By Dr. Richard Kelley

As I write this article in Denver, Colorado, record low temperatures and blizzards are wreaking havoc across the continental U.S.A. this week. Out my window, I am looking at six inches of fresh snow in the yard. Traffic was snarled this morning throughout the city. It’s a great time to pack your bags and head for someplace a little warmer. That’s exactly what I am doing, and I’ll be in Hawaii next week.

Others with the same thoughts might also be considering Mexico, the Caribbean, even Australia, Fiji, or New Zealand. Naturally, part of the decision on where to go is cost, particularly when traveling as a family, where a couple of extra dollars in costs or taxes will be multiplied by three or four when everyone participates.

A couple of days ago, Thomas Steinmetz, publisher and president of eTurboNews, ran a front-page article with a headline that suggested Hawaii might be a competitive bargain. It was titled, “Report ranks Honolulu tax burden for travelers lowest.”

The article was based on a report commissioned by the National Business Travel Association (NBTA), which examined the taxes on lodging, car rentals, and meals in 50 cities across the nation. It noted that in these difficult economic times, there seems to be an epidemic of new or increased taxes on travelers, as legislators everywhere try to make up budget shortfalls.

Cities, counties, and states do not want to overburden taxpayers who might vote in the 2010 elections, but they often believe they can “export” taxes to those who do not vote – visitors.

As former Louisiana Senator Russell B. Long is reported to have said, “Don’t tax you. Don’t tax me. Tax that fellow behind the tree!”

Visitors are, thus, too often ignored when taxes are proposed. They are not you or me, but they are “that fellow behind the tree.”

However, visitors do vote. Not at the ballot box, but with their pocketbooks. Information about rip-off taxes on visitors is flashed around the globe on the Internet.

Unfortunately, the NBTA study quoted is basically flawed. It compares tax rates rather than tax dollars.

In its 2009 session, the Hawaii State Legislature – apparently believing it was taxing “that fellow behind the tree” – raised the transient accommodations tax (TAT, or hotel room tax) by 13.8 percent, from 7.25 percent to 8.25 percent, effective last July 1. The Legislature also scheduled another percentage point jump for July 1, 2010 – to 9.25 percent – for a whopping 27.6 percent increase in two years!

These rates are applied to some of the highest hotel rates in the United States!

Hospitality Advisors just reported that the average hotel rate in Hawaii in November 2009 was $161.08. This is nearly double the average hotel rate across the United States, $85.78 per night in December 2009, as reported by Smith Travel Research.

Do the math, and you will find that even if Hawaii’s average room rates were as low as in the rest of the country (which they cannot be, thanks in large part to our much higher cost of living and doing business), visitors to our state would be paying an average of over $7 a night in room taxes. As it is, with Hawaii’s higher room rates, they are actually paying more than $13 a night, and in July, that will jump to nearly $15!

Add to that all the other taxes and fees our visitors pay, for instance:

• Airport fees (hidden in the cost of air tickets).
• All sorts of taxes on their choice of transportation from the airport to their hotel or friend’s home.
• Special charges on cars rented at the airport.
• Higher property taxes on real estate used for hotel purposes (included in room rates).
• Hawaii general excise tax (GET) – on everything.

The GET is very, very insidious because of the way it compounds, as goods and services move through the economy. It also is, in reality, a tax on a tax. I sometimes think of it as a “sneak attax”! Let’s see why.

As reported by the Honolulu Star-Bulletin earlier this week, “The official tax rate in Honolulu is 4.5 percent, but businesses are allowed to charge customers up to 4.712 percent. The reason is that the excise tax is a seller’s tax, not a buyer’s tax, as it would be in most states. So when a merchant adds up his gross receipts at the end of the business day, he multiplies his total — including the tax he charged — by 4.5 percent to determine how much he owes. For example, on a $100 product, a business would charge $104.712, and 4.5 percent of that is the $4.71 the business owes to the state.

“But the true cost of Hawaii’s GET is little known here because it and other taxes must be paid on goods and services every time they change hands, from the cargo ship to a Waikiki retail store. By the time a product reaches a consumer, those taxes have accumulated at each step and passed on in the price tag.” That is why I call it the “sneak attax.”

Every other U.S. state and city that has a sales tax levies it only once, at the final point of sale. The Star-Bulletin article continued, “It would take a sales tax rate of at least 11 percent and as high as 17 percent, if food and medicine were exempted, to generate an equivalent amount of revenue, according to the Tax Foundation of Hawaii.

“That sales tax would easily be the highest in the nation, said Lowell Kalapa, the foundation’s president.”

Some legislators are currently talking about raising the GET once again, or encouraging the counties to levy their own GET!

I hope they think about this long and hard and then “Just Say NO.” We don’t need any more “sneak attax”!

And, when the headline says “Report ranks Honolulu tax burden for travelers lowest,” don’t believe it. Hawaii’s taxes on visitors are really some of the highest in the nation, maybe not in rate, but in dollars. And that is what really matters.