By State Senator Sam Slom
Governor Abercrombie signed Act 105 (SB 754) a month ago (June 14) and the law, which became effective July 1, is causing major economic disturbances in Hawaii as predicted.
The bill was a key component in the Governor’s 2011 plan to increase tax revenues to try and meet the $1.3 billion two-year (FY 12, FY 13) budget deficit. The estimated taxes generated by this one measure are more than $400 million over the two years.
This one bill, by “temporarily” suspending long-practiced exemptions from the State’s regressive and pyramiding gross income general excise (not sales) tax has added to cost burdens for business and individuals.
Proponents of the bill described it as an “equity” measure that would end tax loopholes and bring in needed revenues. It was also heralded as “temporary” for two years only. Do you remember the last “temporary” Hawaii tax?
We opponents of this bill explained this was not a loophole but an attempt to balance out double taxation in the GET. We warned that the law would have far-reaching negative economic implications, unintended consequences and a new and heftier cost burden on Island residents.
All of this has come true since July 1 including higher airline costs, added shipping surcharges (Matson added $52 per container just for this law), new costs for sub contractors and sub lessees.
However, the second shoe had fallen. Other issues—unintended—began to surface last week as AOAO condo associations began to notify owners that previously tax-excluded utility, maintenance and other separated cost items would now be subject to the 4.5% GET on Oahu. Non-profits are also adversely burdened. Other transfer entities have also been informed of new tax costs.
Calls to the State Department of Taxation for clarification have resulted in mixed but generally unsatisfactory responses. Calls to individual legislative offices have also resulted in confusion.
Why? Because the law is confusing and not fully transparent.
The history of the law needs to be disclosed also. Especially, since lawmakers such as myself supported the original bill and now are being criticized for supporting the new law (we don’t).
SB 754 was introduced on January 21 this year by Senators Carol Fukunaga, Suzanne Chun Oakland and Rosalyn Baker. Four other Senators, including myself, signed on to the bill. SB 754 was a Small Business Caucus package bill that, “Amends distribution of partial payment of taxes to principal first, then penalties, then interest.” A good bill. A necessary bill.
The small business reform bill passed the Senate WAM Committee with amendments unanimously, and the full Senate 24-0 (Shimabukuro was excused) on March 8. It went to the House.
On April 4, the House Finance Committee amended the bill further.
By now, the bill’s contents had been “ gutted and replaced” with the tax increase in place.
On April 29, the new bill, SB 754,SD1, HD1, CD1 emerged from Conference Committee.
The public was just beginning to understand the full impact of this bill. There was bipartisan pushback from the final version of the bill.
Final “No” votes in the House (5/3/2011) were: Brower, Ching, Cullen, Fontaine, Har, Johanson, Marumoto, Riviere, Thielen and Ward. (Carroll and Pine were excused).
Final “No” votes in the Senate (5/3/2011) were: Baker, Chun Oakland, Espero, Fukunaga, Green, Ihara, Slom and Wakai.
Now the bill is law and the consequences continue to emerge. My office will inform the public on any further tax decisions.
In the meantime, the senate Minority’s Budget Chief, Arik Look, has prepared this summary with additional information.
Some of the GET exemptions suspended:
Gross income received by contractors
Reimbursements received by federal cost plus contractors for costs of purchased materials, plant, and equipment
Gross revenue of homes service providers providing mobile telcom to other home service providers
Gross income from real property lessees from sub-lessees
Gross income of nonprofit organizations from certain conventions, conferences, trade show exhibits, or display spaces
Amounts received by sugarcane producers and revenues from the loading, transportation, and unloading of agricultural commodities shipped inter-island
Sale of liquor, cigarettes, tobacco products, and agricultural meat, or fish products to persons or common carriers engaged in interstate or foreign commerce
Loading or unloading of cargo
Tugboat and towage services
Labor organizations for real property leases
Rent for aircraft or aircraft engines used for interstate air transportation
High technology research and development grants
Petroleum product refiners from other refiners for further refining of petroleum products; and gross proceeds from.
The building or maintenance of air pollution control facilities
Shipbuilding and ship repairs.
Qualified businesses in enterprise zones.
Certain contractors to build in enterprise zones for the qualified businesses.
Other exemptions “temporarily” suspended:
Leasing or renting of aircraft for commercial transportation of passengers and goods involved in interstate air transportation
Use of oceangoing vehicles for passenger or passenger and goods transportation within the state.
The use of material, parts, or tools imported for the use of aircraft service and maintenance or the construction of aircraft service facilities
Contact my office to get a full list of the GET exemptions that have been suspended. This complete article and the list will be posted to our Senate Minority website blog.
State Senator Sam Slom, Minority Senate Leader, serves on all 15 Senate Committees. He represents Oahu’s 8th district—Hawaii Kai, Niu, Kuliouou, Aina Haina, Waialae Kahala and Diamondhead. He is also a consulting economist, small business owner and president of the Small Business Hawaii Entrepreneurial Education Foundation.