Opinion ID: 2786941
Heading Depth: 3
Heading Rank: 1

Heading: Legislative intent of the TAT

Text: The TAT was created by the legislature in 1986. See 1986 Haw. Sess. Laws. Act 340, § 1 at 758-64. The legislative history indicates that the legislature enacted the TAT in order to recompense the counties for infrastructure costs incurred by tourists and visitors that are borne by the counties. The Conference Committee Report on H.B. 2508-86, the bill enacting the TAT, stated as follows: “It is the intent of your Committee that a portion of such revenues be appropriated for the promotion, stimulation and development of visitor assistance programs which may include . . . grants to the counties for the construction of recreational and other infrastructure to enhance visitor satisfaction.” Conf. Comm. Rep. No. 70-86, 1986 House Journal, at 962; No.66-86 1986 Senate Journal, at 765. The legislature noted that the distribution of tax revenues generated by the TAT would “assist the industry and the counties.” S. Stand. Comm. Rep. No. 651-86, in 1986 Senate Journal, at 1076. Comments made by the legislators state this purpose more clearly. “[W]e have provided as a direct result of revenues to be realized by [the TAT], additional funds in the budget for tourism promotion and grants-in-aid to the counties.” 1986 House Journal, at 828 (statement of Rep. Kiyabu). “The bill that finally emerged from the Conference Committee would - 84 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER provide money that can be made available to the counties to improve tourist-related infrastructure.” 1986 House Journal, at 830 (statement of Rep. Pfiel). Each year, more than a million visitors -- a population equal to or greater than the number of residents in Hawaii -- use our roads, our parks, our water, and every other public facility and service, and in my estimation, without paying their “fair share” of the cost. . . . In effect, only half of those making demands on government services are paying the taxes which make those services possible. Simply, that has not been fair. 1986 House Journal, at 828 (statement of Rep. Kamaliʻi) (emphasis added). The legislature reconfirmed this purpose in 1990:48 Your Committee also notes that tourism is the largest industry in Hawaii, and many of the burdens imposed by tourism falls on the counties. Increased pressures of the visitor industry mean greater demands on county services. Many of the costs of providing, maintaining, and upgrading police and fire protection, parks, beaches, water, roads, sewage systems, and other tourism related infrastructure are being borne by the counties. Upon further consideration, your Committee has amended this bill in order to share the TAT revenues with the counties. Conf. Comm. Rep. No. 207, 1990 House Journal, at 845, 1990 Senate Journal, at 845-46 (emphasis added). Thus, the legislature determined the cost borne by the counties should be recovered by a tax imposed on tourists: Since 1959 when Hawaii became a state of our union we have had the people of the State of Hawaii carry the burden in making improvements for the infrastructure of all the counties through real property taxes, state income taxes, other revenue measures that tax the people of the State of 48 See 1990 Haw. Sess. Laws Act 185, §§ 1-4, at 394-96. Act 185 amended HRS Chapter 237D to provide for an exact percentage distribution to the Counties and amended the requirements for returns and payments. These amendments are not relevant to the current discussion. Act 185 also amended the definition of Gross Rental Proceeds to exclude the imposition of the TAT itself, as discussed, infra. - 85 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER Hawaii and the people of this state have carried the burden of improving the State of Hawaii in every area so that we can allow our visitors who come to Hawaii to enjoy the amenities that we now have at the present time. And we pledge to continue to improve our infrastructure our amenities so that more people can come to Hawaii. The 5 percent is the additional tax we are considering for the rooms. I believe that this is a fair burden of taxes that must be shouldered by our visitors who visit the State of Hawaii. . . . I think it is fair for the visitors to help shoulder the burden with the rest of the people of the state. The people of the state have given us a message that now is the time to levy a room tax of some kind . . . . 