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Hawaii Supreme Court upholds Timeshare Tax law

TUGBrian

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HONOLULU — The Hawaii Supreme Court upheld a tax court’s ruling in favor of Maui County, which was challenged by timeshare managers who say the county unfairly taxed visitors by creating a tax classification separate form existing hotel taxes. The creation of a timeshare tax classification is constitutional because it acts as a real property tax and does not actually tax individual timeshare unit users.

for those who wish to read the ruling:

 

DeniseM

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Hawaii never met a tax they didn't like...
 

PamMo

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Thanks for the heads up and posting the link, @TUGBrian. Certainly for the future, it looks like we're going to get bigger tax bills. I just wonder if we'll be billed retroactively? The Westin properties were very active in the lawsuit against the county.

The rationale for a separate category and higher tax is based on the argument that timeshares have a more negative impact on Maui County than hotels. I wonder what the economic impact would be if all the timeshares were converted to hotel units?

Some excerpts from the decision below:

Moreover, the County considered many different
purposes when creating the Time Share classification, including
time share properties’ burdens on employment, infrastructure
use, and Maui’s ability to attract visitors for large events.
It also wanted time share
properties to contribute revenue needed for infrastructure
repair and maintenance. These are legitimate policy purposes,
and the creation of a separate real property tax classification
that could be used to regulate this type of land differently is
rationally related to those purposes...
...Neither the Maui County Code nor
any other source requires that tax rates be set at exactly the
number that would make tax revenue contributions from all
sources equal. On these facts, the County set a rate rationally
related to its several policy purposes, including raising
revenue for time share properties’ impacts on the community.
We conclude that the classification of time share
units under the Time Share classification is reasonably related
to legitimate policy purposes, including to (1) ensure that time
share properties make greater contributions to the County’s
revenue and (2) mitigate time share properties’ impact on County
infrastructure. Thus, we conclude that the Time Share
classification’s creation and rates are constitutional under the
equal protection clauses of the Hawai‘i and U.S. Constitutions.
 

vacationtime1

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Then you've been feeling unwelcome since 1998, which is when this tax went into effect.
The tax may have gone into effect in 1998, but the tax rate for timeshares was increased disproportionately a few years ago -- leading to the lawsuit in question.
 

Luanne

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The tax may have gone into effect in 1998, but the tax rate for timeshares was increased disproportionately a few years ago -- leading to the lawsuit in question.
So, you've been feeling unwelcome for a few years then.
 

vacationtime1

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So, you've been feeling unwelcome for a few years then.
You aren't a WKORV owner or otherwise haven't been tracking this litigation. WKORV owners were hit with a special assessment a few years ago when the higher tax rate was assessed. That money was held in an escrow, I believe, as the case worked its way up the appellate process. At one point, the money was released back to the HOA (MF's actually dropped the next year as the refund was absorbed).

Several years of that tax will now have to be paid retroactively. Yes, that makes me feel unwelcome.
 

cubigbird

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Just pay the tax and enjoy your vacation time in the land of paradise.
iMHO.
That's the whole point. That's what they want you to do. This however creates a negative precedent. Now that the Hawaii Supreme Court has upheld this, other entities may look to follow suit or increase theirs. USVI has a night $25/night tax also.
 

klpca

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I wonder if the rest of the Hawaii counties will follow suit? It seems like a green light to me.

I can't wrap my head around the argument that a timeshare is more of a burden than a hotel. Timeshares use less housekeeping on a daily basis, have fewer daily check ins, fewer people eating out - pretty much less of everything. I can understand the issue with conventions, but other than that their reasons seem illogical. If they would only be transparent and give the real reason - a timeshare guest spends less on a daily basis. And if only they would acknowledge what timeshares do provide that hotels don't -almost guaranteed occupancy, no matter what the situation is. As long as occupancy is allowed, timeshares will be full - keeping employees employed, and keeping the daily taxes rolling in.

It seems like a case of "heads I win, tails you lose".
 

okwiater

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I wonder if the rest of the Hawaii counties will follow suit? It seems like a green light to me.

I can't wrap my head around the argument that a timeshare is more of a burden than a hotel. Timeshares use less housekeeping on a daily basis, have fewer daily check ins, fewer people eating out - pretty much less of everything. I can understand the issue with conventions, but other than that their reasons seem illogical. If they would only be transparent and give the real reason - a timeshare guest spends less on a daily basis. And if only they would acknowledge what timeshares do provide that hotels don't -almost guaranteed occupancy, no matter what the situation is. As long as occupancy is allowed, timeshares will be full - keeping employees employed, and keeping the daily taxes rolling in.

