Paying the price

The price of paradise is going up for visitors and kamaaina taking staycations.

Hawaii’s transient accommodations tax will jump another percentage point on Thursday to 9.25 percent, which will add about $18 to the cost of an average Hawaii vacation. The increase, which will be applied to taxes on all hotels, time-share and other short-term room rentals, was the final installment in a hike approved last year by the state Legislature. Lawmakers and proponents argued that targeting tourists was the least painful way to boost tax revenue, which is still recovering from the recession.

However, hoteliers and other visitor industry members say the increase – which goes directly to the state general fund – will cost more than it generates. Though Hawaii was ranked the No. 5 most popular summer vacation destination in yesterday’s 2010 Travel Ticker Summer Survey, opponents of the tax increase say it could turn consumer sentiment, inhibiting arrival and spending growth.

"We understand the situation with tax revenues being down, but this tax increase is coming right after the worst economic period in our history," said Keith Vieira, senior vice president and director of operations for Starwood Hotels & Resorts in Hawaii and French Polynesia. "Visitors may cut spending or, worse yet, chose another location."

Hawaii’s combined 13.75 percent TAT and general excise tax (GET) levied on tourists is only slightly higher than the 13.73 percent average hotel tax as estimated by the National Business Travel Association. However, since Hawaii hotel rooms are among the priciest in the nation, tourists will pay much more in actual dollars, said Lowell Kalapa, president and executive director of the Tax Foundation of Hawaii.

"It’s much more expensive to come to Hawaii and have a vacation," Kalapa said.

The NBTA estimated in 2009 that visitors nationwide paid an average of $13.12 per night in hotel taxes based on an average nightly rate of $95.61. In comparison, Hawaii tourists staying at an average $176-per-night room would pay $24.20, roughly 85 percent higher than the national average.

The visitor industry cannot afford to overlook consumer price sensitivity, said Barry Wallace, executive vice president of hospitality services for Outrigger Enterprises Group.

"When we look at our product versus our neighbor’s product, a difference of a dollar can tip the sale," Wallace said, adding that groups are especially sensitive to increases because of the multiplier effect.

High costs did not deter Mitch and Annette Hamann of Coal City, Ill., from celebrating their 25th anniversary at the Sheraton Waikiki Oahu this week. However, the couple did take notice.

"The prices made us say ‘ouch,’ but we knew we were going to bite the bullet," Annette Hamann said.

While they enjoyed every minute of their Oahu and Maui trip, Hamann said it cost more than the 12-day trip to Europe that she took with her daughter.

"I don’t think a tax increase is a good idea," she said. "Because of the cost, Hawaii is probably a one-trip deal."

In an attempt to counter negative visitor perceptions, Hawaii hoteliers have extended average daily room rate discounts and are offering value-added deals ranging from free nights to complimentary breakfasts even in the peak summer season, Wallace said.

As a result, Tony and Pauline Woods and their children Matt and Emily said that they found Hawaii a veritable bargain compared with their home in Melbourne, Australia.

"The tax increase isn’t that much," said Tony Woods, who is one of Starwood’s platinum preferred guests, which means that he is among the chain’s most valued customers.

The Woods family picked Hawaii for its weather and location and said they were pleasantly surprised to find reasonable isle prices, especially at the Waikele outlet center.

"My suitcase is definitely going to be heavier," said 18-year-old Emily Woods, whose Hawaii vacation got her out of Australia’s frozen winter. "Most of the cosmetics and clothes were half-price compared to home."

While tolerance to taxes varies among Hawaii’s visitors, tourism officials said the latest TAT increase is counterproductive since it comes at a time when the visitor industry is heavily discounting to attract customers.

"It’s a cost increase that the marketplace in recent months has been unwilling to absorb, so you’ll see price reductions in the hotel room to keep the price to the customer the same or lower," said Murray Towill, president of the Hawaii Hotel & Lodging Association. "The net effect is that it slows the recovery because you have less revenue flowing to operators."

Passing higher taxes on to visitors isn’t a sound economic practice because it can backfire, said Kelvin Bloom, president of Aston Hotels & Resorts.

"Generally, vacationers and leisure travelers don’t mind paying taxes comparable to what residents pay, but when you start adding up the taxes from the hotel, the car rental and all the goods and services that they purchase, then the cost of the vacation gets pretty expensive," Bloom said.

Visitors might not vote at the polls, but "they’ll certainly vote with their feet," he said.