by Andrew Walden

A $350 million dollar increase in the General Excise and Use Tax will come before the full House and Senate for a vote this week after being approved unanimously Friday by the House and Senate Conference Committees. 

SB754  will increase the cost of construction, shipping, air travel, rent, and cellular phone use.  Suppliers to tourism are specifically targeted for double taxation which will push up the portion of the tourist dollar which goes into the State General Fund and reduce the portion which circulates in the privately-owned economy. 

Other measures are clearly intended to convert capital expenditures into operating revenues, a policy which may result in higher borrowing costs if bond rating agencies determine that the State is effectively bond-financing part of its operating expenses. 

One group of measures imposes taxes on suppliers to the federal government.  All of these may be illegal under federal law.

There are some small glimmers of hope:   

• The 0.5% rail surcharge will not be included on these newly taxes products and services.  
• All of the tax increases are temporary starting July 1, 2011 and ending June 30, 2013.
• For those who are quick with a pen, and have an agreeable counterparty, a simple amendment to many existing service and supply contracts covered in SB754, Section 238 can save 4% if they act on or before June 30: “This section shall not apply to gross income or gross proceeds from binding written contracts entered into prior to July 1, 2011, that do not permit the passing on of increased rates of taxes.”

The Legislature has until May 5 to vote on SB754.  The bill, if approved, would then go to Governor Abercrombie who campaigned promising not to raise taxes, and when questioned after the campaign by reporters claimed he meant only that he would not raise the GE Tax. 

Now, the Hawaii media are doing everything they can to report on SB754 as if it were not an increase in the GE Tax. 

Wrong.  On each of the following categories, the GE Tax will be raised from 0% to 4%.  Commentary in parenthesis explains impact of taxing each item:

237- Temporary suspension of exemption of certain amounts; levy of tax.

(a)  Notwithstanding any other law to the contrary, the exemption of the following amounts from taxation under this chapter shall be suspended from July 1, 2011, through June 30, 2013:

1. Amounts deducted from the gross income received by contractors as described under section 237-13(3)(B); (Because subcontractors are to be taxed, construction will be double or triple taxed. This converts government capital expenditures into operating revenues.)

2. Reimbursements received by federal cost-plus contractors for the costs of purchased materials, plant, and equipment as described under section 237-13(3)(C); (Converts Federal spending into State revenue.  Maybe illegal.)

3. Gross receipts of home service providers acting as service carriers providing mobile telecommunications services to other home service providers as described under section 237-13(6)(D); (Higher cell phone bills.)

4. Amounts deducted from the gross income of real property lessees because of receipt from sublessees as described under section 237-16.5; (Higher rents for those on land lease or other subleased properties.)

5. The value or gross income received by nonprofit organizations from certain conventions, conferences, trade shows, or display spaces as described under section 237-16.8; (A tax on farmers markets and other non-profit events.)

6. Amounts received by sugarcane producers as described under section 237-24(14); (Squeezes HC&C, Hawaii's last cane plantation.)

7. Amounts received from the loading, transportation, and unloading of agricultural commodities shipped interisland as described under section 237-24.3(1); (Makes local agricultural produce less competitive.)

8. Amounts received from the sale of intoxicating liquor, cigarettes and tobacco products, and agricultural, meat, or fish products to persons or common carriers engaged in interstate or foreign commerce as described under section 237-24.3(2); (A tax on tourism.)

9. Amounts received or accrued from the loading or unloading of cargo as described under section 237-24.3(4)(A); (A tax which impacts everything imported into Hawaii.)

10. Amounts received or accrued from tugboat and towage services as described under section 237-24.3(4)(B); (A tax which impacts everything imported into Hawaii.)

11. Amounts received or accrued from the transportation of pilots or government officials and other maritime-related services as described under section 237-24.3(4)(C); (A tax which impacts everything imported into Hawaii.)

12. Amounts received by labor organizations for real property leases as described under section 237-24.3(10); (Higher rents for those on land lease or other subleased properties.)

13. Amounts received as rent for aircraft or aircraft engines used for interstate air transportation as described under section 237-24.3(12); (A tax which impacts everything flown in Hawaii.)

