Most people are loath to say the state government needs more money. But then they have to admit there are huge bills hovering overhead, not the least of which is the unfunded liability for state retiree pensions and health care.
Hawaii’s tax receipts are healthier than expected. So why are lawmakers making a big deal about increasing revenue further? That apparent priority is reflected in a raft of bills advancing through legislative hearings and review.
Here’s why. Despite the pending launch of campaign season, lawmakers want to capture the taxes that Hawaii has missed, without dunning the average member of the voting public.
And, if the changes have the effect of making the system fairer, so much the better.
There are a few, rather complex examples of that, and these will require more debate. Just to name three that seek to level the taxation playing field a bit:
>> House Bill 2702, which would require state income tax to be paid to the state by Real Estate Investment Trusts (REITs), in which revenue-producing properties do not yield any such revenue for the state of Hawaii.
>> House Bill 1655, which aims to have online marketplaces collect general excise tax (GET) due to the state from sales to Hawaii residents. This has the support of local brick-and-mortar retailers, who argue that online sellers have an unfair advantage by not collecting taxes.
>> Senate Bill 2963, which would set up a system for an online short-term rental platform to remit transient accommodations tax (TAT) revenue owed to the state. These businesses don’t always pay the TAT conveyed on conventional hotel rooms; that’s unjust and must be corrected.
All of these initiatives make rational arguments that this is money payable to the state. But there are complications.
SB 2963 involves vacation rental brokers such as Airbnb. It will require further work to ensure the broker will help local government regulate these rentals under each county’s land-use rules.
Not surprisingly, HB 1655 has run into opposition from online giant Amazon.com, and other industry advocates.
Among other criticisms, Amazon executives maintain that lawmakers should wait for the U.S. Supreme Court to hear a case next month to clarify whether a business needs physical presence in a state for its taxes to be payable.
Or, they said, it should instead pass either Senate Bill 2514 or SB 2508 to create the legal nexus for taxing online sales in Hawaii. They have a point: It may be premature to enact a comprehensive online taxation mechanism this session.
As for HB 2702: The REIT structure is appealing because income taxes are paid by shareholders in the trust, payable wherever they live — and often it’s not in Hawaii.
This is the latest attempt to enable income taxes on these properties to be paid where the revenue was produced: in Hawaii. That concept does make sense — Hawaii has such lucrative properties and should seek a share of that income — once lawmakers vet the counterarguments.
These include questions such as: Would disabling this tax shelter discourage new investment in Hawaii properties? Or are new REITs likely to be corporations, already paying income taxes, converting to avoid income tax liability in this state?
Another problematic proposal comes in the form of SB 2699, one of those trying to siphon off revenue from hotels during a red-hot period for tourism. But by attempting to skim taxes off the fees hotels charge separately from the room rate, it goes too far. This is simply raiding more tourism revenue, putting upward pressure on hotel charges to guests.
And those guests don’t need yet another nudge toward selecting unconventional accommodations — vacation rentals, most of them illegal, at least on Oahu.
Some proposals do seem more straightforward good ideas, especially those that deal with high-end properties. To cite two measures: SB 2415 would increase the state conveyance tax paid on properties worth more than $2 million; SB 508 would increase the tax withholding on profits from isle real estate sold by non-residents.
Those should move ahead, enabling more state revenues to be reaped from properties that are highly valuable with relatively low property tax rates. This is what lures offshore investment in real estate, and Hawaii needs to make sure some of those gains meet local needs as well.
Gov. David Ige seems concerned about that, too, having called for a 5-10 percent across-the-board cut of nonessential spending. That’s a laudable instinct: In addition to the tens of millions that tax increases could yield, money does need to be socked away to pay down debts and liabilities.
But there’s a cautionary note here. Witnessing the homelessness and affordable housing crises, the savings should not undercut the social safety net any further than it already is.
While tax coffers are robust, judicious spending is needed, to be directed toward investments that will strengthen Hawaii’s workforce and economy for the long term.