1986 Senate Journal, at 654-55 (statement of Sen. Yamasaki) (emphases added). The mechanism that the legislature determined would be most appropriate was referred to as a “hotel room tax.” See 1986 House Journal, at 826 (statement of Rep. Ikeda) (referring to the TAT as a “hotel room tax”); id. at 828 (statement of Rep. Kamaliʻi) (same); id. at 830 (statement of Rep. Pfiel) (same); id. at 830 (statement of Rep. Isbell) (“[I]t should be very clear that it is the room itself that has a 5% charge to the tourist . . . .”); see also 1986 Senate Journal, at 652, 658 (statements of Sen. Soares) (referring to a “hotel room tax” and a “tourist tax”); id. at 655 (statement of Sen. Yamasaki) (referring to “the additional tax we are considering for the rooms”); id. at 655-58 (statements of Sens. Kawasaki and Cobb) (referring to a “tourist tax”); id. at 657 (statement of Sen. Abercrombie) (referring to “a hotel room tax, a tourist tax”). - 86 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER The legislative history indicates that the “hotel room tax” was not a tax on the hotels, but instead, was a mechanism to tax visitors by assessing the cost of their hotel room to correlate to costs associated with visitor use of infrastructure and county services. i. Intent is reflected in the structure chosen for the tax The intent of the legislature to tax transient visitors through the mechanism of a hotel room tax is reflected in the structure of the tax that was developed. The TAT was originally proposed not as a separate tax, but as a special rate and application of the GET. See H. Stand. Comm. Rep. No. 58686, 1986 House Journal, at 1260, 1261 (proposing to amend HRS § 237-13(6) to apply a nine percent GET on “the gross proceeds of sale or gross income received”). Critically, the proposal was later changed to a separate tax, styled as the TAT. See H.B. 2805-86 H.D.1, S.D.1, 13th Leg., Reg. Sess. (1986). The reason given for the change from a special application of the GET to a separate TAT was to protect the hotel industry from excessive taxation. The committee report for H.B. 2805-06 H.D.1, S.D.1 states as follows: The purpose of this bill is to provide for a general excise tax on transient accommodations of 9 per cent, and to amend the provisions concerning the application of the general excise tax to reimbursements. Your Committee agrees with the Committee on Finance of the House of Representatives that the time has come to impose a tax on transient accommodations; however, it does not agree that the rate should be as high as 9 per cent, nor that the - 87 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER vehicle for imposing the tax should be the general excise tax but instead should be a separate tax. The reason for a separate tax on transient accommodations is to lessen the income loss of transient accommodation operators. Presently, under the general excise tax, if a person prices an item at $100, the person generally charges $104 in order to pass on the 4 per cent general excise tax. However, the general excise tax is on gross collections, which means the person must pay 4 per cent on $104, or $4.16. This means that for every $100 transaction a person loses 16 cents. If the general excise tax itself was increased to 8 per cent, then on a $100 price, the person would charge $108, pay taxes on $108 or $8.64 in taxes, and lose 64 cents. By creating a new transient accommodations tax at a 4 per cent rate and providing that the general excise tax passed on and collected is not included in the gross proceeds which are taxed under this tax and similarly providing that the gross proceeds subject to the general excise tax do not include collections under the new tax, the amount of the loss is reduced to 32 cents per $100— total tax paid of $8.32 composed of the general excise tax of $4.16 and the transient accommodations tax of $4.16. The savings under the two tax system to the industry is appreciable for businesses making thousands of dollars a year. In this manner, the State is able to tax the industry for the benefit of the State, while at the same time minimizing the impact of the tax on the industry. S. Stand. Comm. Rep. No. 651-86, 1986 Senate Journal, at 1076 (emphases added); see also Conf. Comm. Rep. No. 70-86, 1986 House Journal, at 961-62, 1986 Senate Journal, at 764-65 (echoing much of the same language). Thus, the legislative history of the TAT indicates the intent to “minimiz[e] the impact of the tax” on the hotel and visitor industries. S. Stand. Comm. Rep. No. 651-86, 1986 Senate Journal, at 1076. Comments during debate on the measure reinforce this conclusion. “This bill imposes a separate tax of 5% on tourist accommodations charges. In this way, the tax does not fall on the corporate hotel industry or pyramid in its collection. It - 88 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER is a simple and clean tax.” 1986 House Journal, at 828 (statement of Rep. Kamaliʻi) (emphasis added). ii. Subsequent amendments indicate that the TAT is effectively a tax on net rental proceeds The legislative history of the amendments indicates the legislature’s continuing focus to minimize the impact of the tax on Hawaiʻi visitors and the hotel industry. The TAT, originally enacted in 1986, 1986 Haw. Sess. Laws. Act 340, § 1 at 758-63, was amended to include the TAT Apportioning Provision in 1988. See 1988 Haw. Sess. Laws Act 241, § 2 at 424-25. The legislature did not provide explicit statements explaining its intent in enacting the TAT Apportioning Provision. However, the GET and TAT Apportioning Provisions, although passed in different bills, were passed in the same session of the Hawaiʻi legislature. See 1988 Haw. Sess Laws Act 167, § 1 at 292-93 (amending the GET); Act 241, § 2 at 424-25 (amending the TAT). The Committee reports for Act 241, amending the TAT, indicate that the “application