Wednesday, July 17, 2024
Hawai'i Free Press

Current Articles | Archives

Sunday, February 15, 2015
Hotels as Renters
By Tom Yamachika @ 4:01 AM :: 5619 Views :: Taxes, Tourism

Hotels as Renters

by Tom Yamachika, President, Tax Foundation Hawaii

One of the many unique things about Hawaii is its land ownership structure. Because we used to be a kingdom and the royals controlled most of the land, it turns out that we have a small amount of large landowners. They tend not to sell but to lease large pieces of it, whereupon the lessees then sublease smaller pieces of it to businesses and homeowners.

That type of structure brings a unique tax problem. Sales taxes in most states leave rent alone, but our General Excise Tax (GET) taxes it. Before the late 1990’s, both the lessor and the sublessor had to pay the full retail tax amount on the rent they respectively received, meaning that although there was only one tenant on the particular piece of property, sometimes a homeowner, sometimes a small business, 4% tax was imposed several times: when the tenant paid his landlord, when that landlord paid the person it was renting from, and so on up the chain up to the ultimate owner. (By the way, even if the owner is a charity – a church or a school, for example – GET is still imposed.)

To deal with this problem, a "Sublease Deduction" was enacted in 1997. It says that if a person is both renting real property from a landlord and then subleasing it, then the person, although paying 4% tax on the rent received, gets a deduction worth 3.5% of the rent paid. The lessor further up the chain pays 4% of that rent, making the effective tax rate on the first tier rent 0.5%, the same GET rate we normally apply to wholesale sales. The law now applies to written leases of real property.

This legislative session, a couple of bills would explicitly provide that this sublease deduction will be allowed even if the "sublessor" is a hotel. Certainly the hotel is being paid for the use of its real property; the guests need to rest their heads somewhere at night. But there is also a significant service element; hotel guests receive front desk services, housekeeping, and other amenities that typical rentals don't come with. The issue is whether that should matter. If the philosophy behind the 1997 act is to prevent retail rate GET from applying to the same use of the same real property, the proposal is consistent with that philosophy. Hoteliers have to pay GET on what they get for their room nights just like any other renters. If the hotel happens to be leasing its space from a large landowner, why should the state be allowed a second bite at the proverbial apple? Interestingly, the issue of wholesale services in general was examined by the 1987-1989 Tax Review Commission, at a time when the 0.5% rate applied to very few wholesale services. The Commission recommended adopting the 0.5% rate for more wholesale service transactions (which actually happened in 2000), and also recommended that the wholesale services concept should be extended to the leasing of real property. It certainly looks like that Commission would have had no problem with treating transient accommodation rentals the same as other rentals.

Technical issues exist, of course. It may be argued that a hotelier shouldn’t be allowed the sublease deduction to the extent that its rooms are vacant, which makes sense, and no hotelier has 100% occupancy. But that argument should not be morphed into a reason for disallowing the deduction altogether. We have retail rate GET being piled on top of retail rate GET for occupying the same piece of real estate, and that screams for at least some relief. Hopefully, the stakeholders involved can agree upon, or our lawmakers can come up with, reasonable means for achieving it.

- 30 -


TEXT "follow HawaiiFreePress" to 40404

Register to Vote


Aloha Pregnancy Care Center


Antonio Gramsci Reading List

A Place for Women in Waipio

Ballotpedia Hawaii

Broken Trust

Build More Hawaiian Homes Working Group

Christian Homeschoolers of Hawaii

Cliff Slater's Second Opinion

DVids Hawaii


Fix Oahu!

Frontline: The Fixers

Genetic Literacy Project

Grassroot Institute

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii ConCon Info

Hawaii Debt Clock

Hawaii Defense Foundation

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federation of Republican Women

Hawaii History Blog

Hawaii Jihadi Trial

Hawaii Legal News

Hawaii Legal Short-Term Rental Alliance

Hawaii Matters

Hawaii Military History

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Shippers Council

Hawaii Together


Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Navy League

Honolulu Traffic

House Minority Blog

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

July 4 in Hawaii

Land and Power in Hawaii

Lessons in Firearm Education

Lingle Years

Managed Care Matters -- Hawaii

Missile Defense Advocacy

MIS Veterans Hawaii

NAMI Hawaii

National Parents Org Hawaii

NFIB Hawaii News

NRA-ILA Hawaii


OHA Lies

Opt Out Today

Patients Rights Council Hawaii

Practical Policy Institute of Hawaii

Pritchett Cartoons

Pro-GMO Hawaii

Rental by Owner Awareness Assn

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

School Choice in Hawaii

Talking Tax

Tax Foundation of Hawaii

The Real Hanabusa

Time Out Honolulu

Trustee Akina KWO Columns

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii