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Wellness of Economy Will Continue to Depend on Visitor Industry

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By Lowell L. Kalapa

In a recent hearing before one of the committees of the Hawaii Tourism Authority, a legislator observed that if the visitor industry hadn’t developed, certainly there would be some other type of industry that would be at the center of Hawaii’s economic base.
You could see many in the room roll their eyes with disbelief. After the hearing, one observer commented by asking where this legislator was when the Kohala Task Force was convened in the early 1970’s to address the very issue of replacing the loss of jobs as a result of the closing of that sugar mill on the north end of the Big Island.
Indeed, policymakers, and community and business leaders have struggled with the challenge to find industries to pick up the slack created by Hawaii’s early economic mainstays – pineapple and sugar. How short the memory of elected officials and community members is that they seem to have forgotten the appeals of those two industries to rally support for continued federal price supports.
While some disagree, Hawaii was fortunate to have the visitor industry blossom just after statehood with the development of the commercial passenger jet. And again, some may disagree, but it was the visitor industry that fueled the construction industry and provided the high-paying jobs associated with that industry.
Although more often than not we seem to think the visitor industry is comprised of the hotels, the bus transportation, the airlines, tour operators and other visitor activities, the reach of the visitor industry goes well beyond the more obvious suspects. A recent exhibition by the hotel and restaurant associations underscored the plethora of supporting industries that depend on the wellness of the visitor industry.
These businesses and industries range from china and cutlery to printers to environmentally acceptable waste disposal to appliances to building materials and on and on. Many of the vendors admitted that their fortunes are so closely linked with the visitor industry that when the industry suffers a set back so do they. When all of these companies are lumped together with the more obvious suspects like hotels and tours operators, one can begin to sense the impact that a turn in the fortunes of the visitor industry will have on the community as a whole.
What makes this all the more interesting is a recent comment by a state employee that there is an international definition of what and who the visitor industry is as it relates to the kinds of revenues the visitor industry generates for state and local government. In other words, some august international body or organization has determined which businesses or activities comprise the visitor industry.
And that may be all well and good. At least it is good enough for some of our state officials, but that is only good as long as the tax system against which the visitor industry activity will be measured look and react the same. It is this point that state officials seem to overlook or perhaps don’t understand. Hawaii’s tax is unique. Unlike the tax systems found at least in other areas of our nation, Hawaii has a tax system that is so comprehensive that it touches every single transaction that takes place.
This is because of the general excise tax which has few exemptions and unlike other transaction taxes or sales taxes is imposed on services as well as on goods. Thus it is not hard to understand that in an industry where nearly every purchase by a visitor is a service, one can begin to appreciate that the reach of the visitor industry and therefore the tax revenues to be generated go far beyond the hotels and the tours.
A good example is a beauty salon. A woman having her hair done in a Waikiki hotel will pay the 4% general excise tax on that service while the same woman a week later in San Francisco will not pay that state’s sales tax on the same service. Thus, if most destinations do not tax services, those types of activities are probably not included in the definition of the visitor industry.
Before observers and critics blithely brush off the importance of the visitor industry or argue that Hawaii could have had any other type of activity as its economic base, they should take a closer look at all of the businesses and activities which are so dependent on the influx of cash brought by the visitor to Hawaii.
Policymakers have already demonstrated that they don’t understand the importance of caring for the economic engine which provides the revenues they like to spend. Will they continue to expect to draw blood from the stone that is the visitor industry until it is too late?

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