Halftime Report

by Tom Yamachika, President, Tax Foundation Hawaii

We’ve just passed the halfway point in our legislative session, where bills in the House need to go to the Senate for consideration, and vice versa. Any bill that hasn’t crossed over is dead for this session, although it is certainly possible for all or part of a dead bill to be resurrected by inserting it into another one.

The House and the Senate passed modified versions (HB 2306 HD1, SB 3125 SD1) of the governor‘s “stop, not pause“ bill on the scheduled income tax cuts. We wrote about that last week.

Both the House and the Senate advanced bills to create credits or tax incentives for many different things, including sustainable aviation fuel (HB 1694 HD2, HB 1695 HD2), diapers (HB 2214 HD2), family caregiving (HB 1972 HD2), and automated external defibrillators (HB 1535 HD2).  There is also a bill to limit the credit for solar or wind energy by making higher income taxpayers ineligible for it (HB 2241 HD1, SB 3183 SD2).

One House bill would also end the lower tax rates on capital gains except for folks selling an owner-occupied home(HB 1850 HD2).

Although bills that would have legalized and taxed gambling and non-medical marijuana are dead, bills to create new taxes are still alive. One adds a $1 surcharge on theater and concert tickets (HB 2604 HD2) and another adds a surtax on selling gas-powered cars (HB 2030 HD2). The latter is a bit scarier because the tax rates in the bill have been blanked out.

Also, do you remember back in 2018 when the Legislature proposed a constitutional amendment to slap a state tax on certain types of real property (although they took great pains to avoid using the word “tax”)? The Hawaii Supreme Court struck that one down in 2018, but a new and presumably improved version of the bill is still alive (HB 2147 HD2), so this question may be on your 2026 general election ballot.

Both the House and the Senate have passed proposals (HB 2049 HD3, SB 3028 SD2) to overhaul the conveyance tax, which is charged when real estate is bought, sold, or leased.  The proposals would make it a marginal rate system just like the income tax. However, the House version would raise rates considerably and the Senate version has blank rates.

One House bill (HB 1590 HD3) would require services booking vacation rentals to collect and pay over the GET and TAT on behalf of individual property owners and operators.  The Department of Taxation proposed the same thing in one of its bills, but that bill did not survive.

Another bill (HB 1713 HD1) would repeal school impact fees, which, as we have said before, are gathering dust within the Department of Education because of restrictions on their use.  Last year, a bill to do this was watered down at the last minute.

And, last, but at least, there are bills that will “raid,“ or transfer into the general fund, balances from oodles of special funds. One Senate bill (SB 2921 SD1) would raid more than 160 different funds, although the amount to be taken from each is not yet specified, and another bill (SB 2602 SD1) focuses specifically on the University of Hawaii Tuition and Fees Special Fund, which at the end of last fiscal year had an unencumbered balance of about $430 million. We would certainly like to see any excess monies being put to good use before the legislature raids taxpayers’ pockets yet again.

Stay tuned for more reports from us as the Legislature continues its work.