Legislators push for collection of online taxes
With tax collections apparently leveling off this year, lawmakers are now pressing state tax officials to explain what they plan to do to capture millions of dollars in uncollected taxes owed for internet sales in Hawaii.
Years ago the state sued online travel companies such as Expedia Inc. and Travelocity.com to force them to pay state excise taxes on Hawaii hotel rooms that are booked and paid for online. The Attorney General’s Office won a major victory when Hawaii courts in 2015 ordered the online travel companies to pay $53.1 million in back taxes to the state.
Yet more than a year after those court rulings, state tax officials told lawmakers they still have not established a system for collecting excise taxes owed by smaller travel companies that also sell Hawaii travel packages online.
“We’re still having discussion on how to enforce it,” said Damien A. Elefante, deputy director of the state tax department, in an interview. The state is also still trying to reach a tax settlement with car rental companies for back taxes the state contends they owe for online car rentals, he said.
Elefante also testified before the House Finance Committee earlier this month that the state has no mechanism for collecting taxes on sales by online retail behemoths such as Amazon.com.
“Right now the (excise) use tax is a voluntary compliance situation,” Elefante told lawmakers. “We haven’t gone out to ask every (person) how much you’ve bought or have you bought. We haven’t done that because there’s no information for us to look at readily, so with respect to the use tax on Amazon sales or sales online, we haven’t looked at it.”
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This is a sore point for some lawmakers this year because state tax collections are lagging. Gov. David Ige’s proposed budget for the next two years assumed tax collections would grow by 5.5 percent during this fiscal year, while actual tax revenue has grown by only 0.6 percent in the first six months of the year.
Hawaii’s excise tax on sales and services is the state’s largest single source of tax revenue, generating more than $3.2 billion for the state treasury last year, according to data from the state tax department.
State Rep. Isaac Choy (D, Manoa-Punahou-Moiliili) told Elefante that the shift from traditional storefront retail sales to online sales probably helps explain the apparently flat retail excise tax collections this year at a time when the economy is booming.
The issue presents a growing problem for the state, Choy said, and “all of a sudden we have wild shifts in reporting, but you guys are the protectors of the realm, so I’m just asking what you’re going to do about it.”
Choy complained he has submitted bills to try to begin to address the online tax problem, yet the tax department has opposed them all.
At a minimum, Choy suggested the tax department could ask taxpayers to voluntarily report their online purchases so the state would have at least some data for collection purposes, but Elefante said the Hawaii tax department doesn’t do that.
“So, basically, I guess the answer is, you’ve made no effort to collect taxes on online sales,” Choy said.
Elefante replied that “as far as that goes, representative, we haven’t.”
State Tax Director Maria E. Zielinski added, “I think all of the states have the same issue.” Zielinski and Elefante did not elaborate, and a spokeswoman for the tax department said tax officials “can’t really discuss details of (the) compliance plan.”
Tom Yamachika, president of the Tax Foundation of Hawaii, said other states have tried a variety of approaches to capture taxes owed for online sales.
Part of the challenge is the U.S. Supreme Court ruled that online retailers are not required to pay state sales taxes unless they have a physical presence in that state. In practice that means that even though Amazon likely has significant online sales to customers here, Elefante said Amazon does not file and pay excise taxes in Hawaii.
Yamachika said Amazon’s customers in Hawaii technically still have a legal obligation to report their online purchases and pay taxes on them, “but really, nobody does. It’s very, very rare.”
To cope with those issues, Colorado recently passed a law requiring online retailers to report what they sell in Colorado along with a list of who made the purchases, Yamachika said. That law also requires online retailers to notify all customers that they must pay Colorado sales tax on their purchases.
That law survived court challenges, and Yamachika said some online sellers then agreed to collect the taxes on online sales and hand them over to Colorado tax authorities.
They likely did so because it was logistically easier and less costly for the online retailers to collect and surrender the taxes than to produce the customer and sales lists and issue the customer notices that Colorado demanded, Yamachika said.
“The game in town is to try to get the direct sellers to the bargaining table,” Yamachika said.
