Honolulu, neighbor isles
differ over sales tax bill

It would halt payments to counties
from the state hotel room tax

Honolulu and neighbor island county officials found themselves on differing sides yesterday over a bill that allows the counties to impose a retail sales tax of up to 1 percent.

Honolulu officials told the state Senate Tourism Committee yesterday they welcome the sales tax because they would receive additional revenues when property tax revenues are expected to drop next year. Neighbor island counties, however, were less enthusiastic at the briefing.

Senators sought feedback on House Bill 1554, HD1, SD1. The measure, which stalled in a legislative conference committee last spring, would allow Hawaii counties to impose a retail sales tax of 1 percent on tangible personal property in lieu of receiving set payments from the state Transient Accommodations Tax (hotel room tax).

The proposal could raise an estimated $120 million annually for Honolulu in exchange for its $35 million share of the hotel room tax. Neighbor island counties have balked at the proposal because they would have to give up half of their current hotel room tax revenues if they impose a sales tax.

City Council Chairman Gary Okino said he supports the bill because "basically, next year looks gray."

Wayne Fujita, Maui County deputy finance director, said the county does not support the plan as drafted. After taking into account the cost of collecting the tax, there would be no increase in the $17 million the county now receives from the state hotel room tax.

Furthermore, Maui's 130,000 residents would each pay about $100 more in taxes annually if they switched it, he said.

"We are already doing our share," Fujita said.

State Tax Director Kurt Kawafuchi said the administration supports the concept of home rule, allowing the counties to make their own decisions, so it does not oppose legislation that allows, rather than requires, the counties to impose the retail sales tax. The Lingle administration, however, does oppose a provision that requires the Tax Department to collect the tax, because it would cost too much to do so.

Meanwhile, the Chamber of Commerce of Hawaii opposes any increase in existing tax rates, the imposition of new taxes or the repeal of an income tax rollback. Jim Tollefson, chamber president and CEO, said the chamber believes Hawaii's general-fund tax system will continue to produce "more than sufficient revenue."

"In fact, every effort should be made to reduce tax rates or eliminate selected taxes," Tollefson said.

Sen. Donna Kim (D, Aiea), chairwoman of the Tourism Committee, said she will hold another briefing in October to see what progress is made between the counties on a sales tax. Kim said it seems the neighbor island counties want the option to participate in the program and that all four counties want the state Tax Department to collect the money.

"Actually, we'd like them to draft a measure they can all support," she said.


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