Hawaii lawmakers consider closing rental-car tax loophole to raise revenue

State lawmakers in Honolulu are weighing legislation that would change the tax treatment of Hawaiʻi's rental-car industry, aiming to collect revenue now exempted under what proponents describe as a tax loophole. The proposal targets tax rules applied to rental-car transactions across the state and is framed by supporters as a way to shore up state receipts.

Legislators discussed the measure on Feb. 23, 2026, as part of floor and committee activity at the State Capitol. The discussion on that date focused on the mechanics of altering the statutory tax treatment for rental-car companies and on identifying which transactions would move from exempt to taxable status if the bill advances.

Proponents of the change have emphasized that closing the exemption would raise additional revenue for Hawaiʻi, though specific revenue estimates were not released in the February 23 hearings. Supporters repeatedly characterized the current exemption as a loophole, and they argued that updating the tax code would align rental-car taxation with other travel-related services.

For Big Island County residents and businesses, the proposal would apply to rental-car transactions conducted anywhere in the state, including services operating in Hilo and Kona. Local rental agencies that currently rely on the existing tax treatment could see changes to how they calculate and remit taxes if the legislation is enacted, which would affect pricing and accounting practices for companies that serve visitors arriving on the Big Island.

As of Feb. 25, 2026, the legislation remained under consideration at the State Capitol. Lawmakers have not yet finalized language that would define the exemption's scope or set an effective date for any tax changes, and further committee work and floor votes are expected before a final decision. The outcome will determine whether the state moves to capture revenue that proponents say is presently outside the tax base for rental-car transactions.