Thirty Years of State Tax, Part 1
by Tom Yamachika, President Tax Foundation Hawaii
Q: The number 30 has been in the news a lot these days because of the telescope that’s supposed to be getting built on the Big Island. This week, we’re going to look at the past 30 years of state tax. To help me is our intrepid researcher, the Hawaii State Tax Watch Doggie’s wife.
A: Glad to be here. Where shall we start?
Q: Let’s start with some of the taxes that have changed the most dramatically in the past 30 years.
A: Then let’s start with the transient accommodations tax, or TAT. When it was passed in 1986, the tax rate was only 5%.
Q: That’s less than half of what it is now!
A: At that time, the tax was just supposed to pay for the new Convention Center, but it got weighed down over time with earmarks to pay for many other things, and the tax rate gradually was increased over time.
For example, in 1990 the tax was restructured to give 95% of the revenue to the counties. In later years, the State took back revenue to feed the general fund and added more and more earmarks to pay for such things as the convention center debt service, tourism marketing, state land development, the Turtle Bay land purchase, and Honolulu rail.
In 2013, another special earmark was put on the fund to ensure that the counties paid their annual required contribution toward the costs of their pension and health benefit plans for former employees.
The earmarks now cost over $200 million a year. It’s no wonder that the tax rate was escalated several times to keep up with the demands for more money.
Q: Now how about the changes in the “barrel tax”?
A: Thirty years ago, there was no barrel tax. It was enacted in 1993. Apparently, people had heard about the 1989 Exxon Valdez oil spill and were worried about a similar incident happening here. So, we imposed a tax of 5 cents per barrel of imported petroleum product to establish a revolving fund to finance a response to an environmental disaster. The legislative act that year required that the tax collection stop if the fund built up to more than $7 million.
The bill introducing the tax started off in the House as the Hawaii Emergency Planning and Community Right to Know Act and wasn’t even a tax bill at all. After it crossed over, the Senate Ways and Means Committee put in the tax provisions. So, the bill with the tax provisions never even had a hearing in the House.
Q: But the tax got enacted. It is considerably greater today, correct?
A: Oh, yes! In 2010, the tax was dramatically increased from 5 cents per barrel to $1.05 per barrel. 43% of the revenues from the fund were sent to special funds to support energy security, energy systems development, agricultural development, and food security. The remaining 57% went to the state general fund. And, of course, the provisions turning off the tax when the environmental response fund was built up were scrapped.
In 2015, the tax was extended to any imported fossil fuel, so it now applies to liquefied natural gas and coal in addition to petroleum products. The only fossil fuel it doesn’t apply to is aviation fuel. In fiscal 1995, the tax brought in close to $2 million. In fiscal 2018, it produced almost $27 million. That’s an increase of more than 12 times!
Q: And it looks like that’s all we’ll have time for this week. We’ll discuss conveyance tax next week. And by the way, what happened to your husband, the Hawaii State Tax Watch Doggie?
A: He was barking at the rubbish truck. He might still be doing that!