Intent to Veto

by Tom Yamachika, President, Tax Foundation Hawaii

On June 6, 2025, Governor Green released a list of 19 bills that he intends to veto.  This year, the list was released early, before the late June deadline specified in our constitution, ostensibly to allow more time to work with the Legislature on bills that might be amended to meet his objections.  His deadline to actually veto a bill is in early July.

This year, two tax bills are on the list.

HB 796, Relating to Tax Credits, requires that income tax credits existing, established, or renewed after December 31, 2025 include a five-year sunset or an annual one-third reduction, beginning with the sixth year of the credit.  Although there are several exceptions written into the bill, the bill represents a somewhat ham-fisted approach to dealing with the proliferation of tax credits in our state.  The Governor observed that the bill is quite broad and would affect many sectors of our economy including movie and TV film production, clean energy, and research and development.

We are glad that our legislators now have an increased understanding and awareness of tax credits and how they work, or perhaps how they don’t work.  Nevertheless, each industry is different and has different long-term consequences.  For example, encouragement of research and development is an attempt to develop new economic drivers in our state, while credits for the movie and television production industry keep Hawaii production costs competitive with the rest of the country, and thereby help the local workforce that depends on the industry.  The bottom line is that a one-size-fits-all approach probably is not the best thing to do.

The other bill on the chopping block is HB1369, which started off as a bill to kill off a large number of exemptions and credits in the general exercise and income taxes, among other places.  After weeks of furious lobbying by many different industries, the lawmakers decided to strip the bill down to knock off only three little used exemptions – but “little used “doesn’t mean “unused.“  

The bill now repeals a general excise tax exemption for stock exchanges which we’ve never had.  No problem there.  It also shuts down a Use Tax exemption for commercial fishing vessels built in the 1960s or earlier.  It’s hard to imagine that any of those vessels still exist today.  That seems to be okay as well.  The third exemption that was repealed in the bill, a GET exemption for independent sugarcane farmers, apparently has a constituency.  Although the Department of Taxation reported that there were no claims for the credit in 2020 and 2021, in 2022 and 2023 there were so few claims that the data was “suppressed to avoid potential disclosure of confidential taxpayer information.” 

There was testimony from one farmer and from the Department of Agriculture opposing the scuttling of that exemption.  The DOA testified that several producers of distilled spirits that were growing sugar cane to use the sugar in their operations.  The one farming company submitting testimony said that the company had been cultivating sugar cane for over ten years and was cultivating several hundred acres in Waialua, Haleiwa, and Kunia.  It said that it didn’t claim the exemption in prior years because it didn’t know about the exemption.

It seems that this bill suffers from the same problem that HB 796 did.  It shows a “ready, fire, aim” mentality, where lawmakers really should make sure of what they want to do before they do it.