September 15, 1998


RE: Application of Act 156, Session Laws of Hawaii 1998 (Act 156),
Relating to Taxation (S.B. No. 2259, S.D. 1, H.D. 1, C.D. 1)

Act 156 increases the transient accommodations tax (TAT) from 6 percent to 7.25 percent, creates a Hawaii Tourism Authority (Authority), and subjects timesharing to the TAT, effective January 1, 1999.

Prior to Act 156, there was no dedicated source of funds to develop, market, and research tourism. Act 156 implements a recommendation of the Economic Revitalization Task Force (Task Force) convened by the Governor, the President of the Senate, and the Speaker of the House of Representatives in 1997, to provide a dedicated source of tourism marketing funds which would help fund the Authority and allow Hawaii to compete with other tourist destinations. To help fund the Authority, the TAT is increased from 6 percent to 7.25 percent, beginning on January 1, 1999, to provide these marketing funds. The Authority is established to develop and implement a strategic marketing plan which promotes and markets Hawaii as a visitor destination. Act 156 also amends the formula in Hawaii Revised Statutes (HRS) section 237D-6 for distributing the TAT to the Convention Center Capital Special Fund and the counties of Kauai, Hawaii, and Maui, and the City and County of Honolulu.

HRS section 237-17(b), relating to the motion picture and film credit, is amended by Act 156 to increase the amount of the credit which may be claimed for transient accommodation expenditures from 6 percent to 7.25 percent effective January 1, 1999.

Effective January 1, 1999, Act 156 provides that the TAT is "levied and shall be assessed and collected each month on the occupant of a resort time share vacation unit" at the rate of 7.25 per cent on the unit's "fair market rental value." HRS section 237D-2(c). Timeshare plan managers "shall be liable for and pay to the State" the TAT. HRS section 237D-2(d). The TAT will be imposed on timeshare plan managers based upon the unit's "fair market rental value," which is defined in HRS section 237D-1 as "an amount equal to one-half the gross daily maintenance fees that are paid by the owner, are attributable to the time share unit, and include maintenance costs, operational costs, insurance, repair costs, administrative costs, taxes, other than transient accommodations taxes, and other costs including payments required for reserves or sinking funds. The taxpayer shall use gross daily maintenance fees, unless the taxpayer proves or the director determines that the gross daily maintenance fees do not fairly represent fair market rental value taking into account comparable transient accommodation rentals or by other appraisal methods."

If a timeshare unit is rented, the operator of the transient accommodations "shall pay to the State" the TAT at the rate of 7.25 percent on the gross rental or gross rental proceeds derived from furnishing transient accommodations. HRS sections 237D-2(a), 237D-2(b). If an operator is subject to the TAT under these sections, the plan manager shall not be liable for the TAT under HRS sections 237D-2(c) and 237D-2(d). The Department has had and will have further discussions with the timeshare industry before issuing additional guidance. The Department is planning workshops on Maui and Kauai to discuss the application of Act 156. The Department also is coordinating with the Department of Commerce and Consumer Affairs' Time Share Plan Administrator.

If you have any questions regarding this Announcement, please call Rules Officer Grant Tanimoto at 808-587-1569.

Forms and other tax information may be downloaded from the Department's website at On Oahu, forms may be ordered by calling the Department's Forms Request Line at 808-587-7572. Persons who are not calling from Oahu may call 1-800-222-7572 to receive forms by mail or 808-678-0522 from a fax machine to receive forms by fax.

Director of Taxation