Hawaii's Taxes

Sometimes people wonder about Hawaii's taxes, because it seems like they are a bit high. Well, they are, and we feel it too, but they're particularly high for tourists. The state has very little industry other than tourism (partly due to aggressive taxation!), and has taken the easy road by adding an extra bunch of taxes that are aimed directly toward the tourist industry. Those primarily take the form of airport taxes (which affects air ticket prices) and hotel taxes.

There are two taxes that apply to vacation rentals, the General Excise Tax (GET) and the Temporary Accommodations Tax (TAT). The calculation is a rather confusing one, and sometimes people wonder if they're really paying a tax, or if there's something funny going on. In most cases, you're really paying the tax, and the oddity of how it is charged is simply due to the fact that it's an odd combination and calculation of taxes. Whether or not the operator is actually paying their taxes is a matter for the Department of Taxation to deal with. In our case, however, we figure that it's a far better thing to play the cards straight up, and to paraphrase the Bible, to "pay Caesar what is Caesar's."

The GET is Hawaii's version of a Sales Tax, but more encompassing than most sales taxes. It is calculated as 4% of the total revenues received. Unlike most states where the sales tax is calculated as an "add-on" tax, and the monies are held in escrow by the company until they pay the state, the GET is simply a flat tax on the business revenues, whether the business collects it from the customer or not. Almost all businesses pass this tax on to the customer of course, as a 4.1617% tax. The slightly higher percentage is due to the fact that the money collected to pay for the GE tax is also taxable, creating a "tax-on-tax" effect. When the calculation is done, it turns out that the tax is an effective 4.1617% tax WHEN THERE IS NO TAT INVOLVED.

The TAT is Hawaii's version of a hotel room tax, which they have graciously determined to include all temporary accommodations of less than 180 days, including such things as renting a home on the North Shore for four months in the summer. The TAT is calculated as 6% of the total revenues received, and also has the "tax-on-tax" effect. However, the TAT only applies to accommodation charges, and does not apply to things like cleaning fees or other services. 

Since the GET and the TAT both collect taxes on monies received to pay for both of them, there is a double tax-on-tax effect, thus the business collects money to pay for both the GET and the TAT, then those monies are both taxable by the GET and TAT. The net tax that is incurred from the transaction, by my calculation anyway, is 11.1111% for accommodations charges and 4.1617% for non-accommodations charges. Some sites list 11.4% as the total tax, however, I haven't quite figured out where that comes from. 

If you would like more information (as if this isn't enough!) you can look at the website Tax Facts No. 96-2, which shows very clearly that we definitely have to apply both GET and TAT (question No. 10 on that page) to vacation rental transactions.

If you're shopping around, and you happen to find a site that does not mention any taxes, you'd better ask, because most people are likely to add them on whether they tell you about them or not. On occasion, you may find people who do not add them, or decide to give you a "cash discount," and you may also come across people who add the taxes but are probably not paying them. These are the things that happen with businesses that are private, small, and relatively unregulated. While it may be tempting at first to try to save that 11%, I think most people also realize that a Hawaiian vacation can be the trip of a lifetime, and there really is no gain in sullying the memories of the trip with any kinds of questionable dealings, particularly a passive role in facilitating income tax evasion.

On a positive note, I think you will find that anyone who is renting vacation rentals in a professional manner and/or has a professional background will be very straightforward in dealing with the taxes, and also very trustworthy when dealing with all other issues as well, and there can be a tremendous number of good reasons to seek out honest, forthright, and professional people in this regard. This is certainly how we like to operate.

If you have any questions, please contact us.

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