2015 Hawaii Legislative Watch: Taxes
by Rachelle Chang, Better Hawaii, February 17, 2015
The 2015 Hawaii Legislative Session started on January 21. Astonishingly, 1,515 bills were introduced in the House of Representatives and 1,379 bills were introduced in the Senate – over 400 more bills than were introduced in 2014. That’s a lot of paperwork, details, debate, compromise, and tax dollars.
This year, I decided to highlight bills that focus on taxes, education, individual rights vs. government powers, and (in my opinion) controversial issues. With over 2,800 bills being proposed and no legislation-reading minions, I’m relying on bill summaries to accurately reflect the legislators’ intentions.
Here is an overview of the significant tax bills being proposed in the 2015 Legislative Session. This is a long post, so I’ve grouped the bills into five sections: 4 bills that all taxpayers should be worried about, 5 innovative tax proposals, 5 bills that could help taxpayers and residents, 6 bills that make it more expensive to live in Hawaii, and 4 tax proposals on a slippery slope. If I’ve missed any important bills, please let me know!
4 bills that all taxpayers should be worried about
- Taxes on Internet purchases: SB259 would implement the Streamlined Sales and Use Tax Agreement so that Hawaii could tax Internet sales. I strongly oppose taxes on Internet sales, because it taxes interstate commerce, it is taxation without representation, and it places an unfair burden on businesses.
- GET increase to 5.0%. HB330 would increase the GET from 4.0% to 5.0% for two years to fund the acquisition of agricultural lands. I am skeptical about “temporary” taxes; they always seem to get extended.
- GET increase to 4.25%. HB1240 would increase the GET from 4.0% to 4.25% to fund the Hawaii Department of Education (DOE). I am skeptical that we need to increase the DOE budget.
- County surcharge increase to 1.0%. HB320 and SB426 would increase the allowed county surcharge on the state tax from 0.5% to 1.0%. I don’t think we are taxed enough.
5 innovative tax proposals
- General excise tax (GET) vs. sales tax. SB529 and SB1222 would create a tax reform task force to review the general excise tax versus sales tax. The GET taxes every level of production, from wholesale to retail. It taxes the same product multiple times, and artificially inflates Hawaii’s business activity. A fair sales tax would tax only products sold to the end-user, not the distributor or reseller.
- No GET on wholesale purchases. SB946 would repeal the GET on all intermediary business transactions. If I understand correctly (please correct me if I misunderstood), there would be no GET on goods for resale or rents from sub-leasing. Currently businesses must pay taxes on the taxes they collect! This bill would correct the pyramid effect of taxing products at every level of production.
- No more estate taxes. HB476 and SB959 would repeal inheritance and estate taxes because they are a form of double-taxation. There is no justification for taxing money when it was earned and again if it is given to a beneficiary.
- No more corporate income taxes. HB470 and SB958 would repeal the corporate income tax to encourage economic growth. I am ambivalent about repealing the corporate income tax. While I think that corporations should pay taxes because they use government resources and stability, I realize that we need to grow our economy by luring more businesses to Hawaii.
- HB1133 would require the DBEDT to conduct a study on the establishment of tax-free zones in Hawaii. This is an interesting idea and I would like to learn more about it. Would wholesale, distribution, AND retail sales be GET-free? This could encourage more businesses to open and more customers to shop.
5 bills that could help residents and taxpayers
There are a lot of tax credits being proposed, from broad tax credits (like a general excise tax exemption on food and medical services) to very targeted tax credits (like developers of a motor sports facility at Kalaeloa, parcel 9). Here are 5 general tax proposals that could help many of us:
- GET exemptions on food and medical services. HB419 would establish a GET exemption for food after 12/31/19 and medical services after 12/31/17. HB477, HB984, and SB957 would establish a GET exemption for food. HB1062 would exempt medical services from the GET.
- Hawaii needs more doctors. HB1073 would create a temporary tax credit for physicians and osteopathic physicians who relocate to and practice in Hawaii.
- Encouraging assisted living and child care providers. HB422 would establish a GET exemption for property owners who lease to assisted living providers and child care providers.
- Helping retired persons live in Hawaii. HB245 would exclude retirement income from state income tax for taxpayers 65 years and older. HB1092 would exclude income received from deferred compensation retirement plans.
- Tax credits for school teachers: HB13 and SB821 would give school teachers a tax credit of up to $500 per year. SB864 would exempt a portion of the rent paid by a teacher from the GET.
6 bills that make it more expensive to live in Hawaii
Legislators have come up with a lot of ways for government to make more money. Here are a few of the bills you might want to pay attention to:
- Tax on sugary drinks. HB1439, SB1256 would impose a fee on sugar-sweetened beverages.
- Higher fees for bicycle and moped registrations. HB1425 and SB1371 would increase the bicycle registration fee to $25 and the moped registration fee to $50. I think it’s odd that we try to encourage bicyclists by raising bicycle fees, and encourage fewer cars by raising fees on mopeds.
- New tax on cigarettes for beach clean-up. HB749 would impose on wholesalers and dealers a beach cleanup cigarette fee per cigarette sold, used, or possessed.
- Higher transient accommodations tax (TAT), fewer visitors. HB169 would increase the TAT from 7.25% to 9.25%.
- Higher wholesale taxes. HB1137 would increase the use tax paid by wholesalers from 0.5% to 1.5% to reduce the State’s unfunded liabilities for the EUTF and ERS. SB1317 would increase the excise tax paid by wholesalers from 0.5% to 1.0% in 2016-2017 to fund infrastructure development and the Department of Education.
- Higher GET taxes. HB1253 and SB727 would add a surcharge to the GET to pay for long-term care.
4 tax proposals on a slippery slope
- Tax credit for home-schooling. HB1301 would create a tax credit for parents or guardians who home school their children. While I support home-schooling, public education is funded by all taxpayers. This could lead to parents with children in private schools seeking a tax credit too.
- Tax credits for long-term insurance. HB18 would provide tax credits to resident taxpayers for long-term care insurance premiums. Would you still qualify for public assistance with long-term care? What happens if your premiums don’t cover all of your care?
- Tax credit for renovating agricultural buildings. HB533 would give a tax credit for the qualified costs of developing or renovating agricultural buildings or structures that are exempt from building permit or building code requirements. This seems to encourage buildings that don’t adhere to a building code. What about a tax credit if the buildings adhere to the building code?
- Tax credit for hiring seniors. HB1276 tax credit for hiring people 65 years or older. Businesses should hire people based on ability, honesty, and responsibility.
One last note: There are two bills that would reduce the amount deducted from the county surcharge on state tax from 10% to 5% (HB1416) or 3% (HB760); and one bill to increase the state assessment to 25% (SB616). We’re still paying the surcharge, but legislators are fighting over how to divide up the money.
The 2015 Hawaii Legislature adjourns on May 7. Please think about these issues and how they may affect you, everyone around you, and future generations. Whether you have concerns or feel strongly about an issue, speak up, talk about it, and be part of the discussion!