To GET or Not to GET – SVOG and RRF Are the Questions

by Tom Yamachika, President Tax Foundation Hawaii

The COVID-19 pandemic made history both here and abroad, but for different reasons.  Here, it was remembered not only for the 1,400 lives it claimed, but also for the businesses it hurt or ruined.  Our experience was similar to other States across the country, and our federal government stepped in to give us some economic assistance that, we hoped, would blunt the impact of stay-at-home orders and forced business closures.

That economic assistance came in the form of some very different federal programs.

Everyone got a couple of rounds of stimulus checks.  The Feds and we said it’s not income and we won’t tax it.  No income tax, no GET.

The unemployed got some extra unemployment compensation.  The Feds didn’t tax it, up to $10,000 in 2020.  We did.  We made people pay income tax, but not GET.

Then came the forgivable loans:  PPP (Paycheck Protection Program) and EIDL (Economic Injury Disaster Loan) is what they were called.  They initially were loans to affected businesses, but the businesses obtained forgiveness of all or a part of the loans, meaning that the businesses could keep the money.  For tax purposes, loans you get aren’t income because you need to pay the money back.  But when the debt is forgiven, the amount of forgiven debt is income.  The Congress said that PPP forgiveness doesn’t count as income but EIDL forgiveness does.  So, we said that for income tax purposes we would do the same thing.

And then, for GET we said (in Tax Information Release 2020-06):  “The general rule is that amounts received by a business that replace income are subject to GET.  Thus, grants or other payments that replace or supplement income are normally subject to GET.  However, in light of the severity of the economic impact of the COVID-19 pandemic, GET will not be imposed on payments received under PUA, loan amounts forgiven under PPP, and EIDL Grants. These amounts will be treated as exclusions from gross receipts and should not be reported on GET returns.”

Usually, “severity of the economic impact” is not a legitimate reason why laws that apply to other people or in other situations independently of economic consequence don’t apply here.  If our lawmakers pass laws that modify the rules, that’s fine.  Or if they pass laws that say that the agency can consider economic impact, perhaps among other things, and grant relief from this or that legal requirement, that’s fine too.  Or the Governor could come in and suspend the laws because of the emergency, which he had been doing on a regular basis with emergency proclamations.  But no laws were passed modifying the rules or granting the Department of Taxation the authority to bend the laws, and the Governor’s proclamations didn’t suspend the tax code (except to shut off the flow of TAT money to the counties).

Now, we have restaurants and bars getting grants from the Restaurant Revitalization Fund (RRF).  And we have entertainment venues getting grants under the Shuttered Venue Operators Grant (SVOG) program.  The Department of Taxation has yet to officially tell us whether the GET will take a bite out of these grants, although Department staff have informally said that they would be taxable because of the “general rule” quoted above.

But what about severity of the economic impact?  Does that count anymore?  Restaurants and bars getting RRF money, or entertainment venues getting SVOG dollars, need to show pandemic-related revenue loss before the Feds will give them money.  Does that matter at all?

What say you, Department of Taxation?  To GET or not to GET, that is the question today.