Other states have passed laws to legally declare that any online seller that does significant business in a state by definition has a “presence” in that state, and must therefore collect and pay state taxes.
“To the extent that we can get some of these taxes collected and paid, it will reduce the burden on the rest of us,” Yamachika said. “The tax is legally imposed. It’s just a question of whether it’s practical to collect it.”
On the issue of travel companies, Elefante said he believes the large companies that were sued by the state including Expedia, Travelocity, Orbitz LLC and Priceline.com LLP are now paying state excise taxes, but it is unclear whether smaller travel companies do so.
“Some people have come into compliance already, because if they want to do business in Hawaii, they’re going to pay,” Elefante said. “It’s just finding these companies.” Elefante said he does not know how much revenue the state might be losing because of smaller travel companies that haven’t paid.
Members of the state Senate expressed frustration earlier this month at the seemingly slow pace the department has been moving to resolve the online travel tax issue, but Elefante said the issue is new, and the department is moving at its “regular pace.”
The department must balance these efforts with existing collection and audit responsibilities as well as a major ongoing overhaul and upgrade of the department’s computer systems, he said.
“They’re saying that we’re not going fast enough. I say we’re doing as much as we can administratively to go after these entities,” Elefante said.
46 responses to “Legislators push for collection of online taxes”
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Hawaii already has one of the most regressive taxes in the nation, the excise tax, that hurts the working class more than it hurts the rich. But Hawaii lawmakers are greedy – instead of cutting waste and excess from the government, they rather take more of our money. Next election, vote them out. Never forget what they trying to do.
Agree 100% but never goimg to happen as they all will get re-elected.
@ inverse
KaBoom!
I compare Hawaii elections to the Publishers Clearing House Sweeps…I vote & hope for a miraculous change… $20 Million…either one.
No more taxes. Cancel HART rail and you will have a BOATLOAD of surplus revenue. Leave our Hawaii excessive cost of living income alone.
I will NOT re-elect anyone who supports online sales tax.
Collecting internet taxes on sales here is critical as social needs are growing. Also, more and more commerce is being done online. This should all have been put in place several years ago.
Write an extra check allie, but stop with volunteering everyone else’s money. You progressives are all alike when it comes to government spending.
The supreme court has already settled the matter by ruling that taxes need not be collected if there is no physical presence in the state. Our one party state government will just have to rely on the honest citizens of Hawaii to pay their fair tax.
Social needs? Working people in Hawaii are living paycheck to paycheck just trying to stay above water. Now, you want more for social services. Some people truly needy but when I see all these new SUVs dropping kids off for free breakfast and in the grocery lines using food stamps, I don’t know the new term for it, it irritates the heck out of me. Time to limit and control this. Limit the amount of time they live on this. Give them opportunity to have a job. Tired of this BS!
Allie go back home where you belong and promote social services there they need men like you.
I agree a 1000000%.
Hon, Amazon did agree to collect online sales taxes for states if, and here is the big if, states gave them a very simple collection plan. As in one standard tax rate for the entire state.
Amazon was not going to try and keep up with cities in the state which might have a different rate, change it, what ever.
All Hawaii’s elected bureaucrats have to do is come up with this information and Amazon will start collecting. There in lies the problem. Doing this would require real, sweat type work. Something elected bureaucrats are deathly allergic to.
The state has a legitimate claim for taxes from businesses that have a physical presence in Hawaii and who receive standard government services such as fire department, police department, emergency services, roads maintenance, etc. It has no justifiable claim for taxes from other businesses whether they do business transactions in Hawaii or not if they do not receive any services from the state.
If Speaker of the House Paul Ryan has his way we will pay a 20 percent sales tax on all imported goods including those sold on Amazon. He says that tax is to make up for tax cuts on high bracket taxpayers and a big reduction in the corporate income tax. However, some Republicans are thankfully resisting. Mike Lee Republican from Utah proposes that instead of taxing consumption by middle class and working people, we should have a tax on investors who will benefit from the big tax cuts and tax capital gains and dividends instead. Trump opposes this because it hurts “his people” and will hurt our import/export balance of payments by increasing the value of the dollar.
What will they do when they run out of things to tax? Maybe the air you breathe!
