Excise tax collection firm sought
The city and state say it is the best way to resolve for now who will be responsible
Mayor Mufi Hannemann and Gov. Linda Lingle said a private vendor is needed to start collecting the 4.5 percent in general excise taxes that starts at the beginning of next year.
The city and the state Tax Department are proposing to contract with a third party to collect both the state's 4 percent general excise tax and the new 0.5 percent excise tax surcharge for the city's transit projects.
Hannemann said he does not like the idea of contracting out tax collection, but his administration is working with the state to keep the city's mass transit options alive. He said he also thinks that the city should collect the tax.
"Politics is the art of compromise," said Hannemann, who supports building a rail system. "I really believe that at the end of the day, (mass transit) is sorely needed for Oahu."
A bill in the Legislature last year that gave the city authority to impose the tax was nearly vetoed by Lingle, who opposed the measure because it designated the state to collect the tax.
Negotiations between Lingle's office, Mayor Mufi Hannemann and state Senate and House leaders led Lingle to allow the bill to become law unsigned if leaders promised to introduce legislation this year to have the city collect the additional tax.
State and city officials said that if the city is going to collect the tax, they wanted to find a way to avoid having taxpayers pay two excise bills.
"We thought that was the right approach so that taxpayers weren't filing two times -- that's what this arrangement allows us to do," Lingle said yesterday. "We don't want to burden taxpayers any more than they already are, and it also keeps the state out of the collection of a tax that is not ours."
Lingle said she believes that with this collection system idea, it will be easier for the Legislature to approve the change in who will collect the new tax.
Hannemann said, however, that he continues to believe the state is in a better position to collect the tax because it already has a general excise tax collection system in place.
"So we'll do as much as we can to ensure that the city is collecting it, but at the end of the day, if this all falls apart, the state's got to collect it," Hannemann said.
Deputy Managing Director Trudi Saito said contracting with an outside entity is necessary as an interim solution to get the collection system in place before the tax is levied on Jan. 1.
Hannemann, who was elected in 2004 with strong support from the public-sector employee unions, said opposition he is hearing from the unions is understandable, but "I'm not overly concerned that this is a show-stopper."
He said that legislative leaders "made an agreement in good faith with the governor. We're going to do everything we can to try to collect it, and then it's (the Legislature's) call."
City officials said the city currently contracts with Bank of Hawaii to collect and process property tax payments that are mailed in. "We don't have a very large (tax) collection system," city spokesman Mark Matsunaga said.
Star-Bulletin reporter Richard Borreca contributed to this report.