Hawaii Legislative Watch: Taxes
by Rachelle Chang, Better Hawaii, March 4, 2014
The 2014 Hawaii Legislative Session started on January 15. We’re in the middle of a 60 day session filled with speeches, paperwork, arguments, and revisions.
When I first checked the measure summaries on January 16, there were 242 bills introduced in the House of Representatives and 270 bills introduced in the Senate, as well as 1,362 House carryover measures and 1,218 Senate carryover measures. By January 23, the bill introduction cut-off date, there were 1,240 bills introduced in the House of Representatives and 1,189 bills introduced in the Senate.
Honestly, I don’t know how our legislators can be expected to read and understand every proposed bill, figure out how much they would cost, and debate about any unintended consequences. I worry that they don’t understand all the costs and effects of their law-making. I don’t understand why there isn’t a limit on the number of proposed bills that can be introduced – and why so many duplicate bills are accepted.
The legislative session is more than half-way through, but I wanted to provide an overview of the proposed bills that could have a big impact on our state.
Here are the tax highlights from the 2014 Legislative Session. There are many more tax proposals, increases, decreases, and adjustments; as well as numerous tax credits, exemptions, and repeals. If I’ve missed any important bills, please let me know!
The 3 most reasonable and positive tax reforms:
** Flat income tax: HB1835 would require the Department of Taxation to develop a plan and proposed legislation to implement a flat income tax. Taxes should be simple and easy to understand. Our state and federal tax codes are far too complicated need to be simplified.
** Minimum tax refunds: SB3070 and SB3071 would provide for minimum tax refunds or tax credits to taxpayers when the state has a surplus. If we have a surplus, it means we have been over-taxed!
** No corporate income taxes: SB2767 would repeal the corporate income tax. This would definitely encourage economic growth, but I think it should be limited to the first years in operation or to new or expanded businesses.
Beware – the 4 biggest tax grabs:
$$ Tax on internet purchases: HB1651, HB2135, and HB2507 would require us to pay use tax on tangible personal property sold on the internet as part of the Streamlined Sales and Use Tax Agreement. It’s unconstitutional to tax interstate commerce! It places an unfair burden on businesses, by adding more tax collection paperwork. It discourages small businesses by making it harder to compete with big retailers. Especially in Hawaii, it penalizes consumers who want to save money or buy products that cannot be found locally. The out-of-state retailers do not cost Hawaii anything and have no tax representation. Further,Hawaii businesses would have to pay taxes to other states, without gaining any benefits from those states or having tax representation.
$$ GET increase: SB2041 would increase the GET by 1% for a 2-year period to fund the acquisition and management of agricultural lands. A GET increase would hurt everyone. And I think lawmakers would find a reason to let the increase continue after 2 years.
$$ Higher county surcharge on state taxes: HB1606, SB359, and SB2115 would allow counties to add a surcharge of 1% to the state tax, without a sunset date. SB335 would allow counties to add an unspecified surcharge to the state tax. A county surcharge would hurt everyone – as well as being a burden on businesses, who must collect the surcharge and file more detailed tax returns.
$$ Tax on health insurance premiums: HB2527 would impose a 2% rate increase on all health plans to fund the Hawaii Health Connector. HB2588 and SB2471 would add a 0.66% tax on the gross health insurance premiums derived from the sale of dental plans and qualified plans. This tax would be paid by everyone, at significant cost, without any health benefit, whether we use the Hawaii Health Connector or not.
If you want to read more, here are the rest of the significant proposals I found about tax credits, tax increases, and tax policies up for debate. It’s a long post. If you have updates about any of the measures, please feel free to post an update.
Lucky 13 tax credits and more money in our wallets (plus more paperwork):
1. Food and medical services tax exemptions: SB2169 would exempt food and medical services from the general excise tax (GET). SB2202 would amend the food/excise tax credit and tie it to increases in the Consumer Price Index (CPI). This would help all households, and be one step closer to a sales tax, instead of our pyramiding general excise tax.
2. More tax credits for seniors: HB2284 and SB2834 would double the refundable food/excise tax credit amount for taxpayers age 65 and older. HB2285 and SB2835 would triple the low-income household renters credit for taxpayers age 65 and older. SB2833 would provide an income tax exemption for low-income taxpayers age 65 and older. The key is “low-income” seniors.
3. Tie standard deductions, income taxes, and personal exemptions to inflation: HB1815 would provide for annual adjustments to the Hawaii standard deduction, income tax rates, and personal exemption in response to increases in the Consumer Price Index (CPI). This sounds reasonable, and would mean automatic adjustments – instead of waiting for taxpayer complaints.
4. Calculating the effects of major tax increases: HB1764 would require the Department of Taxation to conduct a study to develop a systematic approach to evaluate the costs and benefits of major tax increases. But also alarming, because it reveals that the legislature is considering major tax increases.