The idiots in government are working on that….
You are right! All the fees, like safety check are unheard in other states.
We Pay so much taxes already, with EVERYTHING we buy. So I buy a few books or things online a few times a year and these F O O L S think I should pay more ? Sorry but you people need to learn to live within your means.
Just like my household budget and others we have to CUT BACK or TRIM the FAT and NOT spend as much.
Insane how these elected officials NEVER talk about cutting the SPENDING. Its incredible and the Democrat way.
Internet sales has been a free-for-all for vendors and consumers for a long time and it must finally be brought up to par with the rules that our hard working local merchants have to play by.
Change the tax law. Hawaii does not have a sales tax period. That is why the tax department refuses to look at this issue. Can you name another state with an excise tax?
Taxing internet sales is a tax for consumers in Hawaii. Why can’t our politicians see that no matter how they spin it it comes out of my wallet and I’m watching.
Just once I want to see our politicians list the ways they are going to cut spending.
Keep voting for democrats Hawaii! Growing government and raising taxes is all they know.
Isn’t it amazing how people are being taxed into homelessness and into debt but they continue to vote against people who want to lower taxes or refuse to raise taxes?
The higher the taxes go in Hawaii, the more people want to shop online to save money.
When you consider shipping costs, it isn’t that much cheeper to buy on line. We buy on line because many things are not sold in Hawaii… Because you can’t buy it here you go on line to find it. Cut taxes and balance the budget… it’s time the government started having to live on a budget just like the rest of us.
If you do lots of buying from Amazon, you can become a Premium member, and most shipping is free. People in Hawaii are taxed to death, and one of the ways they can make their dollar stretch is to buy online where it’s cheaper, and even more cheap because it’s tax free. It’s cheaper because businesses in Hawaii are taxed to death too, so they have to pass their tax burden on to the consumer. General Excise tax on Oahu is 4.5% (.5% because of the bottomless tax pit for the rail), but if you look at your sales receipt, it does not say 4.5% tax. What you see is 4.172% because businesses charge you what they have to pay in General Excise tax. Politicians are dependent on getting votes from the huge government unionized work force, so they would never make a big effort to streamline work and cut the huge, fat work force. We in Hawaii have only one alternative: move away.
OOOpppps! I let my anger get the best of me and put down 4.172% where it should be 4.712%.
I disagree. I used to other PE equip. for my school and the shipping was about 40%. Amazon had the same products for free shipping
NO more stupid reasons for NO more taxation. SAME state that pushed to tax VEGAS winnings. Taxation for sole purpose of taxation when it has NOTHING to do with OUR overhead. Taxing JUST to WASTE it away. Better in citizens pockets than in govt’s pocket.
IRS is only interested in Casino winnings of $1,200 or more on a single win. Meaning if you are playing on a machine and win just less, cash out and start over. Machine hits at $1,201 and up, you owe taxes. Machine will tell you to contact an attendant who will have you sign the appropriate IRS tax form. No sign, no money.
Anything less is not on their radar, not tracked by the IRS. IRS will allow you to deduct losses only if you have a single win of $1,200.
http://blog.turbotax.intuit.com/income-and-investments/how-are-gambling-winnings-taxed-8891/
No gambler is going to track their winnings like $70, $100, $300, total them up and report them as income unless they can also take credit for all their losses.
State would do better to be more efficient, move all newly hired city & state workers to the Roth 401k plan, end the pension money pit debacle. End rail.
Just to clarify, gambling winnings by those who are not in the business of gambling are fully taxable. Any losses are deductible, but only if the taxpayer itemizes, and then only to the extent they exceed 2% of adjusted gross income and are otherwise not limited.
Minor gambling winnings should be exempt unless losses can be tax deductible. Some grandma goes to vegas ever yearm loses $500 every year for 10 years. Finally hits a jackpot and wins $1300 is now subject to taxation is BS.
Agree with most that our our State Govt should seek ways to become more efficient and effective rather than continually grabbing for taxes and fees. However, since this is already law, the current issue is the ineffectiveness of the State Tax department to collect. Bed and breakfasts are another source that is not taxed. This tax department is the same one that for years running delays refunds. Gov Ige time to clean house here, start with getting new senior managers for the tax department.
