SB1278: Legislature poised to fix a state wrong?
by Keli'i Akina, Ph.D., President / CEO, Grassroot Institute of Hawaii
It’s always nice to see legislators recognize a wrong committed by our state government and act relatively quickly to fix it.
That’s what is happening with SB1278, which would exempt from the state general excise tax any federal grants that Hawaii restaurants received during the COVID-19 lockdowns.
Pending approval by the Legislature and Gov. Josh Green, the bill would also require the state Department of Taxation to refund any tax payments that have already been made — which would be a simple, fair way to fix a problem that should never have occurred in the first place.
SB1278 was introduced because many of Hawaii’s restaurant owners thought they would be exempt from the GET tax when they accepted federal funds to survive during the COVID-19 lockdowns.
For example, Highway Inn owners Russell and Monica Ryan applied for federal aid to pay their employees and keep open their restaurants in Kakaako and Waipahu — including loans from the federal Paycheck Protection Program and later a grant from the federal Restaurant Revitalization Fund, after it became available in 2021.
But then the Hawaii Department of Taxation sprang a surprise.
Despite announcing in 2020 that businesses receiving aid such as the PPP would not have to pay general excise taxes on the monies received — due to the severity of the COVID-19 crisis — it sent out notices in late 2023 saying that RRF grants would be subject to the GET.
The Ryans, of course, were aghast.
“We couldn’t believe our eyes,” Russell Ryan told hosts Tom Yamachika and Mark Coleman on the Jan. 16, 2024, episode of “Talking Tax” on ThinkTech Hawaii. “I opened this letter, and it says, ‘Do you remember two and a half years ago when you got that money from the federal government? Now you owe us tax on that.’
“We were like, ‘What? How did that happen?’ … We’re a small company, but we have budgets [and] all of that stuff, and we were never, ever, never, ever made aware in order to budget for this particular tax.”
And the Ryans were not alone. More than 1,100 Hawaii businesses received RRF grants, for a total of $416.2 million. Charging the GET on those grants would earn the state more than $16.6 million, with the average restaurant paying approximately $14,500.
Looking over the testimonies in support of SB1278, you can get an idea of how destructive the pandemic was for local restaurants and how they were blindsided by the GET bill for the RRF funds.
The list reads like a guide to Hawaii’s favorite restaurants: Merriman’s, Roy’s Hawaii, Hali‘imaile General Store, Maui Brewing, Tiki’s Bar & Grill, Lava Java Maui, L&L Hawaiian Barbecue, Cheeseburger in Paradise, Makai Grinds, Hilo Bay Cafe, Tiano’s, La Tour, Giovanni Pastrami and many others.
And the stories they shared made it very clear that Hawaii failed its restaurants by taxing coronavirus lockdown relief funds.
Dawn Kānealiʻi-Kleinfelder, owner of Liko Lehua, wrote that one of her restaurants didn’t survive the lockdowns. Then she was hit with this extra bill.
“The taxation of my ‘income’ was a gross failure to protect the mom and pop restaurants,” she said. “Businesses like mine across the state are still recovering … I am still recovering.”
Kānealiʻi-Kleinfelder continued: “I cried, and I worked through the loss. I asked for help through all of my channels. They fell on deaf ears.”
But now it appears that Hawaii’s lawmakers are listening, and I am grateful that SB1278 is still under consideration.
E hana kākou! (Let's work together!)
---30---
SB1278: Text, Status