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Committee defers rental-car tax overhaul after industry warns of long-term revenue loss
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Summary
After hours of testimony, lawmakers deferred HB 2575 HD1 — which would apply the retail/general excise tax rate to rental-car fleet purchases — citing industry warnings that the change could alter fleet cycles and reduce long-term GPT revenue; proponents said it could raise revenue for education and recovery but members sought more analysis.
The joint committees heard extensive testimony on HB 2575 HD1, a measure that would apply the retail or higher general excise tax (GET) or use tax rate to purchases or imports of new motor vehicles by rental-car companies and appropriate funds for a Department of Taxation position. After robust questioning and competing testimony, the committees recommended deferring the bill to continue study in the interim.
Why it matters: Proponents framed the bill as a way to raise revenue (proposed estimates cited informally in testimony suggested $70–$90 million annually) and to shift more of the fiscal burden onto the visitor industry to help fund education and recovery from recent storms. Opponents, including major rental companies and dealers, argued the bill would break longstanding wholesale/retail GET treatment, raise fleet-acquisition costs, and could reduce long-term GET collections if companies lengthen vehicle purchase cycles.
Industry witnesses provided detailed scenarios. Scott Halmer (controller, Enterprise Mobility) told the committee that moving fleet cycles from 12 months to 36 months under the proposal could reduce GPT revenue generated during those cycles by 84% and estimated a $162 million deficit in one three-year scenario. Servco Pacific’s Daniel Chang and Avis Budget representatives said the measure would break long-standing tax policy designed to avoid double taxation and could increase consumer costs.
Supporters including the Hawaii State Teachers Association and the Retail Merchants of Hawaii said new revenue sources are needed for education and post-flood recovery. Tom Yamachika of the Tax Foundation recommended alternative approaches, including use of the existing vehicle-surcharge chapter (chapter 251) as a targeted fee rather than changing wholesale/retail GET treatment.
Decision and next steps: Given conflicting fiscal impact claims and the potential for unintended market responses, the committees voted to defer HB 2575 and continue the conversation into the interim so analysts and stakeholders can provide more detailed revenue modeling and mitigation options.
Status: Recommendation to defer adopted; no formal passage on the bill at this hearing.
