The state of Hawaii has temporarily revoked a series of state tax exemptions in order to close a $1 billion plus budget deficit.  One of the General Excise Taxes (GET) that was suspended was an exemption for income from nonprofit meetings and conventions, a major burden to associations that hold meetings in the state.  The state also suspended the excise tax exemption on costs for loading and unloading cargo related to meetings, another financial hindrance.

The bill (ACT 105) is expected to raise almost $400 million in revenue between 2011 and 2013, which in addition to over $600 million in budget cuts is expected to close Hawaii’s deficit.  After 2013, the suspension will be sunset, but the law’s opponents such as State Senator Sam Slom argue that tax exemption suspensions are usually made permanent.

The legislation is flawed in the sense that it assumes equal rates of association meetings and business in the next two years, an assumption that is flawed due to an uncertain economy and the impact of the tax on meetings.  Already, Hawaiian shipping company Matson are adding $52 to the cost of shipping a container of materials to Hawaii.  The Pacific Business News reported earlier this year that the Hawaii Convention Center (HCC) is anticipating a major decrease in meetings and hotel rooms sold over the next two years.  The HCC as of April had only booked 10 major events with 314,804 room nights for 2012 and just nine events with 323,721 room nights for 2013.  This is well below the 30 meetings with 700,000 room nights the Hawaii Convention Center anticipates in its yearly goals.

Association meetings are an important way for organizations to gather members in one location to conduct association business, learn more about profession or industry trends, work toward an advanced degree or accreditation in a field, and interact positively in the local community.  Association meetings, according to a Convention Industry Council report, are a major part of the $1.7 billion the meetings industry contributes to the economy.  Removing the tax exemption on meetings’ income is a major hurdle in allowing nonprofits to hold major membership events and can hurt long-term economic recovery for a state or city in exchange for a possible short-term gain.