Hawaii allows counties to raise lodging taxes under new state law
- Jul 13, 2021 | Jennifer Sokolowsky
A new state law in Hawaii allows counties to levy their own transient accommodations tax (TAT) on top of the existing state TAT. In counties that adopt the tax, this will raise the tax rate accommodations providers — including short-term rental operators — must collect from their guests.
Under House Bill 862, counties can levy their own TAT surcharge of up to 3% in addition to the state’s current 10.25% TAT. Counties will no longer receive state TAT money, but will be able to raise their own funds via the county surcharge once they pass laws levying the new tax. The state has withheld county shares of the TAT since spring of 2020 due to the pandemic.
The Legislature passed the state law in April but Governor David Ige vetoed it July 6. Lawmakers overrode that veto the same day it was passed. The measure went into effect July 1.
The new law also changes the way the Hawaii Tourism Authority is funded. Going forward, it will be paid for from the state’s general fund rather than TAT revenues. This year, the Legislature will fund the tourism agency with federal coronavirus relief funds.
Maui is moving quickly to adopt the new tax. Officials estimate the new tax would bring in $50 to $70 million each year, up from $23 million under the state tax alone.
On the Big Island, officials estimate that by establishing a 3% county TAT, they would be able to make up for the loss of the current $19 million they receive annually in state TAT revenues.
On Kauai, the County Council’s Finance Committee will discuss the local tax later this month.
Short-term rental income in Hawaii is subject to TAT and General Excise Tax (GET). Vacation rental operators can pass these taxes on to guests, but hosts must register with the state, collect and pay the taxes, and file regular tax returns.
The state of Hawaii has been cracking down on short-term rental operators who fail to comply with TAT and GET rules, with 13 investigators working on vacation rental taxes. Beyond back tax payments and penalties, civil fines for tax violations can be steep, starting at $500 a day and going up to $5,000 per day.
Tax authorities are also getting more help from short-term rental marketplaces in enforcing tax rules than in the past. Airbnb agreed in 2019 to share some information on its short-term rental hosts with the state, making it easier for authorities to enforce tax regulations. In 2020, Airbnb and Expedia Group (parent company of HomeAway and Vrbo) also agreed to help Oahu and Kauai authorities enforce short-term rental laws. Under those agreements, the marketplaces require hosts to provide government-issued property identification and/or tax registration numbers in order to be listed.
While short-term rental marketplaces collect taxes on behalf of their hosts in many states, they’re not allowed to do so in Hawaii. That means hosts are responsible for taking care of tax obligations. MyLodgeTax can help Hawaii short-term rental hosts automate registration and filing for TAT and GET.
For more on lodging taxes in Hawaii, see our state Vacation Rental Tax Guide. If you have tax questions related to vacation rental properties, drop us a line and we’ll get back to you with answers.
