Over the objections of tourism industry groups in some cases, the Hawaii Senate pushed through several bills last week to boost state revenues by as much as $137 million per year, according to estimates by the Department of Taxation.
“The state needs to practice more fiscal restraint, pursue public private partnerships and identify more efficiencies so it can live within its means,” Senate Ways and Means Committee Chair Donovan Dela Cruz said in a statement Friday.
The biggest potential revenue-generating measures are Senate Bill 2489 to increase the taxes paid by timeshare owners and Senate Bill 2699 to capture tax revenue from resort fees and online platforms such as Expedia that book rentals through their websites.
The tax department expects $19.4 million from SB 2699 and $20.2 million from SB 2489 for fiscal year 2019, which starts July 1.
Blake Oshiro, executive director of the American Resort Development Association, said in his testimony on SB 2489 that increases to the tax rate will “send a potentially negative message to visitors, and especially timeshare owners, that they are being targeted to bear the burden of the increases.”
Hawaii Tourism Authority CEO George Szigeti said he opposed SB 2699 because it would increase the cost for residents and visitors to vacation in the Hawaiian Islands.
Last year, he said, Hawaii’s visitor industry supported 204,000 jobs and brought $1.96 billion in tax revenue.
Both measures passed unanimously last week.
The additional revenue could help offset $33 million that won’t be coming in from Senate Bill 2963, the so-called Airbnb bill that the Senate unanimously passed. That’s because the online rental company says it won’t help the state collect the taxes under the current language in the bill. It was expected to raise $67 million a year going forward.
Ige and state lawmakers had to adjust their financial plans accordingly as a result.
Dela Cruz said the goal of all the revenue-increasing measures is to create a long-term financial plan for the state that is sustainable.
Under the current six-year plan, the state will be spending more than it brings in by $208 million in fiscal year 2019, $263.2 million in 2020, $209.7 million in 2021 and $105.4 million in 2022. In fiscal 2023, the plan shows $43.3 million in surplus.
The state plan balances the budget by relying on a $1 billion carryover balance from fiscal 2017, which would dwindle down to $169.8 million by 2023. With the Senate’s tax increases and other revenue generators, there would be $301.4 million in 2023.
Dela Cruz said the extra revenues will help offset the expenses of a growing aging population.
“We can’t just keep kicking the can down the road,” he said.
The state Council on Revenues, which forecasts how much tax revenue the state will collect over the next six years, has its next quarterly meeting Tuesday. At its last meeting in January, the council slightly increased its revenue projections, to 4.5 percent from 4.3 percent for the current fiscal year, which gave lawmakers an extra $12 million to work with in the budget.
The House Finance Committee, chaired by Rep. Sylvia Luke, passed its version of Gov. David Ige’s proposed budget on Wednesday. The committee trimmed $35 million from the governor’s $7.4 billion proposal for fiscal 2019.
After the budget bill passes the full House, which is expected this week, it goes to the Senate for its consideration. The Ways and Means Committee has the lead on it.
Here’s a look at the measures the Senate passed that are expected to generate revenue if they go on to become law, as compiled by the Ways and Means Committee.
SB508 promotes tax compliance. A Senate release says it has become difficult and costly for the state to collect unpaid taxes from nonresident sellers of Hawaii real estate. This measure would allow the state to recover taxes from nonresident sellers by increasing the percentage to 9 percent from 5 percent that is withheld on the amount realized by nonresidents from the disposition of Hawaii real property. The Department of Taxation projects this measure would generate $14.4 million for the state’s general fund for fiscal 2019.
SB2415 raises the conveyance tax rates for residential “investment” properties with a value of at least $2 million. The tax department expects $8.6 million in revenue next year from the bill.
SB2484 helps the state capture some of the money that certain residents will no longer be required to pay to the federal government and redirect that money to the state. A Senate release says the additional estate tax revenues could be used to pay for priorities that the federal government will no longer be able to support due to the significant reduction in estate tax revenues. The tax department estimates $900,000 for fiscal 2019.
SB2489 The tax formula on timeshares has not been updated since its establishment in 1998. This measure updates the formula for the amount of transient accommodations taxes to be collected from timeshares and is projected by the tax department to generate $20.2 million for fiscal 2019.
SB2699 Transactions regarding vacation rentals are increasingly conducted over the internet, which has resulted in the state not collecting the full amount of transient accommodations taxes, a Senate release says. This measure establishes a process for online platforms such as Expedia to pay the transient accommodations tax on accommodations booked through their websites and imposes the transient accommodations tax on resort fees. The tax department expects $19.4 million for fiscal 2019.
SB2821 This measure is the annual conformity measure submitted by the Department of Taxation. In light of sweeping federal tax law changes, the bill maintained current state law in numerous key areas, such as individual itemized deductions, but it carved out exceptions in other areas, such as estate taxes, deductions for business income and mortgage interest. The tax department anticipates $9.2 million for fiscal 2019.
All the Senate bills that were passed last week cross over to the House for its consideration.
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