Monday, July 28, 2003

Counties could
levy sales tax
if bill passes

A 1 percent sales tax
may be traded for
hotel room tax revenue

Lawmakers are working on a bill that would offer the four counties an unprecedented taxing power: a 1 percent retail sales tax in exchange for part or all of their share of hotel room tax revenues.

Months before the Legislature meets again, county mayors and Council members have been invited to testify at a Senate hearing today on the tax measure aimed at funneling more cash to county governments. The hearing will be at 1:30 p.m. in Conference Room 212 at the state Capitol.

Senate Tourism Committee Chairman Donna Mercado Kim's hearing notice said it would discuss the room tax "as it relates to the counties and possible scenarios for the upcoming legislative session."

The starting point will be the Senate's draft of HB1544, which was left pending when the House failed to name conferees before the 2003 session ended May 1. The measure remains alive for the 2004 session.

Republican Gov. Linda Lingle, a former mayor of Maui County, said Friday she supports giving counties additional taxing authority but does not like tying it to a share of the room tax revenues.

"The counties should be held accountable by their own constituents, and I have always supported, as have all the mayors, supported having the authority to levy the tax," she said.

Lingle said she was unaware of today's hearing.

For Honolulu, exercising a 1 percent sales tax option under the bill would generate an estimated $120 million annually in exchange for its current $35 million share of hotel room tax revenues.

For the neighbor island counties, they would have to give up half of their current room tax revenues in exchange for the new sales tax.

House Speaker Calvin Say has said the proposal for new taxing power for the county governments remains "on the table."

He noted the House approved a bill earlier to allow Honolulu to impose an excise tax surcharge of up to 1 percent in exchange for its hotel room tax revenues, which would be divided among the three neighbor island counties.

"Speaker (Say) said that he wanted to make sure the counties all agreed, so Senate leadership wanted us to do hearings with the counties to get some consensus on what they would ultimately like to see so we'd have something to start from in the next session," Kim said.

"I think we're kind of moving in the same direction. We just need to iron out the details," she said.

Kim said there have been some "mixed messages" from various county officials about the proposal, which changed several times during the legislative process earlier this year.

While the House's bill called for a 1 percent general excise tax, the Senate preferred a straight 1 percent sales tax "so it wouldn't be as aggressive, but it would catch a lot of the visitors here," Kim said.

An excise tax is on all wholesale and retail sales and has a pyramid effect on the prices of both goods and services, while a sales tax is a flat percentage of the price charged to the buyer.

When the proposal surfaced earlier this year, the business community opposed it.

"Plain and simple, this is a tax increase," said Bill Ramsey, of the Hawaii Association of Realtors. "This additional tax burden will add to the difficulties of businesses already faced with increasing fuel and shipping costs, shrinking visitor spending and heavy governmental regulation expense."


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