What Are They Thinking?

by Tom Yamachika, President, Tax Foundation Hawaii

In the beginning of February each year, the Japanese celebrate the Setsubun festival. The festivities typically include roasted beans. Family members throw them out the door, or start pelting one of their own members who is dressed up like a demon, to represent driving out the bad luck and welcoming in the good luck.

At the Legislature, we’re not throwing the beans, we’re counting them. And there’s a lot of counting to do because there is so much less money available this year to fund the things that government is used to doing. (I didn’t say that government “needs to be doing” or “must do” them. That remains to be seen.)

At the Legislature, committee hearings have begun in earnest and it doesn’t seem at all like we are in an economic crisis. Committee after committee is hearing all manner of bills expanding or extending tax exemptions, credits, and other incentives. These revenue cuts, sometimes known as tax expenditures, will need to be paid for somehow, but perhaps the legislators on those committees are leaving that decision to the money committees, the Ways and Means Committee in the Senate and the Finance Committee in the House, to make those tough calls.

Perhaps the goal for the legislators in the non-money committees is to mollify their respective constituencies, thinking that the overall effect of their little bills will be minimal compared with the huge problem that we’re all facing. In other words, creating little islands of happiness adrift in the sea of pain.

Some of the bills getting current hearings include HB 359 / SB 1321, which would grant a casino license to one lucky party who will be able to run their casino on Hawaiian home lands. It won’t be cheap, however. Just applying for the license will cost at least $1 million. Getting the license will set the winner back another $5 million. There will be a 45 percent tax on gross gaming revenues. And lease rent to be paid to DHHL is extra.

HB 433 would create a “Climate Change Mitigation Surcharge” of an unspecified amount on the rental of a motor vehicle. But, although this surcharge looks suspiciously like the rental motor vehicle tax we already have, the bill drafters carefully put the surcharge provisions in a statutory chapter that the Department of Land and Natural Resources administers. So, does that mean DLNR is going to need to start hiring and training tax collectors. Why don’t we just come out and say it’s a hike in the rental motor vehicle tax?

HB 1174 / SB 921 require our tax folks to get greedier. It changes the motion picture and TV production credit so that if a single production wants tax credits aggregating more than $15 million in two taxable years, it needs to give the State a quarter percent of worldwide gross revenues of the production. Forever.

And meow! There’s a turf war heating up over the motion picture and TV production credit. SB 932 would boot DBEDT’s Creative Industries Division out of its role administering the production credit, and it would substitute the Hawaii Green Infrastructure Authority. Why? According to the bill, HGIA “has better financial expertise than the Hawaii film office to evaluate the paperwork submitted for the motion picture, digital media, and film production income tax credit.” We hope their expertise with feature films and TV productions doesn’t just come from watching them.

And our legislative session has just begun! More interesting and creative ideas are bound to come up, and we will be here to share them with you!