of the [TAT] is presently patterned after the [GET].” H. Stand. Comm. Rep. No. 198, 1987 House Journal, at 1178. Similarly, when the legislature amended the GET to include the GET Apportioning Provision codified at HRS § 237-18(g), the senate committee stated, “Your Committee finds that this bill provides equitable treatment for operators - 89 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER of transient accommodations under the general excise tax law.” S. Stand. Comm. Rep. No., 914, in 1987 Senate Journal, at 1286. The GET Apportioning Provision expressly references the TAT Apportioning Provision: “As used in this subsection, the words ‘transient accommodations’ and ‘operator’ shall be defined in the same manner as they are defined in section 237D-1.” HRS § 237-18(g). Based on the similar construction of the GET and TAT Apportioning Provisions, enactment by the same legislature, and recognition by the legislature of the parallels between the two, it is clear that the legislature consciously crafted the two provisions in conjunction with one another. Accordingly, the same purpose is attributed to the TAT Apportioning Provision as was expressed by the legislature in its concurrent enactment of the GET Apportioning Provision: to protect the hotel and visitor industry from the TAT being unfairly assessed on grossed up revenues. In addition to adding the TAT Apportioning Provision, Act 241 also specified that the Gross Rental Proceeds exclude amounts charged for the GET. See 1988 Haw. Sess. Laws. Act 241, § 2 at 424. The exclusion of the GET from Gross Rental Proceeds was intended to prevent additional taxation on the privilege of doing business in Hawaiʻi. - 90 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER Your Committee believes that the charge for doing business in Hawaii is already imposed under the [GET] which is a tax on gross proceeds. It is already acknowledged that the [TAT] is an additional tax imposed on a particular type of activity. Therefore, your Committee feels that the transient accommodations tax should not be imposed on the basis of the room charge plus any amount passed-on due to the . . . tax. H. Stand. Comm. Rep. No. 198, 1987 House Journal, at 1178 (emphasis added). The definition of Gross Rental Proceeds was further amended in 1990 to specify that it excludes any amount collected for the TAT. See 1990 Haw. Sess. Laws. Act 185, §3 at 395. The Department objected to the exclusion of the TAT collected from the transient in calculating the TAT because of what the Department perceived as a transformation of the TAT into a tax on net room rate. [S]ection 3 of [the bill] provides that the words “gross rental” or “gross rental proceeds” shall not be construed to include the transient accommodations tax imposed upon and passed on by operators of transient accommodations to occupants thereof. This provision is contrary to the definition of such words provided under section 2 of [the bill]. The proposal changes the entire concept of the [TAT] from that of a tax on gross rentals to a tax on net rentals. It is clear from the committee reports of the 1986 Legislature that it meant to tax any passed-on tax as gross income. This provision should be deleted. Department Testimony on S.B. No. 1712, S.D. 3, H.D. 1, Relating to Transient Accommodations (March 31, 1982) (emphasis added). By enacting the 1988 and 1990 amendments to the definition of Gross Rental Proceeds, the legislature indicated that the TAT was not merely assessed on a gross room rate. By creating a TAT Apportioning Provision, the legislature made it - 91 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER clear that, where a travel agency or tour packager had made the room arrangements for the transient, the TAT was not to be charged on the gross rate paid by the transient but only on the Gross Rental Proceeds allocated to or distributed to the operator. Further, the GET and the TAT were expressly excluded from the TAT calculation. Taken together, the amendments indicate that the TAT is a tax to be paid by the transient based only on the cost attributed to the hotel room that is allocated to the operator. That is, the TAT was to be based on a room rate paid by the transient and allocated to the operator, less any amount distributed to a travel agency or tour packager, and excluding any GET or TAT. Thus, notwithstanding that the nomenclature for the assessable proceeds--“Gross Rental” or “Gross Rental Proceeds”--remained unchanged, the statutory definition excludes certain amounts. With the intention of the legislature in mind, we turn to the TAT Apportioning Provision to determine how its operation might instruct this court’s interpretation of “actual” within the definition of “operator.” b. In context with the intent of the legislature, the TAT Apportioning Provision helps to define “operator” The exclusions contained within the definition of Gross Rental Proceeds include the TAT Apportioning Provision: Where transient accommodations are furnished through arrangements made by a travel agency or tour packager at noncommissionable negotiated contract rates and the gross - 92 