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Cayetano opposes
bank tax exemption

Associated Press

Gov. Ben Cayetano does not believe local banks should be exempt from the state's 4 percent general excise tax on services provided to the banks by mainland companies.

"We only discourage the creation of jobs in this state if we do that," Cayetano said yesterday.

Last year, the Legislature approved an exemption from the excise tax on services exported by Hawaii companies but offset the revenue loss by imposing the tax on imported services.

Local banks discovered that the new imported services tax applies to them and now are asking lawmakers for an exemption.

"I can understand the banks' position, but I hope they understand ours," Cayetano said.

Following a hearing yesterday, the House Consumer Protection and Commerce Committee deferred a decision on the Senate-passed exemption bill until tomorrow.

Tax officials said the exemption would cost the state up to $1.7 million a year.

Rodney Shinkawa, executive vice president of the Hawaii Bankers Association, said the banks were surprised by the new tax, which applies to data processing and other services they buy from mainland companies, including the processing of credit card and debit card transactions.

The new tax was supposed to apply to such professionals as architects, engineers and contractors who do business from the mainland, he said.

Unlike those professions, the banks have no way to pass the added cost of the new tax to customers, he said.

Lowell Kalapa, executive director of the Tax Foundation of Hawaii, said giving the banks a special-use tax exemption would open the door for other industries to seek similar exemptions. It also would encourage local businesses to buy services on the mainland, where labor is cheaper, he said.

If the banks get the exemption, Kalapa said he's sure hotels who have mainland companies handle their reservations also will seek an exemption.

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