Lawmakers turn to taxes to ease shortfall


POSTED: Wednesday, April 15, 2009

With Hawaii's financial picture growing more worrisome, state legislators spent yesterday giving tentative approval to a series of tax increases that would raise money from hotel guests, shoppers, smokers, motorists, Internet shoppers and local residents.

The rush to unleash the tax hikes is prompted by the state's growing shortfall, already estimated at $1.8 billion. Also yesterday the state Tax Department said tax collections for the first nine months of the fiscal year have dropped 6.3 percent. The state Council on Revenues had estimated the tax collection drop at only 5 percent.

State senators also passed their version of the state budget yesterday, now pegged at $5.3 billion for the next fiscal year and $5.5 billion for the 2011 fiscal year. The two-year budget has been pruned by nearly $2 billion to deal with the tax collection shortfall.

Although senators pushed forward a series of tax increases, Senate President Colleen Hanabusa said there was a lot of opposition and that it was not certain they would survive either a conference committee or a final vote next month.

“;We will just have to see; the vote today was not nice. It was not overwhelmingly supportive,”; Hanabusa said after yesterday's Senate session.

Sen. Donna Mercado Kim, Ways and Means Committee chairwoman, said several ways to get money, such as legalized gambling, raising the general excise tax or raiding the city's transit tax, have been rejected.

“;With limited revenue bills and a growing deficit, the committee had no option but to consider the House's bill retaining the entire transit accommodations tax (hotel room tax),”; Kim (D, Kalihi Valley-Halawa) said.

The most politically viable tax bill, Hanabusa said, is an increase on the hotel room tax, because tourists, not local residents and Hawaii voters pay for it.

“;The biggest source of revenue is the TAT,”; added Hanabusa (D, Nanakuli-Makua), who knows there are concerns from the tourist industry that “;you are actually taxing the golden goose.”;

But she said an increase on the hotel room tax means “;for the most part it is exported, it is paid by people who come here. So we are trying to eliminate the hurt for our residents.”;

House members approved a proposal to raise the hotel room tax by an unspecified amount and have the money deposited in the general fund to help make up the budget deficit.

Finance Committee Chairman Marcus Oshiro (D, Wahiawa-Poamoho) noted that a 1 percent increase in the room tax would raise about $30 million.

Senate Bill 1111 passed with 11 members voting in opposition.

“;We are talking now about how do we keep the industry afloat,”; said House Minority Leader Lynn Finnegan (R, Mapunapuna-Foster Village). “;I believe strongly that we don't do it on the backs of pushing away our tourists with increased expenses.

“;I understand we need to balance the budget, but I think on the backs of the tourist industry in such a depressed economy is not the way to do it.”;

Finnegan was among the six members of the House GOP caucus who all voted against the proposal.

House members also approved SB 1461, which would move up the filing date of monthly general excise tax returns from the last day of each month to the 20th day of the month, generating a one-time $40 million windfall in revenue due to earlier collection of taxes within the fiscal year.

“;This is our money. This is the taxpayers' money,”; said state Rep. Pono Chong (D, Maunawili-Kaneohe). “;We're not asking for more money; we're asking for it sooner.”;

Ten Democrats joined the six members of the Republican Party in voting against the bill.

Opponents argued the proposal would hurt small businesses by adding to their paperwork and administrative costs, forcing them to provide tax information earlier than usual and at a time when their tax information might be incomplete.


Taxing legislation

Here are some of the tax bills given tentative approval yesterday. They all must still go through the conference committee process and be approved one more time by the House and Senate:

» House Bill 1550: Imposes the state income tax on rollovers made by employees of state and county agencies and tax-exempt organizations from qualifying annuity plans and qualifying deferred compensation plans to eligible retirement plans or individual retirement accounts.

» House Bill 1744: Allows each county to charge a sales tax of up to 5 percent — in addition to the state's 4 percent general excise tax. At the same time, it removes the four counties' share of the hotel room tax. Critics say that would force the counties to impose the new sales tax.

» House Bill 1747: Increases the tax for high income brackets. Repeals the increases at the end of 2015. The bill will also increase the standard deduction and personal exemptions allowed.

» House Bill 1405: Adopts amendments to Hawaii tax laws to implement the streamlined sales and use tax agreement. GOP Sen. Sam Slom called it a “;full frontal attack on the Internet,”; while Democratic supporter Sen. Carol Fukunaga said forcing Internet shoppers to pay Hawaii taxes “;levels the playing field for Hawaii retailers.”;