LIHU‘E — The county administration is pushing forward two bills targeting the visitor industry: one establishing its own transient accommodations tax and another creating a new tax class for vehicle rental operations to be reviewed at first reading next Wednesday, July 21, by the County Council.
“While we could maintain a balanced budget via an increase in real property taxes, it is clear that the policy of burdening residents and commercial enterprises with funding the impacts of tourism activities on island is inequitable,” County Finance Director Reiko Matsuyama states in a July 8 memo to the council for Bill No. 2829, implementing a county TAT.
Matsuyama said the average daily census of visitors on island has accounted for nearly 30% of the county’s serviceable population, and that, “our tax policy should reflect recouping this impact proportionally to the burden on County government.”
Officials can do this with the passing of House Bill 862, now Act 1 of the 2021 Special Session, which eliminated the distribution of TAT revenue to the counties.
In the past, the county has been able to garner close to $15 million per year in general fund revenues from the state’s TAT, which stopped once the pandemic hit in fiscal year 2020, affecting the following years’ budgets.
“When our share was suspended this last year during the pandemic, we utilized our Reserve Fund to balance the budget for FY21 and FY22. It is essential that we now fill the TAT revenue gap to avoid the prospect of future financial shortfalls,” Matsuyama said.
Where the county’s reserve is still to be determined.
As of June 30, 2020, the county had about $50 million in the reserve fund balance, according to officials. More accurate estimates on how much is in the reserve balance will not be available until late summer or early fall, officials said earlier this week. However, since March 2020, the county has tapped into at least 40% of its reserve fund, mostly to cover the lack of TAT.
This proposed bill establishes a 3% TAT on all gross rentals, gross rental proceeds and fair market rental value considered taxable to be collected each month. The proposed bill also applies to visitor brokers, travel agencies and tour packagers who arrange transient accommodations at noncommissioned contracted rates, the bill states.
In a previously reported projection, per every one percent increase, the county would see about $6 million in revenue.
In a second proposed amendment to the charter, Bill No. 2828, the administration seeks to add a new rental car real property tax class.
Pointing to the “direct and indirect impacts to county infrastructure and the general welfare as a consequence of the over-abundance of vehicular car usage on the island of Kaua’i,” Matsuyama said, that “Rental car activities facilitate a high volume of movement and human impact across the island.”
Matsuyama directly points to the car rental app Turo.
“Recently we have seen an increase in the use of Turo, an online platform to rent personal vehicles,” Matsuyama said in a July 8 memo. “We do not want to discourage a reasonable use of Turo but want to be able to limit car rental operations in residential neighborhoods.”
Currently, rental car activities are classified as the Industrial class but, “It is clear the impacts of that real property usages facilitating more vehicular usages on the island of Kaua‘i does not remain within the confines of the parcel taxed,” Matsuyama said.
“Most other industrial usages typically sit within that particular parcel, and do not drastically spread its impacts to municipal services with such broad geographic reach and frequency. It is clear that rental car usage must be distinguished from the Industrial class to provide for more fair analysis in setting tax rates as part of the County’s obligation to more fairly distribute the cost burden of municipal operations and services based on the impact of activities facilitated by a property’s type of usage,” Matsuyama said.
The bill quantifies a Commercial Vehicular Rental operation as one with more than 10 rental vehicles and would supersede any other home-use tax exemptions.
The council will next meet Wednesday, July 21 at 8:30 a.m.