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER income is divided between the operator of transient accommodations on the one hand and the travel agency or tour packager on the other hand, [Gross Rental Proceeds] to the operator means only the respective portion allocated or distributed to the operator, and no more. HRS § 237D-1 (emphasis added). The elements of the TAT Apportioning Provision are nearly identical to the elements of the GET Apportioning Provision of HRS § 237-18(g).49 As in the GET, the operation of the TAT Apportioning Provision requires the involvement of two entities: an “operator of transient accommodations on the one hand and the travel agency or tour packager on the other hand.” Thus, a single entity cannot fill both the role of operator of transient accommodations “on the one hand” and the travel agency or tour packager “on the other hand.” However, the TAT Apportioning Provision differs from the GET Apportioning Provision in a crucial aspect. The GET Apportioning Provision provides that “the tax imposed by this chapter shall apply to each such person with respect to such person’s respective portion of the proceeds, and no more.” HRS § 237-18(g) (emphasis added). That is, the GET Apportioning Provision divides the taxable base into two portions and holds “each” responsible party liable for their respective portion. 49 In the elements of the GET and TAT Apportioning Provisions, the only difference is that the GET Apportioning Provision refers to “noncommissioned” negotiated contract rates, whereas the TAT Apportioning Provision uses the term “noncommissionable.” Based on the analysis to follow, any difference in the meaning of the two terms is not relevant. - 93 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER In contrast, the TAT Apportioning Provision defines the tax amount as “only the respective portion allocated or distributed to the operator, and no more.”50 HRS § 237D-1 (emphasis added). Thus, the TAT Apportioning Provision takes the gross amount paid by a transient and divides it into two portions: one assessable under the TAT, and one that is not. As a result, whereas the GET Apportioning Provision holds both parties liable for the GET, the TAT Apportioning Provision provides that only the operator is liable for the TAT. If the OTCs are operators, the OTCs cannot apply the TAT Apportioning Provision to split their Gross Rental Proceeds with the hotels. This is because neither party has asserted the hotels are travel agents or tour packagers; thus, the hotels cannot fill the role of “travel agent or tour packager on the 50 The GET Apportioning Provision provides as follows: Where . . . the gross income is divided between the operator of transient accommodations on the one hand and the travel agency or tour packager on the other hand, the tax imposed by this chapter shall apply to each such person with respect to such person’s respective portion of the proceeds, and no more. HRS § 237-18(g) (emphasis added). The TAT Apportioning Provision provides as follows: Where . . . the gross income is divided between the operator of transient accommodations on the one hand and the travel agency or tour packager on the other hand, [Gross Rental Proceeds] to the operator means only the respective portion allocated or distributed to the operator, and no more. HRS § 237D-1 (emphasis added). - 94 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER other hand.” Hence, if an OTC is considered the “operator . . . on the one hand,” then there is no legitimate entity to fill the position of “travel agency . . . on the other hand.” As stated by the Director, “Where there is no ‘travel agent’ in the transaction, as is the case in the [Assessed Transactions], the [TAT Apportioning Provision] does not apply.” Because the elements of the TAT Apportioning Provision would not have been satisfied if the OTCs are operators, then the Assessed Transactions would not fall within the TAT Apportioning Provision. Accordingly, the entire amount paid to an OTC by a transient would be Gross Rental Proceeds subject to the TAT, except for the taxes already included.51 The parties do not dispute that the hotels owe the TAT on their Gross Rental Proceeds that derive from furnishing the transient accommodations in the Assessed Transactions.52 Thus, if the meaning of “actual” within the definition of “operator” encompasses the OTCs, then the TAT would be assessed twice: 51 As noted, the legislature enacted the TAT Apportioning Provision to protect operators who do not know the actual cost of the room charged to the transient. Here, the OTCs have actual knowledge of the cost charged to the transient; thus, the application of the TAT Apportioning Provision by an OTC would be inappropriate. Thus, application of the TAT Apportioning Provision to define the Gross Rental Proceeds of an OTC would also be contrary to the intent of the legislature for this additional reason. 