It seems like a case of "heads I win, tails you lose".
If timeshares are more consistently occupied than hotels, wouldn’t that support the County’s contention that timeshare properties have a greater impact on infrastructure? I could also argue that timeshare users are more likely to rent cars and explore the island than hotel/resort guests are.
 

klpca

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If timeshares are more consistently occupied than hotels, wouldn’t that support the County’s contention that timeshare properties have a greater impact on infrastructure? I could also argue that timeshare users are more likely to rent cars and explore the island than hotel/resort guests are.
There will be many ways to to argue these points, but hotel guests with shorter stays would, in my mind, have far more impact on infrastructure - more frequent trips to the airport, more check ins/outs, daily housekeeping, driving to restaurants etc. But I honestly think that the real driver for assessing a higher tax on timeshares vs hotels is that the county has a strong preference for one type of guest over another. A hotel guest pays a higher per night cost - so higher room tax, doesn't have a kitchen - so higher food spend, and probably spends a lot on tours. This is the guest that they prefer. One who is on and off of the island quickly and spends a lot while they are there.

The higher tax on timeshares is just a revenue generator for the county of Maui, and now that it has the blessing of the Supreme Court in Hawaii, every other county is going to take a hard look at assessing a higher rate on their timeshares too.

Westin fought a good fight, but it appears that the timeshare owners/guests have lost this battle.
 

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There will be many ways to to argue these points, but hotel guests with shorter stays would, in my mind, have far more impact on infrastructure - more frequent trips to the airport, more check ins/outs, daily housekeeping, driving to restaurants etc. But I honestly think that the real driver for assessing a higher tax on timeshares vs hotels is that the county has a strong preference for one type of guest over another. A hotel guest pays a higher per night cost - so higher room tax, doesn't have a kitchen - so higher food spend, and probably spends a lot on tours. This is the guest that they prefer. One who is on and off of the island quickly and spends a lot while they are there.

The higher tax on timeshares is just a revenue generator for the county of Maui, and now that it has the blessing of the Supreme Court in Hawaii, every other county is going to take a hard look at assessing a higher rate on their timeshares too.

Westin fought a good fight, but it appears that the timeshare owners/guests have lost this battle.
I don’t disagree the county likely prefers hotel and resort guests to timeshare guests. I was only pointing out that the occupants’ habits (and associated infrastructure impacts) of a 60% occupied hotel room and a 100% occupied timeshare room aren’t directly comparable, when the hotel room is empty and has zero occupants some of the time.

In any case, IANAL but I did read the opinion and found the pro-timeshare arguments to be extremely weak. Westin may have “fought the good fight” but I think the outcome was inevitable from the get-go. I also don’t have a fundamental issue with the county exercising its right to prefer certain classes of property, and discriminating against timeshares will likely have the county’s desired effect over the long-term, ie. reduce the number of timeshare projects and perhaps even convert some of them to hotel-resorts (at some point). This is also in line with changing consumer preferences. As an owner of many timeshares (none on Hawaii but several on St. John which has similar taxation schemes in place), I agree this ruling is bad for me personally but I think it was the correct legal conclusion.

That being said, I think the bigger legal issue is not timeshare taxation, but timeshare assessment. It seems unconscionable to me that timeshares with a resale value of $0 are still assessed with any value at all. My understanding of why that is possible is that real estate is usually assessed at the value which represents the real estate’s “highest and best use,” not actual use. In other words, the real estate of a timeshare can be assessed as if it were a hotel or resort, which is a higher and better use of the real estate. And so, we have a scheme in which the value of a timeshare is assessed as if it were a hotel or resort, but the tax rate is for timeshares. This seems like it should be illegal because the county is essentially classifying the same property two different ways (hotel for assessment, timeshare for taxation) in order to “have its cake and eat it too.” Again, IANAL but it doesn’t seem right. The county should have to pick either “highest and best use” or “actual use” in order to classify, assess, and tax real estate—not both.
 

cubigbird

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I don’t disagree the county likely prefers hotel and resort guests to timeshare guests. I was only pointing out that the occupants’ habits (and associated infrastructure impacts) of a 60% occupied hotel room and a 100% occupied timeshare room aren’t directly comparable, when the hotel room is empty and has zero occupants some of the time.

In any case, IANAL but I did read the opinion and found the pro-timeshare arguments to be extremely weak. Westin may have “fought the good fight” but I think the outcome was inevitable from the get-go. I also don’t have a fundamental issue with the county exercising its right to prefer certain classes of property, and discriminating against timeshares will likely have the county’s desired effect over the long-term, ie. reduce the number of timeshare projects and perhaps even convert some of them to hotel-resorts (at some point). This is also in line with changing consumer preferences. As an owner of many timeshares (none on Hawaii but several on St. John which has similar taxation schemes in place), I agree this ruling is bad for me personally but I think it was the correct legal conclusion.

