Erasing an error of the past in the
transient accommodations tax

By Lowell L. Kalapa
Copyright 1997 Tax Foundation of Hawaii
Article date: October 26, 1997
 

Either memory fails or people who are in the legislature haven't looked up the history, but believe it or not the current hotel room tax, now known as the Transient Accommodations Tax (TAT), was adopted with the intent of funding the state
convention center.

In fact, there was a debate recently between a legislative aide and a long-time observer that the TAT was never intended to fund the convention center and that legislative documents prove it. Well, that might be true if one were to trace the legislative history of the bill that was eventually signed into law as the TAT,
but one has to search further for the real story.

Beginning in the early 1980's, certain leaders of the hotel industry recognized that Hawaii should not continue to depend solely on the leisure market for continued growth in the industry. Short of Hawaii becoming a business center of the Pacific, which obviously it did not have the qualities to do, the convention market was seen as having great potential as it combined business with leisure. However, after repeated attempts to get the legislature to fund the building of a convention center with state funds, the hotel industry did some deep soul searching in the summer of 1985 and after years of fighting the imposition of a hotel room tax, took it upon themselves to introduce a measure that called for a hotel room tax of 2% with the proceeds of the tax earmarked for the building of a convention center and increased promotion of tourism.

The latter matter - increased spending on visitor promotion - was a sore spot as representatives of the Governor's Tourism Congress had attempted to persuade the legislature to hike the general excise tax in the 1985 session with a portion of the
increased revenues being earmarked for tourism promotion. However, even though lawmakers were promised that residents wouldn't feel the increase because tax credits would be given to their constituents, lawmakers had viewed the effort as self-serving at the expense of voters.

Lawmakers rejected the idea.

So going into the 1986 session, the industry endorsed the hotel room tax at a 2% rate with the revenue earmarked for the convention center. The bills were introduced and proceeded through the session and the House measure made it all the way to conference committee. Throughout the process, the rate of the TAT was bounced around as it appeared to be the only point of debate that could set different positions for the two legislative houses and therefore would allow it to be sent to conference
committee.

At the same time, another bill introduced to address a complaint about the general excise tax that had been lodged by tour operators, and more specifically catamaran ride vendors, was making its way through the session and it too was sent to
conference committee.

It was in conference committee that the two issues were merged and since the tour operator bill had a much broader title, the contents of the hotel room tax bill were stuck into that bill. In the meantime, the rate of the room tax or TAT had gone from
2% to as high as 4%, but in conference committee it was noted that although the industry pleaded that anything higher than a 2% rate would affect the competitiveness of the industry, conferees cited that the airlines had just raised their fares by 5% so why shouldn't the hotel room tax be raised by as much as 5%? Conferees also opined that since no agreement had been reached on a convention center site or design, why should the revenues be earmarked.

The result was a measure that established a 5% TAT with no earmarking stuck in a bill that had no previous reference to the issue. Thus, the legislative aide was right up until a point. Had he looked longer, he would have found the real history of the TAT.
 

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