5. No taxes on retirement benefits: SB2982 would exclude certain retirement benefits from income taxation. This makes sense if the retirement savings were taxed when they were earned.
6. Tax credits for college savings: HB2612 would provide an annual deduction of $5,000 per individual or $10,000 for a married couple filing jointly against their taxable income for contributions made to an approved college savings plan. This would encourage college education and hopefully lead to a highly-qualified workforce.
7. Tax credit on earned income: SB2205 and SB2276 would establish a state earned income tax credit. I don’t know enough about earned income tax credits, or how this is different from standard deductions.
8. Tax credits for ohana housing: HB1592 and SB2340 would establish a refundable ohana residential housing income tax credit for principal residences. Ohana housing definitely helps to ease the affordable housing shortage.
9. Tax credits for electric vehicles and public transportation: HB2024 would establish an income tax credit for new electric vehicle purchases. HB2064 and SB2513 would establish an income tax credit for public bus pass purchases. Bills that reduce our dependence on imported gas, reduce emissions, and encourage public transportation will help keep Hawaii clean.
10. No estate taxes: SB2187 would repeal the estate tax on estates that are valued at $1 million or less. SB2963 would repeal inheritance and estate taxes. Estate taxes are double-taxation; the money in the estate was already taxed when it was earned.
11. GET exemptions for common expenses: HB334 would remove the sunset of the GET exemption for common expense payments to sub-managers and sub-operators of homeowners associations, community associations, hotels, and timeshare associations. This exemption makes sense; they are not making a profit on those expenses. It would be like taxing yourself for buying a hammer to make home repairs.
12. Tax credit for hiring an individual with a disability: HB2478 would provide a nonrefundable tax credit for hiring an individual with a disability for the first 6 months. Businesses should be able to hire the most qualified person for the job, at a wage both agree upon. That said, we never know what people can do unless we give them a chance.
13. No minimum tax on free hotel rooms: HB1339 would eliminate the $10 minimum transient accommodations tax on complimentary rooms. If something is free, it is free.
Unlucky 13 higher taxes and government’s hand in our pocketbooks:
1. Higher wholesale tax: HB1873 and SB2965 would increase the use tax by 1.5% for 2 years to pay for agricultural lands. SB2013 would increase the wholesale tax from 0.5% to 1.5% beginning in 2015. No. A higher wholesale tax increases the cost of all goods.
2. Higher capital gains tax: HB2405 and SB3013 would tax capital gains as ordinary income. Short-term capital gains are already taxed as ordinary income. By raising taxes, we would discourage investment in new businesses and research.
3. Higher transient accommodations tax (TAT): SB2014 would increase the TAT rate to 10.5% on hotels with non-resident owners. SB1202 would increase the TAT to11.25%. Visitors to Hawaii are taxed enough; we should lower taxes to encourage visitors to come to Hawaiiinstead.
4. GET to pay for Hawaiian Home Lands administration: SB2268 would require a portion of the general excise tax to deposited into a Hawaiian Home Lands administration account. We need to fund mission-critical state services, not specific departments.
5. Tax on pensions: HB1569 would tax pension incomes of individuals with an adjusted gross income (AGI) of $100,000 or more. I don’t know enough about pensions. If pensions are funded with after-tax money, then the money was already taxed.
6. Paying for health care for (illegal?) immigrants: HB2540 would appropriate an unspecified amount for health care services for low-income, uninsured immigrants. Legal immigrants (legal permanent residents) qualify for Medicaid. Illegal immigrants should not receive government benefits.
7. Tax on car-sharing: HB1894 and SB2731 would establish a car-sharing vehicle surcharge tax. I thought that we want to encourage car-pooling and reduce traffic?
8. Tax on electric vehicles: HB2145 would establish an annual electric vehicle user fee. Electric vehicle owners already pay the GET and vehicle registration fees.
9. Tax on destination club memberships: HB1900 and SB2774 would establish a tax on annual destination club dues, and require destination club membership plan managers to register with the state.We should encourage people to come to Hawaii, instead of finding another way to tax out-of-state visitors.
10. Higher taxes on smokers: HB1849 and SB2971 would increase the tax on large cigars. HB2074 increase the general excise tax on tobacco products. SB2030 would increase the tax on cigarettes and little cigars “by an unspecified amount.” SB2066 and SB2496 would increase the excise tax on the wholesale price of tobacco products. SB2572 would establish an excise tax on electronic smoking devices. I don’t smoke, but I find it hard to tell (not ask) an adult that they can’t smoke.
11. Higher taxes on alcohol: SB2051 would increase the gallonage tax on various liquor categories. I don’t drink, but do we want to reduce the consumption of alcohol – or just grab more tax money?
12. Tax on conveyances: HB1523, HB1850, HB1703, and SB2554 would apply a conveyance tax to the conveyance of a controlling interest of an entity with an interest in real property and eliminate exemptions.