That being said, I think the bigger legal issue is not timeshare taxation, but timeshare assessment. It seems unconscionable to me that timeshares with a resale value of $0 are still assessed with any value at all. My understanding of why that is possible is that real estate is usually assessed at the value which represents the real estate’s “highest and best use,” not actual use. In other words, the real estate of a timeshare can be assessed as if it were a hotel or resort, which is a higher and better use of the real estate. And so, we have a scheme in which the value of a timeshare is assessed as if it were a hotel or resort, but the tax rate is for timeshares. This seems like it should be illegal because the county is essentially classifying the same property two different ways (hotel for assessment, timeshare for taxation) in order to “have its cake and eat it too.” Again, IANAL but it doesn’t seem right. The county should have to pick either “highest and best use” or “actual use” in order to classify, assess, and tax real estate—not both.
Because they can. You know tax property tax assessments don't match market value. Of course the taxing authority is taking full advantage of the timeshare user because they can't vote in local elections and have any influence and they know they will just shut up and pay it anyways. Call it whatever you want, you can file them all under money grabs. That's why Hawaii, USVI, Quintana Roo Mexico all do it.
 

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That's why Hawaii, USVI, Quintana Roo Mexico all do it.

And why shouldn't they? At any given time, there are as many or more tourists than locals. Look at Venice to see what that does to a city, long term.

Tourists in Las Vegas are taxed from the minute they land to the minute they depart -- the difference is that it's all baked into the cost. So tourists have no idea how much is going to the state, county and city. They pay at the restaurants. They pay at the tables. They pay when they see a show. They pay a great deal when they check in. Locals appreciate that tourists subsidize their property taxes, and they don't have a state income tax because of it.

For all of it's problems, Las Vegas manages tourism well. If a resident wants to be a part of the tourist area, great. If they want to avoid it, not a problem. Their choice. Visitors arrive, stimulate the economy, and leave. Tourists tend to "stay in their lane." I'd never see a tourist wandering around my neighborhood in Las Vegas -- drunk lost and sightseeing. I see that all the time on the roads near my house in Hawaii, though.

Hawaii should do the exact same thing Las Vegas does -- charge tourists for absolutely everything -- but make sure it's not a line-item on the bill. That's what tourists lose their minds over. If they don't know they're paying a heap of taxes, they pay it without sniveling.
 

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ScoopKona - The central issue is that timeshares are taxed at a much higher rate than hotels and other accommodations for visitors, not that there shouldn't be a tax.
 

ScoopKona

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ScoopKona - The central issue is that timeshares are taxed at a much higher rate than hotels and other accommodations for visitors, not that there shouldn't be a tax.

Timeshare owners stay longer, don't go out to eat as often, and for want of a better term, are often "extreme budget conscious" vacationers.

Key West charges higher property taxes for timeshares as well. You see a bug. I see a feature.
 

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ScoopKona - The central issue is that timeshares are taxed at a much higher rate than hotels and other accommodations for visitors, not that there shouldn't be a tax.
Correct. The tax per night should be identical to hotels.
 

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I have no problem with the tax because they are not using it to fund a stadium for billionaire owners like many other cities do.
 

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Correct. The tax per night should be identical to hotels.

The tax per night should be whatever the market will bear.

Cruise ships, for instance, drop thousands of people off and provide next to no benefit for the places they visit. If counties want to tax them higher than hotels -- because they impact without much economic benefit, great!

I'm not against tourism. I'm against low-quality tourism.
 

DeniseM

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Ya know, ScoopKona, since you moved to Hawaii you have become rather "Holier than thou." That attitude does not convince people or make friends on TUG.

Now, you are going to say that you are not trying to convince people or make friends, but it's not an attractive persona. Just say'n...
 
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ScoopKona

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Ya know, Scoop-Kona, since you moved to Hawaii you have become rather "Holier than thou." That attitude does not convince people or make friends on TUG.

Now, you are going to say that you are not trying to convince people or make friends, but it's not an attractive persona. Just say'n...

I believe residents of a community should govern themselves the way they see fit.

If Hawaiians want to increase property taxes for timeshare owners, they can. If the supreme court says that's OK, it obviously is. And if timeshare owners want to sell their timeshare and boycott Hawaii forever because of it, that's also their right.

I'm hoping a happy medium can be found. And that happy medium isn't "let tourists do whatever they want and bend over backwards for them." Unfortunately, the only two groups which get any voice in print are the "kick everyone out, blow up the airports, and secede from the union, Defend Hawaii" types, and the "we can't live without tourism" tourist business owners.

There's a middle way forward. And absolutely using taxes to tweak visitor numbers is part of that middle way.
 

lynne

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If anyone is interested. Attached are the tax rates for 2023-2024 by county and property type. At this point, Maui is the only county assessing a separate tax rate for timeshares.
 

Attachments

  • Tax Rates HI State.pdf
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dioxide45

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Correct. The tax per night should be identical to hotels.
We're talking about real estate property tax, not occupancy tax. Hotels pay both a real estate tax on the value of the property and then guests pay nightly taxes based on the room rate. Timeshares do this too, but guests pay a timeshare occupancy (TSO) tax and also a tax based on the real estate value of the resort which is usually included in the annual fees.
 
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