Some History Behind the Newly Enacted Healthcare GET Exemption

by Tom Yamachika, President, Tax Foundation Hawaii

With a few strokes of the pen, Governor Green turned Senate Bill 1035 into an Act of the 2024 Legislature. It marks an end in a multi-year journey for the many health care providers in the Hawaii Provider Shortage Crisis Task Force who were trying to find some way out of the General Excise Tax which, they said, was bludgeoning physician practices to death here in Hawaii.  The Act gives them a significant exemption, for payments from Medicare, Medicaid, and TRICARE, beginning on January 1, 2026.

Here is some of the back story of this bill that few people have heard about.

One of the things we at the Tax Foundation of Hawaii do, but don’t publicize very well, is that we help people who want some kind of tax change.  We educate them about the legislative process.  If they have concrete ideas for tax change, we’re happy to draft a bill to accomplish that change.  We worked with Dr. Scott Grosskreutz of the Task Force to draft the bill that eventually became SB 1035.

Just because we draft a bill, however, doesn’t mean we at the Tax Foundation of Hawaii support it.  We draft bills because we prefer to have legislators debate a bill on its merits, as opposed to getting distracted with technical issues that often come up when a bill is drafted by someone with too little legislative experience or too little experience with tax bills.  The Foundation submits “comments,” neither supporting nor opposing testimony, on every bill that we follow, including on those that we draft.

We told the Task Force this, just as we tell everybody else that we help.

When SB 1035 was heard in the Senate Committee on Health and Human Services, its first committee, in February 2023, Senator Joy San Buenaventura from Puna, who chairs the committee, asked us which, of the half dozen bills before the committee that sought to provide GET relief to doctors, would be most likely to clear Ways & Means.  I pointed to SB 1035 and the Senator had her committee pass it out (although the Senator before the hearing appeared to like another bill, SB 761).  To me, some of the other bills had technical issues and some were quite a bit broader, meaning greater revenue loss and a bigger headache for the money committees.

The bill did indeed go to Ways & Means and Consumer Protection, passed out, and crossed over to the House.  The House Health & Homelessness and Economic Development Committees passed it, but the bill then stalled in House Finance.

This year, another bill that would have granted a GET exemption to primary care practices (HB 1675) was moving through the system, but we had concerns that no one was coming up with an adequate definition of primary care.  The bill foundered and things were looking bleak.  Somehow, however, House Finance was persuaded to resurrect SB 1035.  It then went to Conference Committee, and it came up with a version that both houses then passed.

SB 1035 was the best choice at the moment, and as it moved further along in the process, more and more support coalesced around it, leading to the bill actually crossing the finish line.  I, for one, am glad to see that it has become law.  Hopefully, it will help to cure us from the health care crisis that our state has fallen into.