It’s July 2019, and already we are starting to see laws passed in the 2019 Legislature take effect.
One of these laws concerns “resort fees” that hotels both here and in other states and countries have been charging their guests. A resort fee is supposed to be a payment for amenities provided to guests of the hotel. But some hotels made it so difficult to decline the fee that tax authorities, including ours, concluded that such a fee could be a disguised part of the room rate.
Here, the reason why it matters is that we impose the Transient Accommodations Tax (TAT), a 10.25% tax on transient accommodation rentals, but the tax doesn’t apply to charges for Internet, laundry, meals, or other amenities. (The General Excise Tax, however, applies to both.)
Last year, the Legislature concluded that the State was getting shorted because it wasn’t getting the appropriate taxes on resort fees. It passed a bill to fix the issue but ran into problems by saying that EVERYTHING charged to a tourist is a resort fee. Clearly that wasn’t the right answer, and the bill was vetoed.
This year, the bill clarified that “mandatory” resort fees are subject to the TAT. The word “mandatory” is supposed to mean that if the charge can’t be avoided when a person stays at the resort, then the charge is part of the room rate and should be taxed accordingly. That bill was signed into law (Act 20 of 2019) and took effect on July 1st.
The Department of Taxation recently came out with a tax information release and proposed rulesto implement this new law. That guidance was the first tax information release published on any 2019 law.
In it, the Department concluded that it must be possible for a guest to decline a resort fee just by asking; if not, it’s mandatory and needs to be taxed.
One example in the proposed rules discusses a hotel guest who wants to decline the resort fee and is told that the fee will be charged but may be removed if the guest calls the hotel’s customer complaint line later. Too much work! It’s a mandatory fee and will be subject to TAT.
Or, suppose the guest is told that the fee may be removed if the guest goes online and fully completes a customer satisfaction survey. The conclusion is the same – the fee is subject to TAT.
The proposed rules also try to tackle one other topic: whether GET and TAT are “visibly passed on.” TAT is not imposed on taxes that are visibly passed on, and GET is not imposed on TAT visibly passed on. On a $100 room where $10.25 TAT and $4.71 GET are charged and the tourist pays $114.96, the hotel would need to pay $16.38 (10.25% of $114.96 + 4% of $114.96) if the taxes are not visibly passed on and $14.96 (10.25% of $100.00 + 4% of $104.71) if they are.
The proposed rules say that the taxes are visibly passed on if (1) there are separate line items in the hotel folio for GET and TAT; (2) there is one line item for tax but the rates of GET and TAT passed on are separately stated; or (3) there is one line item for tax, the taxpayer passes on both taxes at the maximum rate allowed, and there are no charges on the folio subject to GET only.
These, of course, are still proposed rules, and the Department is welcoming public comment on them before finalizing them. The Tax Information Release includes the full text of the proposed rules and contact information for those who would like to make their views known.
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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.