STAND. COM. REP. NO.1241

Honolulu, Hawaii

, 2001

RE: H.B. No. 1589

H.D. 1

S.D. 1

 

 

Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Tourism and Intergovernmental Affairs, to which was referred H.B. No. 1589, H.D. 1, entitled:

"A BILL FOR AN ACT RELATING TO TRANSIENT ACCOMMODATIONS TAX,"

begs leave to report as follows:

The purpose of this measure is to amend the transient accommodations tax (TAT) law to include travel agency or tour operators who furnish transient accommodations through noncommissionable negotiated contract rates.

Testimony in support of this measure was received from the Mayor of Hawaii County, four members of the Maui County Council, ILWU Local 142, Hawaii State AFL-CIO, and Hawaii State Teachers Association. The Hawaii Hotel Association, Maui Hotel Association, Outrigger Enterprises, Inc., Sacramento Convention & Visitors Bureau, American Society of Travel Agents, Inc., United States Tour Operations Association, National Tour Association, United Vacations, Hawaii Attractions Association, Roberts Hawaii, Inc., All About Hawaii, Oahu Travel, Inc., The Mark Travel Corporation, Rendezvous Tours, Travel Ways, Inc., Travel, Inc., Paradise Cruise, Ltd., Hawaii World, Ty's Top Tour and Travel, Aloha 7, Sports Empire, Carlson Wagonlit Travel/Atlantic & Pacific Travel, Travel Adventures, Inc., and one individual submitted testimony in opposition. The Department of Taxation and Tax Foundation of Hawaii submitted comments.

Your Committee finds that the State's TAT is applied to every hotel room sold in the State, and the revenues support both the tourism industry, through the Hawaii Tourism Authority and the convention center, and the counties, which depend on this income to maintain many of the parks and facilities used by tourists. In fiscal year 2000, the TAT raised $168.5 million.

Your Committee further finds that under the current law, there may be significant tax leakage — as much as $45 million by one calculation — through the wholesale industry. It is estimated that up to one-half of the hotel rooms in Hawaii are filled by tour packagers through tour arrangements. These tour arrangements are many and varied, but in all instances, a tour packager purchases a block of rooms from the hotel, packages the room with perhaps air and car, and resells the room as part of the package at a higher price than that received by the hotel owner. The TAT is levied on the revenue the hotel operator receives.

Your Committee finds, however, that the operator does not receive the revenues for the hotel room at the price packaged by the tour operator. There have been several estimates of the amount of revenues lost from this "sandwich" activity. Although your Committee cannot determine with any accuracy what the loss of revenues to the State is from this activity, your Committee feels that it may be as substantial as the $45 million estimate.

Your Committee understands that the intent of this measure, as received, is to close that loophole and require wholesalers to follow the same rules as hotels, timeshares, and other transient accommodations. As such, the measure would create a significant source of additional income, without creating any new taxes or raising current tax rates.

Your Committee has also heard strong opposition from the tourism industry. Many of the issues raised reflect the industry's concerns about Hawaii's appeal as a visitor destination in the face of fierce global competition and an increasingly unstable global economy. These are valid concerns, but Hawaii faces the same economic conditions, and this is a source of untapped revenue that must be realized.

Your Committee does not believe, however, that this measure in its current form is a practical solution. The Department of Taxation has testified that it would be extremely difficult to implement. Your Committee has considered a number of options, and finds that a tax should be levied on the "sandwich" activity, described above.

Your Committee also finds that due to the number of ways in which the hotel room may be packaged, determining the actual value of the room is fraught with difficulty. It does not appear feasible to apply the TAT on this activity, since the hotel owner is not able in many instances to determine the breakdown of the package and the actual price of the room to the guest. In addition, many of these tour packagers are not doing business in the State and the State has no nexus to tax this income in the hands of the tour packager. Therefore, your Committee has determined that the imposition of a surcharge tax based on a per day occupancy to be collected by the hotel operator on rooms filled by tour packages is the appropriate method of taxing this income.

In doing so, your Committee has based the daily surcharge on a discounted form of the "rack rate", or the quoted price of a transient accommodation. In a brief survey, your Committee found that rack rates range from $175 to $400 for a standard room. Given a very conservative average of $200, and a discounted rate of fifty per cent, $100 would be a reasonable base for a daily room rate. At the current TAT, the charge would be $7.25.

Your Committee has therefore amended this measure by replacing its contents with amendments to the TAT law to add new definitions of "surcharge tax" and "tour packager" and to levy a surcharge tax of $7.25 per day on all transient accommodations furnished under contract with a tour packager.

As affirmed by the record of votes of the members of your Committee on Tourism and Intergovernmental Affairs that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1589, H.D. 1, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 1589, H.D. 1, S.D. 1, and be referred to the Committee on Ways and Means.

 

Respectfully submitted on behalf of the members of the Committee on Tourism and Intergovernmental Affairs,

____________________________

DONNA MERCADO KIM, Chair