13. Higher cell phone bills: SB2596 would add a 66¢ enhanced 911 surcharge for prepaid connections – but exempting government entities. SB3103 would impose an enhanced 911 surcharge on prepaid wireless phone service providers, allowing 3¢ to be retained by the seller. The 66¢ tax on retail transactions seems unfair – if I understand correctly, a 30-minute prepaid card would have the same tax as a 1,000-minute prepaid card; and government entities would be exempt.
10 tax bills that are up for debate:
1. $100 stimulus tax credit: HB2026 would establish a $100 stimulus tax credit for Hawaii residents. I wouldn’t object to getting $100 of my own money back, but why not lower taxes instead? And don’t we already have a law that says that if there is a surplus, taxpayers will get a refund?
2. Electronic tax returns: HB2342 and SB2892 would require the electronic filing of tax returns. This may be a burden on low-income taxpayers or taxpayers with complicated returns. Can the Department of Taxation handle all of the electronic data? To encourage electronic filing, could we start with a small tax refund for first-time electronic filers, such as $3, payable via direct deposit?
3. Higher minimum wage: HB 1488 would increase the minimum wage by $1 on 7/1/14, 7/1/15, and 7/1/16 respectively. HB1623 would increase the minimum wage to $10 per hour on 1/1/15. HB1890 would increase the minimum wage to $7.75 on 1/1/15, $8.25 on 1/1/16, $8.75 on 1/1/17, and $9.00 on 1/1/18. HB2136 would increase the minimum wage to $8.00 on 1/1/15, $8.50 on 1/1/16, and $9.00 on 1/1/17. SB2609 would increase the minimum wage to $8.20 on 1/1/15, $9.15 on 1/1/16, and $10.10 on 1/1/17. SB2641 and SB3004 would increase the minimum wage to $8.25 on 1/1/15, $8.75 on 1/1/16, and $9.25 on 1/1/17. HB2278 and SB2828 would increase the minimum wage to $8.75 on 1/1/15, $9.50 on 1/1/16, and $10.00 on 1/1/17. HB2580 would annually increase the minimum wage and tie it to the Honolulu region consumer price index. Generally, only inexperienced and unskilled workers qualify for minimum wage. I’m not sure how much the minimum wage will help workers – and it may even disincentivize people from going back to school or furthering their skills. That said, we should protect workers from businesses who may take advantage of them.
4. General excise tax (GET) exemption: SB2171 would repeal the GET on all intermediary business transactions. I support the spirit of the bill, which is to avoid double (or triple) taxation on the same product; but the GET is a tax on business income. I’m not sure how this exemption would work. In my opinion, a better bill would be to repeal the GET and implement a sales tax instead.
5. No transient accommodations tax (TAT) for local residents: SB1222 and SB2170 would exempt Hawaii residents from the TAT. Is this fair to counties? When we visit neighbor islands, residents are also using the roads, utilities, and infrastructure. Would this be a burden on hotels, who must verify residency and keep records?
6. Lower state income taxes for low-income tax payers: HB1719, HB1806, HB1936, HB2371, SB2206, and SB2207 would reduce or eliminate the state income tax liability for taxpayers with a federal adjusted gross income of less than 125% of the federal poverty guidelines. HB2283 would provide an income tax exemption to low-income taxpayers over age 65. Don’t low-income taxpayers already pay lower taxes?
7. Tax credit for non-GMO produce: HB2187 would give a tax credit to non-genetically modified produce. I don’t know enough about this issue. Is non-GMO produce really healthier?
8. Legalize and tax gaming: SB767 would authorize shipboard gaming and establish an admission tax and a wagering tax. SB769 would grant a 20-year license for a stand-alone casino in Waikiki and impose a 15% wagering tax on gross receipts. I have no problem with shipboard gaming, but I am concerned about a casino in Waikiki. Why not start with a state lottery?
9. Tax incentives for wellness programs: SB2524 would create a tax incentive for employers that implement work site wellness programs.This is admirable, but first let’s ask health insurance companies to offer discounted premiums for wellness programs, instead of jumping to tax credits.
10. Tax credits for hotels: HB1594 and SB2336 would create a 10% tax credit for hotel construction or renovation. SB2965 would create an unspecified tax credit. HB2170 and HB2171 would extend the income tax credit only for new hotel construction. Do we need more hotels in Hawaii? Can our infrastructure support more residents and tourists? In addition to the hotel construction credit, HB2169 would give hotel operators a 4.5% tax credit of wages paid to qualified employees after completing hotel and resort construction or renovation. The hotels would hire employees with or without the tax credit.
The 2014 Hawaii Legislature adjourns on May 1. Please think about these tax issues and how they may affect you and everyone around you. If you feel strongly about an issue, speak out! Talk to your family and friends, let your Hawaii legislators know about it, and write letters to the local newspapers.