Property Management Insights
In May, Governor Josh Green signed SB1396 into law. It is being called the “Green Fee”. This fee is a 0.75% increase on the tax that is charged on hotel and short-term rental stays. The fee will also be assessed on cruise ships for the first time. The Green Fee is for the improvement of our local environment due to climate change-related impacts. Climate change affects Hawaii in multiple ways, such as the Lahaina fire, sea-level rise and shore-line erosion, and destruction of coral reefs. According to the Office of the Governor, the Green Fee will “fund diverse projects focusing on environmental stewardship, climate resilience and sustainable tourism.”
The Tax
The Green Fee raises the transient accommodation tax (TAT) from 10.25% to 11%. This will go into effect on January 1, 2026. Per the state government, it applies to any property you’re staying at for six months or less. This includes nightly hotel and short-term rental stays. Counties have the authority to add an extra tax. They have all chosen the maximum additional surcharge of 3%. Visitors are also subject to a 4.712% gross excise tax (GET).
Rental Property Owners
Hawaii rental property owners are required to pay taxes on their gross rental proceeds. This applies to anything rented for fewer than 180 days. Rental property owners will pay the 11% TAT, the 4.712% GET, and the 3% county surcharge on income earned from renting their property. This totals to 18.712% tax on gross proceeds for a vacation rental. Rental property owners who use a property management company have typically have a management fee of 10-20% of the gross. Rental property owners may pass on the GET and TAT to the tenant.
As a rental property owner, you do not need to take any action as a result of this bill. Just be prepared for higher taxes next year. If you’re considering switching your rental property to long-term, we’d love to chat with you to determine the best course of action for your goals.
Rental Management Experts
To learn more about our comprehensive property management services, click here or contact Doug at (808) 596-4883 or dougdavis@caronb.com. Visit our YouTube channel to watch our property management series, Ask Doug! in which Doug answers common property management questions.
