are making the best of the cards we’re dealt and doubling down on our investment in our community in a broader effort to create an island home where we can all thrive and succeed. We want to thank the hospitality industry and the community at large for their support and understanding of our decision and the council for their swift effort to tackle this issue head-on.”
Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.