Friday, February 23, 2024
Hawai'i Free Press

Current Articles | Archives

Sunday, October 27, 2019
Saving the Legislature from Itself
By Tom Yamachika @ 5:00 AM :: 2795 Views :: Tax Credits

Saving the Legislature from Itself!

by Tom Yamachika, President, Tax Foundation Hawaii

This week we look at the State Auditor’s recent follow-up report, Report No. 19-14, on the Motion Picture, Digital Media, and Film Production income tax credit. It notes that when the Auditor’s office previously took up the issue, in Report No. 16-08, the Auditor took the Department of Taxation to task for allowing out-of-state production related expenses to qualify for the credit, despite the “clear language and intent” of the statute. The Auditor told the Department to change its interpretation of the law, but it didn’t, so the current report lambasts the Department for its supposed failure.

I am with the Department on this one. Here’s why.

Executive branch agencies have a complicated responsibility. They are there to enforce the laws that the legislature passes, assuming those laws are valid. In theory, agencies aren’t supposed to make judgments on the validity of laws, because that’s what the courts are supposed to do, but agencies do have a lot of experience with constitutional requirements that apply to their subject area. In that position, agencies can sometimes save the law and legislature from themselves.

In the 1990s, for example, a constitutional crisis of sorts happened with states across the country. Most states with an income tax, including Hawaii, adopted the federal “dividend received deduction.” The federal law does not allow the deduction for dividends from foreign companies. Kraft General Foods sued the state of Iowa for enforcing that restriction in their state code because the U.S. Constitution says that states aren’t supposed to discriminate against foreign countries or other states. (It’s perfectly fine for the federal government to discriminate.) The U.S. Supreme Court in Kraft General Foods, Inc. v. Iowa Department of Revenue and Finance, 505 U.S. 71 (1992), upheld Kraft’s position and cast a cloud over the validity of many states’ income tax laws, including ours. Our Department reacted by publishing Announcement 98-5 and Tax Information Release 99-2 saying that it would allow taxpayers to take the deduction for out-of-state dividends even though our code didn’t provide for it. Doing that virtually eliminated the possibility of taxpayers suing for damages because their constitutional rights had been violated.

The same principle is at work in the production credit. Companies who shoot productions here in Hawaii are eligible for a credit based on expenses necessary to their production on which Hawaii tax (such as net income tax or GET) was paid. If the production needs some good or service that we don’t have locally, the production can buy it elsewhere and bring it in, and if it does it’s subject to a Hawaii tax called the Use Tax, which for legal and constitutional reasons is considered a part of the GET. (It’s even reported on the same tax form.) If we grant a credit for an in-state purchase but deny it for an out-of-state purchase, we’re discriminating against interstate or foreign commerce. The U.S. Constitution says states can’t do that.

So, just as the Department administered the dividends received deduction a bit differently from the text and the apparent intent of the law in order to save it from constitutional problems, it looks like the Department is allowing out-of-state purchases to qualify even if the statute text doesn’t provide for it and the allowance goes against the “clear intent” of the provision, in order to save the Legislature from itself once again.

Does the Department have the power to do that? Technically it doesn’t. But if there is no one hurt by the law as the Department administers it, there will be no court case, and the intent of the Constitution – as opposed to the intent of the law violating it – will have been realized.


TEXT "follow HawaiiFreePress" to 40404

Register to Vote


808 Silent Majority

Aloha Pregnancy Care Center


Antonio Gramsci Reading List

A Place for Women in Waipio

Ballotpedia Hawaii

Broken Trust

Build More Hawaiian Homes Working Group

Christian Homeschoolers of Hawaii

Cliff Slater's Second Opinion

DVids Hawaii


Fix Oahu!

Frontline: The Fixers

Genetic Literacy Project

Grassroot Institute

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii ConCon Info

Hawaii Debt Clock

Hawaii Defense Foundation

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federalist Society

Hawaii Federation of Republican Women

Hawaii History Blog

Hawaii Homeschool Association

Hawaii Jihadi Trial

Hawaii Legal News

Hawaii Legal Short-Term Rental Alliance

Hawaii Matters

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Shippers Council

Hawaii Smokers Alliance

Hawaii State Data Lab

Hawaii Together



Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Moms for Liberty

Honolulu Navy League

Honolulu Traffic

House Minority Blog

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

Investigative Project on Terrorism

July 4 in Hawaii

Kakaako Cares

Keep Hawaii's Heroes

Land and Power in Hawaii

Legislative Committee Analysis Tool

Lessons in Firearm Education

Lingle Years

Managed Care Matters -- Hawaii

Malama Pregnancy Center of Maui

Military Home Educators' Network Oahu

Missile Defense Advocacy

MIS Veterans Hawaii

NAMI Hawaii

National Christian Foundation Hawaii

National Parents Org Hawaii

NFIB Hawaii News

No GMO Means No Aloha

Not Dead Yet, Hawaii

NRA-ILA Hawaii

Oahu Alternative Transport


OHA Lies

Opt Out Today

Patients Rights Council Hawaii

PEACE Hawaii

People vs Machine

Practical Policy Institute of Hawaii

Pritchett Cartoons

Pro-GMO Hawaii


Rental by Owner Awareness Assn

ReRoute the Rail

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

Robotics Organizing Committee

School Choice in Hawaii

Sink the Jones Act

Statehood for Guam

Talking Tax

Tax Foundation of Hawaii

The Real Hanabusa

Time Out Honolulu

Trustee Akina KWO Columns

UCC Truths

US Tax Foundation Hawaii Info

VAREP Honolulu

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii