Tax on HHI visitor heads in beds explained: where will projected $12 million go?

When thinking about the drivers of the local economies, industries like healthcare, manufacturing and agriculture often come to mind. But for places like Hilton Head Island, business is done a little differently, largely driven by tax revenue from the millions of visitors who come for the hotels, apartments, villas, beaches and restaurants each year.

Hilton Head Island is home to approximately 3,000 hotel rooms and 6,000 homes and villas used as vacation properties with an average occupancy rate of 63% this year-to-date.

The new wrinkle in the taxing mechanics is the increasing percentage of room nights that are generated by short-term-rental properties. This includes everything from big players like AirBnB and Vacation Rentals by Owner to individual property owners who market their properties themselves. All of these are subject to paying the accomodations tax.

This year, the town of Hilton Head projected that it will generate more than $12 million in accommodation tax, or A-tax revenue.

How these taxes get collected and how the revenues are distributed has long been a source of debate, particularly among town officials, tourism marketing groups including the chamber of commerce and others.

What is A-tax?

South Carolina has a state accommodation tax that is collected when visitors rent lodging.

The A-tax revenue in Hilton Head comes from a 2% tax on lodging. The tax is part of an overall 7% state sales tax, but 2% is returned to the local governments. Put simply, it’s a once a visitor’s head hits a pillow tax.

Last year, the island collected around $13 million in accommodation tax. This year, the town council is projecting to collect over $12 million for fiscal year 2026. The fiscal year begins in July of 2025 and ends in June of 2026.

Where does the money go?

There is a law requiring how A-tax revenue must be allocated, also outlining where the town has discretion.

Here are the requirements:

• The first $25,000 with an additional 5% of the remaining revenue is sent to the general fund.
• Promoting and marketing for tourism receive a 30% allotment.

The remaining 65% is the decision of the A-tax committee with town council approval. Within the 65% the committee can allocate to any of the following:

• Marketing/promotion of tourism (In addition to the 30% already set aside)
• Promotion of arts/cultural events
• Construction, maintenance and operation of facilities for civic and cultural activities that serve tourism
• Criminal justice system support for tourism-related issues
• Public facilities such as restrooms and parking at the beach
• Tourist shuttle transportation
• Control of waterfront erosion
• Visitor or convention centers
• Development of workforce housing

Workforce housing has a limit of up to 15% allocation.

How many tax dollars for the current fiscal year does this involve?

Hilton Head Town Council met on July 15 and had projections for Fiscal Year 2026 based on the previous year’s performance to help make decisions about allocation.

In total, the projection predicted the town to receive over $12 million in A-tax revenue.

• General fund to receive a total of $641,476, accounting for the first $25,000 plus 5%,
• Marketing to receive 30%, totaling to $3,698,857,
• Grant awards, which are applied for by organizations and considered by a-tax committee to receive 33%,
• Tourism operating expenses to receive 20%, totaling to $2,454,654,
• Capital Improvement Program to receive 7%, or $864,817,
• Tourism-Serving, or workforce, Housing Program to receive 5%, totaling $617,726.

Workforce housing controversy

Workforce housing was added as an A-tax distribution category by State Senator Tom Davis, who represents Beaufort County.

“I mentioned that council was going to take up this issue on Tuesday in terms of allocating funds, and that there were members of council who would be favor of not using any A-tax funds for housing,” Steve Alfred, town council member for Ward 5 said in the council meeting. “Senator Davis asked that I remind everybody that he was the one who introduced the legislation to Act 57, which led to the authorization of use of a tax money for workforce housing. And he did that at our request out of Hilton Head Island.”

Many arguments were presented by members of the public and councilmembers, both in favor and against using any amount of A-tax money for housing, ranging from fully funding this initiative to not applying any A-tax revenues.

Short-term rentals enter the scene

In 2021, platforms such as Airbnb were sued in a class-action lawsuit for not paying local accommodation tax.

Contributing to the problems is that the process for paying the tax for these companies can be complicated, according to Susan Cohen, CEO and president of SC Restaurant and Lodging Association.

AirBnB at the end of each year sends money in one lump sum to the state, saying “here’s what we collected, trust us,” Republican House Representative Lee Hewit from Georgetown said.

The 2021 lawsuit found local accommodation tax was not included in this sum, only state.

Hewitt proposed bill H. 3876 last legislative session to address some of the a-tax remittance problems with short-term rental companies. This does not apply to individuals who owns STRs but do not use one of the online platforms to rent their properties.

The bill only changes how operations from licensed real estate firms that list their properties on Airbnb do business, not individuals. It requires them to collect and remit the local taxes themselves and not through short-term rental platforms.

“It does put a little bit more teeth in there for the local towns in our counties to be able to reach out to collect these funds,” Hewitt said.

The bill is planned to continue its journey through the statehouse in the spring .