By Michele Kayal
Advertiser Staff Writer
A measure moving through the Legislature that would impose the state hotel room tax on tour wholesalers drew ire from several in the industry yesterday, which called it a logistical nightmare and said the added cost to Hawai‘i vacations could steer travelers to other places.
The bill, approved by the House on Tuesday, would require wholesale tour companies to pay the 7.25 percent room tax on the amount they add to the price of a hotel room when they offer it to customers. Hotels currently pay the tax when they sell the room to the wholesalers; but the wholesalers then mark up the price and resell it to their customers. The new law would tax the wholesalers on that markup.
"It’s a stupid move at a stupid time," said Ed Jackson, chief executive of Runaway Tours. "We would take whatever that cost is and pass it along to the consumer, putting Hawai‘i in less of a competitive position by whatever that amount is at a time when we are concerned about the economy."
Wholesalers said no other destinations they represent handle hotel taxes in the proposed manner. Most systems are similar to Hawai‘i’s current one, they said.
Supporters call the bill, which passed in a 29-21 vote, a way to close a "loophole" that allows wholesalers to escape paying the tax. The idea came from the International Longshore and Warehouse Union, which has been trying to win a new contract for about 300 of its workers at the Royal Lahaina Resort on Maui, owned by tourism magnate Ed Hogan. Hogan lists Hawai‘i’s largest wholesale tour operator, Pleasant Hawaiian Holidays, among his companies.
Collecting the levy from the wholesalers could put $30 million to $45 million a year in state coffers, according to various estimates. The measure now goes to the Senate for further consideration.
Nearly half of all visitors to Hawai‘i come on package tours, according to figures from the state Department of Business, Economic Development and Tourism. Those who come on their own often book with travel agents who get rooms, cars, and air fares from wholesalers, making the companies a powerful force in the state’s tourism economy.
Runaway and other wholesalers said yesterday that wholesaler markups are nearly impossible to determine in many cases, and that the extra charges will make Hawai‘i a less-competitive destination. Increasing prices when the economy seems ready for a nosedive, many said, also is a misguided move.
"The net result is that it makes Hawai‘i a less-attractive destination," said Ron Letterman, chief executive of Classic Custom Vacations, which like many wholesalers offers many destinations, including Mexico, the Caribbean, Europe and North America. "When a place becomes unattractive to sell, we just move our business elsewhere. I’m not suggesting I’ll stop selling Hawai‘i, but I will aggressively push other destinations."
Supporters on the House floor this week said that when the tax was raised in the past, it did not drive visitors away.
Wholesalers buy hotel rooms, rental cars, and airline tickets in blocks, often for discounts. They create packages with that inventory, usually offering a complete vacation at a set price. But the wholesalers do not generally price each component of that package individually. Often they figure their cost of providing the package as a whole, then add a markup to cover their overhead, commissions, advertising, marketing and other costs, and profit needs.
Some executives said figuring out the markup on the hotel component as a separate entity would require difficult and maybe impossible accounting and software feats.
"I don’t even know how I’d begin to attack it," said Laura Culver, Pacific Rim product manager at Connecticut-based Tauck World Discovery, which brought 4,300 people to Hawai‘i in 2000. "Our 13-day tour is $3,680 including airfare, meals, the whole lot. I can’t pick that out and say the room costs X amount of dollars."
Letterman added that such difficult accounting also would make the law one that "Hawai‘i couldn’t possibly audit · in a million years."
Other wholesalers, including Hogan’s Pleasant Hawaiian Holidays, do break down hotel costs and markup, said company spokesman Ken Phillips. But figuring out that markup could still be complicated, he said.
"What do you do about a special rate, where you give someone a higher-valued room. What do you pay the tax on?" Phillips said.
The American Society of Travel Agents sent its objections to the measure to the House committee that reviewed it.
Staff writer Kevin Dayton contributed to this report.
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