GET penalizes
By Albert S. Morgan
commissioned business repsI would like to voice my concerns about the recommendation of the Governor's Economic Revitalization Task Force to increase the general excise tax (GET). We are commissioned-based, as are most manufacturers' representatives. Our business is conducted in Hawaii as well as areas in the central Pacific.
This business was incorporated in Hawaii in 1975, and we pay a 4 percent excise tax on earned gross commissions.
This tax is a burden on our business. The money paid, which approximates the salary of one clerical employee, does not bring to the business any goods or services in the pursuit of sales, earnings or profits.
It must be paid without regard to other obligations, decisions or other factors that a business encounters in its day-to-day operations.
It is the absolute first expenditure we must pay before all other expenses, whether the business makes a profit or not.
It is also a tax that we cannot pass on to any customer. Then, at the end of the year, profits of the business are subject to state corporate income taxes.
The proposed increase in the GET from 4 to 5.35 percent will increase our cost of doing business by 34 percent. How brutally unfair.
If enacted, this increase will only hasten the movement of companies like mine to move their operations to the West Coast as others have done. Gone will be the jobs and income these businesses as well as their employees put into the local economy.
While this affects us and other commissioned businesses that must pay the 4 percent GET, the commissioned insurance agents have escaped the increase. Why?
It is my understanding that the commissioned insurance industry currently pays a GET rate of .15 percent on earned commissions. Why is our rate of 4 percent 27 times higher? The new 5.35 percent will be 36 times higher.
It's been explained to me by the tax office that the insurance industry is regulated by the state and therefore its earnings potential is limited, unlike operations in a free market.
Does this mean that a commissioned salesperson in the private sector earns 27 times more than a commissioned insurance agent? I don't think so, because there is no truly free market.
Competition regulates the price we are able to charge for goods and services, which regulates commissions. The truth of the matter is the insurance industry lobbied to get this advantage.
My business will be immediately impacted by paying 34 percent more in GET. We would have to cut expenditures, lay off a temporary employee and somehow handle that person's workload.
For us to hire that person back, we need to increase sales. The problem is how do we increase sales without additional help. So, how is the business better off?
No matter what happens to Hawaii's economy as a result of this economic task force, it will be years before we are able to increase our sales 34 percent just to get back where we were.
THE mainland is experiencing an unprecedented run of economic activity. Our exports are the number one choice of the world, and manufacturers' reps are an important part of this business.
The present GET burden on commissioned businesses located in Hawaii is already a discouragement to these businesses. The increase will only make it worse.
We desperately need job growth in Hawaii. Jobs are the economic fuel of a community.
The manufacturers' rep business offers this community employment opportunities. This business, with the help of telecommunications, will sell products and services in Asia and the Pacific. These generated commissions are kept in Hawaii.
We need to encourage this type of business. The present GET laws on commission income are obstructionist. They must be changed.
Albert S. Morgan is president of Hanco Sales Ltd.,
a manufacturers agent for the plumbing industry.
Full text of the Governor's
Economic Task Force recommendations.