14. Amounts received by exchanges and exchange members as described under section 237-24.5; (An attempt to impose GE Tax on stock and bond brokerage transaction fees by Hawaii clients.)

15. Amounts received as high technology development grants under section 206M-15 as described under section 237-24.7(10); (Taxing Federal and State money given away by the State. Converts some federal spending into State revenue. Maybe illegal.)

16. Amounts received from the servicing and maintenance of aircraft or construction of aircraft service and maintenance facilities as described under section 237-24.9; (A tax which impacts everything flown in Hawaii.)

17. Gross proceeds from the sale of the following: (These taxes convert federal revenue to state revenue.  Maybe illegal.)

(A) Intoxicating liquor to the United States (including any agency or instrumentality of the United States that is wholly owned or otherwise so constituted as to be immune from the levy of a tax under chapter 238 or 244D, but not including national banks) or any organization to which the sale is permitted by the proviso of “Class 3” of section 281-31 that is located on any Army, Navy, or Air Force reservation as described under section 237-25 (a) (1)

(B) Tobacco products and cigarettes to the United States (including any agency or instrumentality thereof that is wholly owned or otherwise so constituted as to be immune from the levy of tax under chapter 238 or 245, but not including national banks) as described under section 237-9 25(a) (2); and

(C) “Other tangible personal property” to the United States (including any agency, instrumentality, or federal credit union thereof, but not including national banks) and any state-chartered credit union as described under section 237-25 (a) (3);

18. Amounts received by petroleum product refiners from other refiners for further refining of petroleum products as described under section 237-27; (Higher fuel prices.)

19. Gross proceeds received from the construction, reconstruction, erection, operation, use, maintenance, or furnishing of air pollution control facilities, as described under section 237-27.5, that do not have valid certificates of exemption on January 1, 2012; (Higher utility bills.)

20. Gross proceeds received from shipbuilding and ship repairs as described under section 237-28.1;

21. Amounts received by telecommunications common carriers from call center operators for interstate or foreign telecommunications services as described under section 237-29.8; (One more reason not to run a call center in Hawaii.)

22. Gross proceeds received by qualified businesses in enterprise zones, as described under section 209E-11, that do not have valid certificates of qualification from the department of business, economic development, and tourism on January 1, 2012; and (Better get that certificate.)

23. Gross proceeds received by contractors licensed under chapter 444 for construction within enterprise zones performed for qualified businesses within the enterprise zones or businesses approved by the department of business, economic development, and tourism to enroll into the enterprise zone program, as described under section 209E-11. (Higher construction costs.)

238- Temporary suspension of exemption of certain amounts; levy of tax.

(a) notwithstanding any other law to the contrary, the exemption of the following from taxation under this chapter shall be suspended from July 1, 2011, through June 30, 2013:

1. The leasing or renting of aircraft or keeping of aircraft solely for leasing or renting for commercial transportation of passengers and goods or the acquisition or importation of aircraft or aircraft engines by a lessee or renter engaged in interstate air transportation, as described under paragraph (6) of the definition of “use” in section 238-1; (A tax which impacts everything flown in Hawaii.)

2. The use of oceangoing vehicles for passenger or passenger and goods transportation from one point to another within the State as a public utility, as described under paragraph (7) of the definition of “use” in section 238-1; (A tax on the Lahaina Ferry, Cruise Ships, and Inter-Island barges.)

3. The use of material, parts, or tools imported or purchased by a person licensed under chapter 237 that are used for aircraft service and maintenance or the construction of an aircraft service and maintenance facility, as described under paragraph (8) of the definition of “use” in section 238-1; (A tax which impacts everything flown in Hawaii.)

4. The use or sale of intoxicating liquor and cigarette and tobacco products imported into the State and sold to any person or common carrier in interstate commerce, whether ocean-going or air, for consumption out of State by the person, crew, or passengers on the shipper’s vessels or airplanes, as described under section 238-3(g); (A tax on tourism.)

5. The use of any vessel constructed under section 189-25 prior to July 1, 1969, as described under section 238-6 3(h); and (A tax on shipping.)

6. The use of any air pollution control facility subject to section 237-27.5 as described under section 238-9 3(k). (Higher utility bills.)

---30---

RELATED: How They Voted: Senate Ways and Means votes to hike GE Tax by eliminating exemptions