52 As stated by the Director, “Because they act as “operators” in [Assessed Transactions], the OTCs owe TAT on “gross rental proceeds . . . without any deductions.” So too does the hotel on its “gross rental proceeds . . . without any deductions” that it receives from the OTCs pursuant to the OTC-hotel Contracts.” (Emphasis added). - 95 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER first, against the OTCs based on the room rate plus the mark-up and service charges, and second, against the hotel on the net rate collected for the room. The legislature determined that visitors should be assessed to pay for providing, maintaining, and upgrading county infrastructure and services. The primary justification for the TAT was to enable the visitor to pay to the state their “fair share” of the costs incurred by the county for providing infrastructure and services. 1986 House Journal, at 828 (statement of Rep. Kamaliʻi). The mechanism the legislature created for that purpose was a tax based on the transient’s cost of the hotel room, limited to the proceeds allocated to the operator, to be remitted to the State by the transient’s hotel. The TAT was designed to charge the visitor through the assessment against the cost of the hotel room; therefore, to more than double the TAT assessment would be contrary to the intent of the legislature that correlated the tax to the hotel room use. Plainly, the impact of a tourist’s use of county infrastructure and services does not vary upon whether the room is booked through the OTC or through the hotel directly; the legislature did not intend that the TAT should be applied once or twice depending on the method the transient selected to reserve accommodations. - 96 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER As stated, the legislature repeatedly demonstrated its intent to minimize the impact of the TAT on the tourist industry by taking the following steps: establishing the TAT in 1986 as a separate tax from the GET; amending the law in 1988 to include the TAT Apportioning Provision that assessed only the operator and not the travel agency or packager; excluded the GET from the definition of Gross Rental Proceeds so that the TAT would not be calculated based upon an amount that included the GET; and amending the TAT again in 1990 to ensure that the amount due was not calculated based on an amount that included the TAT charged. Together, the legislative history of the TAT demonstrates clear intent to preserve the TAT as a “simple and clean tax” that does not “fall on the corporate hotel industry or pyramid in its collection.” 1986 House Journal, at 828 (statement of Rep. Kamaliʻi). Considering that the legislature intended the TAT to be a tax upon the transient, assessed on the cost of a hotel room, and collected through the mechanism of the operator, it is clear that the legislature did not intend that the TAT would be assessed in full on multiple operators. Thus, defining “actual” to mean “[e]xisting in fact” or “real,” Black’s Law Dictionary, supra, at 42, would result in double application of the TAT, contrary to the intent of the legislature. Consequently, the legislature must have intended a - 97 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER different meaning for the term. See McKnight, 131 Hawaiʻi at 388, 319 P.3d at 307 (“[W]e must read statutory language in the context of the entire statute and construe it in a manner consistent with its purpose.” (quoting State v. Wells, 78 Hawaiʻi 373, 376, 894 P.2d 70, 73 (1995)). c. “Actual” indicates a single “operator” Based on the continuing intent of the legislature to tax visitors for their use of county infrastructure and services by assessing the cost of transient accommodations that is allocated to the operator, to utilize the hotels as the vehicle for collecting that tax, and to minimize the impact of the TAT on the hotel and visitor industry, only a single taxable event as to the TAT occurs when a transient accommodation is furnished to a visitor. It follows then, that a single operator is associated with the furnishing of transient accommodations. Applying the principle of pari materia, “actual” as part of “actually furnish,” within the definition of operator, indicates a single entity as fulfilling this role. Thus, an operator may be an “owner or proprietor or as lessee, sublessee, mortgagee in possession, licensee, or otherwise” or, if such person is not present, then the operator may be a person “engaging or continuing in any service business which involves the actual furnishing of transient accommodation[s].” See HRS § 237D-1. The definition of operator in HRS § 237D-1 does not contemplate - 98 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER or allow for multiple operators when a transient accommodation is furnished. Here, the hotels in the Assessed Transactions are acknowledged by all parties to be an operator within the meaning of the use of that term as provided by HRS § 237D-1; thus, for purposes of the TAT Assessments, only the hotels are operators in the Assessed Transactions. Therefore, the OTCs are not operators and the TAT is not applicable to the OTCs in the Assessed Transactions.53 E. Penalties on the TAT Assessments As we find that the OTCs are not operators, the determination of the tax court as to the TAT is affirmed, and the applicability of the penalties to the TAT Assessments is not presented.