Do You Know the Meaning of ‘Temporary’?

by Tom Yamachika, Interim President, Tax Foundation of Hawaii

Yes, to you and me it’s a common word. But in the world of Hawaii tax it seems to have an entirely different meaning.

Let’s take as an example our hotel room tax. When lawmakers initially passed it, it was to be a temporary 5% tax on hotel rooms to fund construction of the Hawaii convention center. Once the center was built, they said, the tax will go away.

That was in 1986.

And by the way, the tax isn't a mere 5% any more. Just last year, lawmakers were considering the “temporary” increase from 7.25% to 9.25% that they had approved a few years earlier, and they decided they couldn’t live without the revenue. So they made the 9.25% rate permanent. Isn’t 28 years a long time for a tax that was supposed to be temporary?

This session lawmakers are considering the fate of a tax that is imposed on each barrel of petroleum products. It started off at a nickel per barrel to create a fund for environmental cleanup to be used if a disaster like the Exxon Valdez ever were to take place off our shores.

In 2009, lawmakers raised the nickel to $1.05, an increase of 2000%. This was to be a temporary increase because the state had fallen upon tough economic times, and it is supposed to disappear on July 1, 2015. Surprise, surprise! Two bills that are still alive this session would extend the life of the higher rate for fifteen more years. That would mean higher prices for everything involving petroleum products, including gasoline and electricity (guess what we burn to generate electricity).

At the legislature, it was pointed out that the many special funds that are fed by this tax support a variety of environment related programs and services in the Department of Land and Natural Resources and the Department of Health. Those departments came out in force, begging lawmakers to not scrap the tax for that would lead to the demise of those programs and services. (This, to us, doesn’t make sense because the same programs and services can be paid for with general fund money. That money is still green, right?) Environmental activist groups, not wanting those programs and services to be trashed, also came out in strong support of the bills. Only the Tax Foundation of Hawaii was there to remind lawmakers about the history of this tax and that it was given a sunset date for a reason.

Of course, the fun doesn't stop there. You might recall that in 2009, lawmakers, again citing hard times, passed a temporary increase in our individual income tax rates. They also added a few other temporary nasty features like an absolute limit on itemized deductions for individuals with adjusted gross income exceeding certain amounts. The enhanced tax and the nasty features are supposed to go away on December 31, 2015. As far as we could tell, there were no bills this session that seriously suggested extending this tax increase. But we really need to watch what happens next session, especially since this year is an election year and next year isn’t. Any tax that is supposed to be temporary deserves to be watched very carefully, because the meaning of a temporary tax sometimes is quite different from what you and I may think.

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