Council advances county transient accommodations tax at first reading amid legal and implementation questions

The Hawaii County Council moved Bill 81 (draft 2) forward on first reading on Nov. 18 after extended debate over program design, enforcement and whether to earmark revenues.

A member of the public, Mary Anne Stone, urged the council to proceed cautiously and to prioritize registering short-term rentals before collection begins. ‘‘I want you to know that I'm in favor of the county moving forward with the TAT tax. However, I want you to consider not starting it until July until we figure out how to deal with this TAT tax,’’ she told the council during public testimony.

At committee and in council debate, members and staff described three core implementation challenges: (1) how the county will collect its up-to-3% portion, (2) how nonfilers and short-term vacation rental operators will be identified and enforced against, and (3) whether the council can legally earmark or appropriate the funds within the enabling ordinance.

Finance and administration officials said the county is pursuing a statewide cooperative-vendor approach to collection and that a vendor RFP was underway; deputy staff said vendor proposals were due in late November. Deputy Director Hunt and Director Sacco told the council they anticipate substantial reconciliation work and initially the need for additional staff (three positions was discussed) to reconcile state remittances and to follow up on potential nonfilers.

Corporation Counsel Elizabeth Strantz cautioned that the county’s authority is limited by the legislative enabling act and the Charter. ‘‘The council doesn’t have authority to implement its own appropriation absent certification that those monies are coming,” she said, and warned that drafting earmarks or exemptions into the enabling ordinance could create legal and charter conflicts.

Councilmembers proposed several amendments at the meeting, including earmarks for parks and recreation, enforcement staffing and a research-and-development tourism fund; Councilmember Richards later withdrew his broader amendment after hearing counsel and departmental concerns. Councilmember Connelly Kleinfelder introduced two alternative ideas — a two-tiered rate to reduce burden on residents and a proposal where residents would carry only a small portion — but withdrew motions after counsel advised those concepts likely require state-level changes.

After discussion, the council approved Bill 81 draft 2 on first reading (roll call: six ayes, two no votes). Members encouraged the administration to prepare a companion resolution or budget amendment showing how the council would like potential TAT revenues directed once the county has clearer collection projections. Departments said they will bring a budget amendment and additional staffing proposals back to council for future consideration.

Next steps: the bill will return for a second reading with accompanying implementation details to be worked out between departments, corporation counsel and councilmembers. Councilmembers asked the administration to draft a nonbinding resolution describing priorities (collection plan, enforcement, a master list of STVRs) to guide later appropriations and to coordinate with the statewide vendor procurement.