HONOLULU Thursday, May 7 – Governor Linda Lingle today, joined by hundreds of individual taxpayers, businesses and visitor industry leaders and employees, vetoed four bills that would raise taxes on residents, visitors and businesses, cause further job loss, and delay our economic recovery.

Combined, the four bills would extract a total of $94.3 million in 2010 and almost $126.2 million each year thereafter out of the economy.

“My Administration presented the Legislature with responsible, prudent and fair alternatives to balance the budget in order to avoid tax increases which would further burden Hawai‘i’s residents and businesses, discourage visitors from traveling to Hawai‘i, jeopardize our economic recovery and result in more job loss,” said Governor Lingle.  “The Democrat majority has ignored these alternative solutions and instead turned to tax increases that will take more money out of the pockets of our residents and visitors and diminish business investments.”

The bills vetoed by Governor Lingle are:

• SB1111 SD1 HD1 CD1 – Increases the transient accommodation tax (TAT) by 28 percent over the next two years, adding to the cost visitors and residents pay when staying at hotels, condominiums and bed & breakfast lodgings.

The tax increase would raise the cost of visiting Hawai‘i and discourage both leisure and business travelers from coming to the islands.  Currently, visitors to Hawai‘i pay double the lodging taxes ($25.79) compared to the national average ($12.69). 
The tax increase would further destabilize Hawai‘i’s already weakened visitor industry.  Hawai‘i’s hotel occupancy rate is at its lowest level in 22 years, visitor arrivals declined by 14 percent in the first quarter of the year and visitor expenditures fell 18 percent during the same period.  Between March 2008 and March 2009, the visitor industry lost 6,200 jobs. 
The 28 percent tax increase would exacerbate the declines in the visitor sector and further hurt those employed directly and indirectly by Hawai‘i’s main industry. 
According to the American Hotel & Lodging Association, every one percentage point increase in Hawai‘i’s TAT would lead to the loss of 3,200 jobs.  The 2 percentage point increase approved by the Legislature in SB1111 would lead to the projected loss of 6,400 jobs.
“Hawai‘i’s economy cannot recover from the current economic recession without a recovery in tourism,” Governor Lingle said in her veto message to the Legislature.  “This bill is objectionable because an increase in the Transient Accommodations Tax will prolong our state’s ability to recover its economic vitality.”

• HB1741 HD1 SD1 CD1 – Increases by up to 257 percent the conveyance tax home buyers, businesses, real estate developers, charities, non-profit organizations and other purchasers of all residential, commercial, industrial and agricultural real estate must pay for transactions over $2 million.

"This bill is objectionable because it would discourage investments, adversely impact land transactions to promote business and housing development and further slow our economic recovery by extracting money out of the pockets of families and businesses,” Governor Lingle said in her veto message.
The conveyance tax increase would also adversely impact affordable housing projects and non-profit organizations, including churches, schools, and youth organizations.  For example, an affordable housing project like Kukui Gardens on O‘ahu, which sold for $72 million, would pay $504,000, or over half a million dollars, more in conveyance taxes if this bill becomes law.

• HB1747 HD1 SD1 CD1 – Increases the personal income tax rate on almost 37,000 Hawai‘i income tax filers, sole proprietors and small businesses (S-corporations and partnerships) that file their business income as personal income.  There are over 27,000 S-corporations, partnerships and sole proprietorships in Hawai‘i, which includes approximately 6,000 sole proprietors.

“This bill is objectionable because it increases the tax burden on Hawai‘i‘s families and small businesses by increasing the marginal income tax rate by as much as 33.3 percent,” said Governor Lingle in her veto message.  “Hawai‘i currently has the eighth highest top personal income tax rate in the United States.  By increasing the top marginal tax rate from 8.25 to 11 percent, this bill will make Hawai‘i the state with the highest personal income tax rate in the nation.”

• HB895 HD2 SD2 CD1 – Increases the tax rate on tobacco products other than cigarettes, including smokeless tobacco, snuff, cigars and pipe tobacco. 
  The Governor vetoed this bill because it contains major technical flaws that defeat the purpose of the legislation to lower the usage of tobacco products and make it virtually impossible to implement.

HB895 suspends the current 40 percent tax on all tobacco products other than cigarettes, which would create a tax holiday for many tobacco products from the effective date of the law until September 29, 2009.  The suspension of the 40 percent tax would run counter to the stated purpose of the bill.
Further, while the bill sought to tax “little cigars” at a rate comparable to the cigarette tax rate, the language in the measure would end up lowering the cigarette tax rates.  Additionally, the bill would require the state to tax larger cigars in a manner that is inconsistent with federal requirements and may be impossible to enforce.

The Governor’s statements of objections on these vetoed bills are attached and can also be found on the Governor’s website at:  http://hawaii.gov/gov/initiatives/veto

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READ: Governor’s statements of objections