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Tuesday, August 16, 2016
GE Tax: Audit Shows Tourists pay only 14.1% of Rail Surcharge
By Andrew Walden @ 10:21 PM :: 6148 Views :: Rail, Taxes

by Andrew Walden

Honolulu Mayor Kirk Caldwell has made it clear that, if reelected, he intends to put GE Tax hikes back on the legislative agenda. While pushing his previous GE Tax hike in his February, 2016 State of the City address, Caldwell claimed that tourists “pay one third” of GE Taxes.   Queried by reporters, Caldwell’s claim was backed by Rep Issac Choy and a DoTax spokesperson.  Tom Yamachika, president of the Tax Foundation of Hawaii, disagreed, arguing that tourists pay only 17% of the Honolulu GE Tax override.

Hawaii has some of the nation’s best accounting of tourist spending—including calendar-year spending figures broken down by county.  But HART’s reports on GE Tax receipts have been erratic at best. 

Now, thanks to a little-noticed analysis (Appendix E, pg 71) contained in the Honolulu Auditor’s April, 2016 Final Report on HART, we are able to compare HART’s calendar year GE Tax receipts with HTA reports on Oahu tourist spending and determine the exact percentage of the Rail GE Tax override paid by tourists.

The answer is 14.1% in calendar year 2014.  The percentage is similar in preceding years.

In spite of the recent string of record-breaking years, tourism is a mature industry which is declining in comparison to the rest of the State GDP.  Hawaiian Airlines CEO Mark Dunkerley explained in 2015, “…hidden in the (visitor spending) numbers is that in real terms [or inflation-adjusted], none of these years have been that good.  If you actually look at the real purchasing power over the last 15 to 30 years, it has been going down.”

A Caldwell spokesperson told reporters the “one-third” figure is based “on a study released eight years ago by the State Tax Review Commission, which was chaired by State Rep. Isaac Choy.” 

Thus begins a 27-year chase through a thicket of assumptions and estimates—until we arrive at a hard number in 1989.  And that number is Yamachika’s 17%—not Caldwell’s 33.3%.

Choy’s 2007 State Tax Review Commission study claims that “about 38 percent of the GET is borne by nonresidents.”  To support this assertion, Choy’s Commission refers to “Tax Research and Planning Office, Hawaii State Department of Taxation, ‘Study on the Progressive or regressive Nature of Hawaii's Taxes,’ report prepared for the 2005-2007 Tax Review Commission, November 2006.” 

Supported only by a vague reference to “previous studies of Hawaii's taxes”, the report “estimates” that:

Nonresidents (mainly tourists and military personnel stationed in the State) and the federal government shoulder a large part of the burden of Hawaii's taxes. The part of the total burden that is borne by nonresidents or otherwise shifted out of the State was highest for the Estate and Transfer Tax (100 percent was borne by the federal government before it eliminated the credit for state death taxes and Hawaii effectively repealed the tax), second highest for the Transient Accommodations Tax (69 percent is borne by tourists), third highest for the General Excise Tax (38 percent is born by tourists, nonresident military personnel and the federal government), and fourth highest for the county Real Property Taxes (34 percent is borne by nonresident owners and the federal government). Overall, we estimate that 32 percent of the total burden of Hawaii's taxes is borne by nonresidents or is otherwise shifted out of the State. The estimates for tax shifting are in rough agreement with those in previous studies of Hawaii's taxes.

A 2012 State Tax Review Commission report states: “One study estimated that most of Hawaii’s taxes exported approximately one-third of the burden to non-residents.”  (pg 83)  

The footnote on page 83 leads to a 27-year-old reference: “‘Tax Pyramiding and Tax Exporting in Hawaii: An Input-Output Analysis,’ University of Hawaii Research Extension Series 102, January 1989, p. 8.” 

The 1989 tax pyramiding study (pg 8) doesn’t support a “one-third” conclusion for GE Taxes alone.  Instead it delivers the only hard number to be found anywhere in these studies--17% of total final sales.  The 1989 study also provides an unsupported “estimate” of 25% and estimates that 32% of overall taxes—not just GE Taxes--are exported via tourists, federal spending, and out-of-state businesses and homeowners.  Here are the key quotes:

The highest degree of exporting occurs with business income taxes (42 percent), followed by the liquor tax (40 percent).

The lowest degree of exporting is the tobacco tax (9 percent).

Most of the others fall between 31 and 34 percent with "in lieu of' taxes slightly lower than this range at 26 percent.

The overall level of tax exporting of the taxes considered in this analysis was an estimated 32 percent.…

In total, one-third of the G.E.T. is exported under the assumption of full forward shiftingTourists account for only 17 percent of total final sales in Hawaii but were estimated to pay 25 percent of the G.E.T.

But now we have new figures to analyze—and the math is so simple that even a Mayor could do it:  

For 2014, tourists spent $7.11B on Oahu, according to HTA.  Queried by Hawai’i Free Press, HTA spokesperson Charlene Chan explains: “Direct visitor expenditures include any tip and taxes spent by the visitors.”   If GE Tax was included in 100% of this spending (the actual figure is likely to be less), that yields a maximum of $306M GE tax paid by tourists.  [$7.11B – ($7.11B/1.045) = $306M GE Tax]  The 0.5% GE Tax override paid by tourists is 1/9 of this figure--$34.0M.  The State DoTax skims 10%, leaving $30.6M for HART.

In calendar year 2014, HART received $217M from the GE Tax override, according to the Honolulu Auditor’s report (pg 83). 

$30.6M / $217M = 14.1% of the GE Tax override for Rail paid by tourists.




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