Error suspends taxes on tobacco


POSTED: Wednesday, May 13, 2009

Pipe and cigar smokers along with those who buy snuff and chewing tobacco in Hawaii are getting a four-month, $400,000 state tobacco tax holiday because of an error in a tax law written by the state Legislature.

House Bill 895 was vetoed by Gov. Linda Lingle, who said it was filled with technical mistakes. The Legislature overrode the veto, and now some of those mistakes are becoming apparent.

“;It contains major technical flaws that defeat the purpose of the legislation and will make it virtually impossible to implement,”; Lingle wrote in her veto message.

The inadvertent tax holiday was caused by a mistake in the bill that did not specify the tax on tobacco products other than cigarettes during the period from enactment until Sept. 30.

That error, according to legislative researchers, will result in a $400,000 loss in revenue.

But it might not be the only flaw.

Lingle said the new law on so-called “;little cigars and existing tobacco law are in conflict, resulting in the state tobacco tax on cigarettes being raised to 14 cents per cigarette now and then dropped to 12 cents on Sept. 30.”;

Rep. Marcus Oshiro, Finance Committee chairman, said the mistaken tax holiday cannot be corrected, but the cigarette tax switch can be handled by the legislative revisor of statutes.

The revisor, who is employed by the Legislative Reference Bureau, will be able to blend the two bills together to preserve the Legislature's intent to raise the tax on all tobacco products, said Oshiro (D, Wahiawa-Poamoho).

The tax increase is an important part of the Legislature's plan to balance the state budget and is estimated to bring in an extra $22 million a year. Oshiro warned that the Tax Department is expected to “;enforce the law of the land.”;

But Linda Smith, Lingle's senior policy adviser, said they are asking the attorney general for guidance because they think the law is flawed.

“;The way we read it, you have to raise the tax and then lower it,”; Smith said yesterday in an interview.

Lowell Kalapa, executive director of the independent Tax Foundation of Hawaii, said he doubts that the revisor of statutes has the power to put the bills together. Kalapa says that HB 895, the last bill passed, is the one that governs and leaves the cigarette tax at the old rate.

“;To me, that is the law, and the law is the law. Basically, we have no rate increase in the cigarette tax,”; Kalapa said.

Both sides do agree that the tax on cigar and pipe tobacco ceases until Oct. 1.

Smith said the Tax Department “;will be notifying those entities that they are not obligated between the 8th of May and the 30th of September from collecting and remitting the tax to the state of Hawaii.”;