A tax proposal I actually like

by Keli'i Akina, Ph.D., President / CEO, Grassroot Institute of Hawaii

Most people in Hawaii like the idea of dealing with local, family-owned companies that help make our state unique.

Such companies include Zippy’s, Foodland, Tamura’s, KTA Super Stores, Servco, L&L Hawaiian Barbeque, Tori Richard, ABC Stores, City Mill and many more.

Unfortunately, Hawaii has a tax law that can make it hard for many of these firms to stay family-owned. When it comes time for such businesses to be passed on to the next generation, the state’s estate or “death” tax can force their heirs to sell off the assets of their companies to afford the big tax bills.

The good news is that the Legislature is considering a measure, HB2653, that would ease this predicament. After all, Hawaii is one of only 12 states with an estate tax, and the current threshold for the tax is fairly low at $5.4 million. In contrast, the federal threshold is
$13.61 million. It is scheduled to drop to about $7 million in 2026, but that still higher than it is in Hawaii.

As explained by Tom Yamachika, president of the Tax Foundation of Hawaii, HB2653 would align Hawaii’s low threshold with the federal amount.

More important, it also would “allow a deduction from the taxable estate for a qualified family-owned business interest so it doesn’t count for purposes of determining the size of the taxable estate.”

That's major, because if this proposed deduction were to be enacted into law, heirs to family-owned businesses in Hawaii would no longer have to sell some of their companies’ assets to retain ownership.

They also wouldn't have to consider taking out loans to pay the taxes, which only pushes the problem further down the road; selling out to a mainland chain; or simply closing their doors forever.

Reforming the state's estate tax could also prevent local business owners from relocating their companies to the mainland to avoid the burdensome tax altogether.

Suffice to say, continuing the status quo means local people losing their jobs, the state losing tax revenues, and all of us losing yet more local entrepreneurs and professionals who contribute to our communities.

I cannot stress enough how important HB2653 is to local family businesses. Owners of dozens of local companies — from music stores to construction firms — testified at the Legislature that this bill would make it more likely for their heirs to continue their legacies.

Opponents of the bill, on the other hand, claim that we cannot support anything that might help the rich.

But it is not the rich who suffer from Hawaii’s estate tax. It’s local entrepreneurs — our longtime friends and neighbors who helped build something successful and want their heirs to continue it forward — and of course, their dedicated employees.

My hope is that state lawmakers will see past the arguments made against this bold bill and instead work to protect Hawaii’s family-owned businesses to ensure that our state holds onto the things that make it special.

E hana kākou! (Let's work together!)