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Sunday, March 16, 2014
Mayors Are Still After GE Tax Surcharge Authority
By Tom Yamachika @ 5:00 AM :: 3679 Views :: Taxes

Mayors Are Still After Surcharge Authority

by Tom Yamachika, Interim President, Tax Foundation of Hawaii

A few weeks ago I wrote of an effort by the Mayors of our Hawaiian Islands to acquire the authority to slap a surcharge onto the general excise tax and use tax just like how it is in Honolulu where there is a 0.5% surcharge to pay for rail. This bill is still alive and it represents probably the largest TAX INCREASE still moving.

The bill, as it now exists, attempts to address a thorny problem called “roads in limbo.” There are roads on all islands whose ownership, as between the state and the county, is uncertain. These roads have fallen into disrepair. The county is concerned that if it repairs the roads it will be considered to own them, meaning that it will be saddled with the burden of maintaining the roads forever after, and will also own any liability issues concerning those roads that arose in the past, present, or future. So naturally, the county doesn’t repair the roads. The state, of course, has a similar concern so it doesn’t repair the roads either.

This bill, therefore, represents one “solution,” if you can call it that, as it relates to all counties other than Honolulu. It goes like this: If Kauai, Maui, and Hawaii counties each adopt ordinances authorizing a 0.5% surcharge, the state will attach that surcharge to the GET and use tax through 2022. There will then be one 4.5% rate across the board. That extra money will go to the counties, and they can use it to repair the roads while their ownership is being sorted out. If there is money left over, which apparently the counties are anticipating, they can use the money for Americans with Disabilities Act compliance as it relates to their roads.

This is all very nice, perhaps, for three of the counties. But then what happens to Honolulu? Honolulu is using its 0.5% surcharge for rail, but there are roads in limbo in Honolulu as well….

Back to the main story. This bill proposes a tax increase. Once we go down this path, even though we say it’s going to be temporary, it’s going to be tough to give up. Do you remember that in 1986 lawmakers told us that they were going to enact a 5% transient accommodations tax and it was going to be temporary, just to pay for the convention center? It is now 28 years later, the convention center has been built, and the tax still hasn’t been allowed to sunset. Far from it! Just last year the state enacted Act 161, SLH 2013, making the “temporarily enhanced” 9.25% transient accommodations tax permanent because there was a need for that money. So pardon me if I am skeptical of “temporary” tax increases. (The counties, of course, are presently clamoring for some additional monies from the transient accommodations tax too, but that’s another story, and another set of bills.)

And then, if this measure is adopted, why stop at the counties? In past years, for example, the Department of Education pushed very hard for school districts with taxing power. If this precedent is enacted, it will be tougher to tell DOE to take a hike. If more of these taxing jurisdictions are adopted, as is the case in many other states, our general excise tax will mushroom, both in rate and complexity.

The bottom line is the same across the board. Elected officials must be willing to tighten the counties’ or the state’s purse strings in bringing expenditures into line with resources and setting priorities responsibly for what resources are already available. Let’s not go with the mindless choice to beat up on the taxpaying public yet again.

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