Damn the Tax Clearances, Full Speed Ahead!

by Tom Yamachika, President, Tax Foundation Hawaii

Several articles in this space have been about features in Governor Ige’s emergency proclamations. We are now on the tenth one and counting, which makes us wonder about the 60-day limit written into the emergency powers statutes (see HRS section 127A-14(d)), but that issue may be sorted out in lawsuits that were recently filed.

We have previously written that the list of laws suspended by the proclamations is 20 pages long. This proclamation is no exception, with the list of suspended laws beginning on page 11 and ending on page 31.

On this 20-page list are two lines suspending HRS section 103-53, relating to tax clearances.

That law provides (more correctly, used to provide) that people who want to do business with the State of Hawaii or municipal governments in it need to be current with their state and federal taxes. A business that wants to bid on a government project, or that is seeking final payment on a government project it worked on, needs a piece of paper from the Department of Taxation saying that it has filed all the state and federal tax returns it needs to file, and has paid the taxes shown on those returns. There are exceptions provided: permission to bid or to receive final payment can be granted if the taxpayer is fighting with the Department about whether it indeed owes tax, or if the taxpayer is current on a payment plan that both the taxpayer and the Department have agreed to.

So, could someone tell me the thinking behind why this requirement needs to be suspended? COVID-19 upended our tourism economy and state tax revenues have fallen into the toilet. Don’t we need to make sure that the taxpayer dollars we are spending are spent with vendors who have done their part to keep our government going?

The emergency powers statute, HRS section 127A-13(a), allows for suspension of “any law that impedes or tends to impede or be detrimental to the expeditious and efficient execution of, or to conflict with, emergency functions,” and allows the Governor to “[r]elieve hardships and inequities, or obstructions to the public health, safety, or welfare, found by the governor to exist in the laws and to result from the operation of federal programs or measures taken under this chapter, by suspending the laws, in whole or in part.” Does suspending the tax clearance requirement on a categorical basis satisfy any of those legal requirements?

We previously wrote that the Governor tinkered with the tax code in the proclamations by shutting off distribution to the counties of what little transient accommodations tax revenues we have left. So, doing a money grab was fine under emergency powers. But we are allowing vendors to the State to do business and be paid without making sure they pay their taxes? Is that even a consistent philosophy?

Again, we are not talking about people who owe taxes and legitimately can’t pay them, because of our economic collapse or otherwise. They can get forbearances or payment plans from the Department and still be qualified to bid on or receive State contracts. The same is true with people who have a genuine dispute with the Department over whether they legally owe tax. So, who does this law suspension benefit? Was this suspension really thought through?