Internet buying, is still expensive, because of the shipping & handling fees, that already includes the Jones Act expenses (a remnant from WW1 era & the 20th century).
Taxing internet buying, will discourage some aspects, of internet buying. Hawai’i still can’t supply the goods, that the internet provides.
To the state of Hawai’i legislature; you will create the Internet Jones Act of the 21st century.
I hope, that “we the people” will make you suffer, on every election. May you all develop political ulcers, because you can’t manage your financial budgets.
“We the people” apparently have no intention of “making them suffer” since we keep voting the same clowns back and into office.
The guys I vote for, don’t always win.
That ones that make it, don’t always get a 2nd chance with me.
This is typical of our elected officials always trying to grab more money to fund their little pet projects and line their pockets instead of working to reduce the costs of
government. As usual, they want to go after the “low hanging fruit” yet the state has consistently allowed many not to pay their taxes for example, a lot of food establishments
and small stores still do not provide you with a receipt when you make a purchase although this is required by law but as usual, the state does little to enforce this.
This encourages business to have two books to hide their actual sales and taxes they owe. This has been going on for years yet nothing has been done except for very
occasional staged “crackdowns” which are just for show. No one is fooled by this kind of kabuki theatre except for the low information voter out there, which here in Hawaii
do appear to be a fairly large segment of the population.
“Low information voter” i.e. union worker i.e. fairly large segment of the (voting) population.
Hawaii is definitely not alone with this problem. How have other 49 States handling this online purchasing issue?
They have a sales tax or not. Only in Hawaii is there an excise tax.
“U.S. Supreme Court ruled that online retailers are not required to pay state sales taxes unless they have a physical presence in that state.”
“Choy complained he has submitted bills to try to begin to address the online tax problem, yet the tax department has opposed them all. At a minimum, Choy suggested the tax department could ask taxpayers to voluntarily report their online purchases so the state would have at least some data for collection purposes,..”.
Is Choy grasping for straws? Who is this masked man?
Not enough Elefante… I would tend to agree with Colorado.
It’s a tax on the seller and not the buyer. The seller should be paying the taxes in their state. We need a US Supreme Court ruling on this. It’s been decades since online selling has started. The state has been slow to react on this.
BTW, we charge less taxes on items that are exported from Hawaii – so taxing our online stores should not be problematic at all.
We want all your money so we can waste it.
The Supreme Court chose to not hear the “Amazon” tax issue, at least for this session. The US Supreme Court has previously ruled that a state can force a retailer to collect sales tax only if that retailer has a physical presence in that state. In response, some states passed their versions of “Amazon” tax laws to collect sales taxes, even if these online retailers do not own property or have employees in a given state.
There is currently, however, the Marketplace Fairness Act, which has passed the Senate and is currently in the House of Representatives. This act apparently resolves issues surrounding the collection of sales taxes by online retailers.
The Marketplace Fairness Act would require states to simplify their sales tax laws, so that they would be able to tax internet sales from companies with more than $1 million in sales annually.
As part of the law, states will be required to help simplify the process of calculating online sales taxes for retailers who sell products in every state.
“Rep. Jason Chaffetz (R-Utah) has introduced legislation called the Remote Transactions Parity Act that is similar to the Marketplace Fairness Act. The bill has more than 60 co-sponsors. But House Judiciary Committee Chairman Bob Goodlatte (R-Va.), whose committee has jurisdiction over the issue, circulated a discussion draft last year that would tax online purchases at the rate of the retailer’s state rather than the rate of the customer’s state.” – from online TheHill.com
imagine the revenue the state could bring in if it taxed email at $0.05 per recipient.
that would be awesome.
Republicans led by Paul Ryan are planning a 20 % sales tax on imported goods and it will cover internet sales via Amazon. The purpose of the tax is to cover the cost of the tax cuts given to top bracket taxpayers and the corporate tax cut in order to balance the budget. Fortunately there is a lot of resistance to it. Trump is opposing this tax now according to an interview in the Wall Street Journal.