Where’s Your Second Tax Return?

by Tom Yamachika, President, Tax Foundation Hawaii

Tax season is here.  Most of us dread the prospect of filling out and filing our tax returns.  We have to bare our souls to the government every year at about this time, telling them intimate details of what we made and what we lost — but at least that information is kept private so your nosy neighbor down the street can’t see it or use it to set up spam marketing lists.

One bill still moving in the Legislature, House Bill 2429 House Draft 2, would change all of that.

That bill has what seems to be a noble purpose of collecting good and accurate data to evaluate the dozens of income tax credits and general excise tax exemptions that we now have.  “Regular evaluation strengthens accountability, supports sound budget decisions, ensures equitable competition, and ultimately maximizes benefits for taxpayers,” the bill preamble reads.  So far, so good.

To gather this data, the bill says that people who are claiming credits and exemptions hereafter need to file an information statement with DBEDT.  That statement would contain the taxpayer’s name, GE license number if it is a GET exemption, the name of the credit or exemption being claimed, the amount of credit or exemption being claimed, and the total cost to the State for the taxable year.  This statement would be filed on or before the date on which the taxpayer’s annual return is filed, and filing the statement would be a condition of claiming the credit or exemption, meaning that if you don’t file this statement in addition to your tax return, the credit or or exemption that you are trying to claim will be disallowed.

And, by the way, the statement filed with DBEDT is not confidential.  It is open to public inspection.

Whoa.

So, according to this bill, it isn’t enough to file just one tax return any more.  You need to file two of them.  And one of them will be open to the public.

This bill is going to affect lots more people than, perhaps, its proponents intended.  Suppose you are an employee making $50,000.  You might not know this, but you are taking advantage of a GET exemption (HRS section 237-24(6)) for salaries and wages.  That’s why you don’t have to file a GET return.  So, under this bill you need to file a public statement declaring your salary, and if you don’t your $50,000 becomes subject to GET.  $2,250 please.  Plus penalties and interest, of course.

Never mind that the State Auditor is already tasked with evaluating these same credits and exemptions on a rolling basis. 

And what’s the theory behind requiring a taxpayer to disclose not only the credit or exemption amount but also the cost to the State?  Isn’t that easy enough to calculate just from the credit or exemption amount (credit amount = cost to the State, exemption amount x tax rate = cost to the State)?

It seems that the information the State needs to analyze the revenue impact of credits and exemptions is already filed with the tax returns.  Why, then, don’t we simply open the information pipeline from DOTAX to DBEDT to allow them to pull statistics to do their data analyses?  This is what the Feds do.  Internal Revenue Code 6103(j) says that certain agencies such as the Department of Commerce may access statistical tax return information to do their analyses and studies.

Somebody needs to rewrite this bill or put it out of its misery.

HB2429: Text, Status