One of the bills that has come out of the recently concluded legislative session is SB 2699, which proposes to make “resort fees” subject to our Transient Accommodations Tax (TAT).
A “resort fee,” which also goes on your bill if you stay at a hotel, and not only in Hawaii but around the world, is to pay for other amenities such as use of the hotel’s weight room, or pool, or Wi-Fi internet service.
“Oh?” you might say. “I thought those things were included in the room rate.”
That’s precisely the point, both for the hotels and the Tax Department. The TAT is 10.25% of the gross room rate. Our supreme court has said, “in determining tax liability it is fundamental that substance, rather than the form of the transaction, governs. Actualities and consequences of a commercial transaction, rather than the method employed in doing business, are controlling factors in determining such liability.” In re Kobayashi, 44 Haw. 584, 358 P.2d 539 (1961). Thus, if a “resort fee” is actually a piece of the room charge, by any other name, then it’s taxable as a room charge.
One of the tests that the Department is now using to figure out if a resort fee is a room charge with another name is whether the charge is “mandatory.” If the fee is not part of the room charge, then a guest staying at a hotel should be able to opt out of it.
Some of the bills that were going through the session, such as HB 2432 SD 1, would define a “resort fee” subject to the TAT as: “any mandatory charge or surcharge imposed by an operator, owner, or representative thereof on a transient for the use of the transient accommodation’s property, services, or amenities.” That definition doesn’t seem to be different from what the Department was already enforcing, so there wouldn’t be much harm in enacting that version. That bill died.
SB 2699, the one that passed, defines a resort fee as “any charge or surcharge imposed by an operator, owner, or representative thereof to a transient for the use of the transient accommodation’s property, services, or amenities.”
Whoa there! Wouldn’t that make pretty much anything on the hotel bill a resort fee? Suppose you watch an in-room movie and get billed for it. Isn’t that a charge for one of the hotel’s amenities, namely the in-room TV and movie system? What about a charge for a meal? If you were to eat in your room, or even in the hotel restaurant, for that matter, isn’t the meal charge for the hotel’s property (food), services (servers), and amenities (in your room, or in the hotel restaurant)? This certainly was not the intent of the TAT when it was enacted, and it would be far different from most hotel room taxes across the country and internationally if the tax is applied in this manner.
Apparently, some lawmakers were unhappy that the TAT was not being applied to resort fees even if they were shown to be truly optional charges for things other than a transient room rental. So, this bill lurches in the other direction. It’s a reactionary reaction. Is this really what we want for our TAT system?
Tom Yamachika is the President of the Tax Foundation of Hawaii, a private, nonprofit educational organization dedicated to informing the taxpaying public about the finances of our state and local governments in Hawaii. Tom is also a tax attorney in solo practice and has been since early 2013. Prior to 2013, he was with the accounting firm Accuity LLP, which was formed in 2006 from the Honolulu office of Coopers & Lybrand (which later became PricewaterhouseCoopers). Before that, he served as an Administrative Rules Specialist in the State of Hawaii Department of Taxation from 1994 to 1996, where he drafted rules, interpretive releases, and legislation on several different state taxes. Prior to that, he practiced litigation and tax law with Cades Schutte Fleming & Wright in Honolulu.
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