Grassroot Institute Urges Legislature to Act on Surcharge "Skimming"

Comments on SB938 emphasize transparency, accountability

News Release from Grassroot Institute

HONOLULU, HAWAII--January 31, 2017--Today, the Grassroot Institute of Hawaii offered comments on a bill that would put an end to a controversial state practice that allows the Department of Taxation to profit from its administration of the rail surcharge. In testimony on SB938, Grassroot cited the need for greater accountability and transparency on the part of DOTAX in collecting and managing the surcharge.

The Grassroot Institute referenced the lawsuit brought by the Tax Foundation of Hawaii against the state of Hawaii regarding the provision up for repeal in SB938. Currently, the law allows DOTAX to deduct 10% of the gross proceeds of the county surcharge for the costs of administering it. While the Department is instructed to calculate the actual cost of its management role and return the remainder to the county, it has not done so. The Tax Foundation has challenged this practice and Grassroot recently filed an amicus brief in support of the plaintiff in the suit.

"The simple truth is that the current law is little more than state-sanctioned skimming of tax funds at the expense of the taxpayers," stated Keli'i Akina, Ph.D., President of the Grassroot Institute of Hawaii. "The Tax Foundation has calculated that the Department of Taxation has collected more than $177 million under this law--an amount far in excess of what would be required to carry out its duties. That is a clear violation of the people's trust in government and suggests a distressing disregard for taxpayers' wallets."

Dr. Akina continued: "It is encouraging to see the legislature is finally taking notice of this problem. However, given the problems besetting the rail project and the consistent lack of transparency in our state agencies, we suggest they go one step further. It is time that they require a full audit of both the rail project and the Department of Taxation. That would send a strong message in favor of responsible spending and accountable government."

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Grassroot Testimony on SB938 (Repealing the Reimbursement Provision of the Rail Surcharge)

From Grassroot Institute,  Jan 31, 2017

January 31, 2017 -- 1:15 PM 
Conference Room 229

To: Committee on Public Safety, Intergovernmental & Military Affairs 
Sen. Clarence K. Nishihara, Chair 
Sen. Glenn Wakai, Vice Chair

From: Grassroot Institute of Hawaii 
President Keli’i Akina, Ph.D.

RE: SB938 – RELATING TO REIMBURSEMENTS TO THE STATE FOR THE COSTS OF ASSESSMENT, COLLECTION, AND DISPOSITION OF THE COUNTY SURCHARGE ON STATE TAX.

Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer its comments on SB938, which would repeal the requirement that the Director of Finance deduct 10% of gross proceeds of the county surcharge on state tax for the purposes of administering that surcharge.

In the spirit of disclosure, we should mention that the Grassroot Institute has filed an amicus brief in support of the plaintiffs in the Tax Foundation of Hawaii’s lawsuit against the state in reference to this particular statute. In that brief, we discuss the fact that the issue is not only one of government accountability and transparency but also the state’s responsibility to the taxpayers.

Under the existing law, the Department of Taxation has been allowed to keep a full 10% of the rail surcharge for the costs of administering it, despite the fact that the law directs DOTAX to calculate how much is required for its management of the surcharge, then return the remainder to the rail project. While the Department does not claim that it requires the full 10% for its administrative efforts, no official attempt has been made to calculate the actual cost to the Department of collecting and administering the tax.

The Tax Foundation of Hawaii estimates that so far, DOTAX has kept more than $177 million, adding that in many years, the amount collected for administrating the surcharge was at or near the entire departmental budget for that year.

At best, this demonstrates a lack of accountability and transparency. At worst, it is tacit permission for a state agency to skim proceeds of a tax for its own purposes instead of the one which was presented to the voters and citizens of this state.

Given that the state rail project has already been beset by problems, this surcharge administration fee has become a violation of the public trust. Every dollar taken from the wallets of taxpayers that is not demonstrably needed by DOTAX to administer the surcharge should go directly to that project.

This situation makes it clear that a full audit of the rail project and the Department of Taxation are necessary to increase transparency and restore public trust in state management of the project.

Thank you for your consideration of our comments.

Grassroot Institute’s amicus brief can be viewed at: LINK 

SB938: Text, Status

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About the Grassroot Institute of Hawaii:

The Grassroot Institute of Hawaii is a nonprofit, nonpartisan research institute dedicated to the principles of individual liberty, the free market, and limited, accountable government throughout Hawai`i and the Asia-Pacific region. Read more about us at http://www.grassrootinstitute.org/

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About Grassroot President:

Keli’i Akina, Ph.D., is a recognized scholar, educator, public policy spokesperson, and community leader in Hawaii. Currently, he is President/CEO of Grassroot Institute of Hawaii, a public policy think tank dedicated to the principles of individual liberty, free markets and limited, accountable government. An expert in East-West Philosophy and ethics, Dr. Akina has taught at universities in China and the United States and continues as an adjunct instructor at Hawaii Pacific University.