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Cayetano
vetoes airline tax-
break bill

Hawaiian Air could have
saved up to $1 million
a year

By Russ Lynch
Star-Bulletin

Gov. Ben Cayetano vetoed a bill today that would have given airlines a break on excise tax related to aircraft lease payments.

The measure was designed to give the airlines a tax credit equal to 2 percent of their lease payments if they bring in planes that meet a higher standard for quiet operating.

Cayetano said there was no justification for such an income-tax credit for lessees.

"In addition, there is no justification to single out the airline industry for this tax benefit, much less a single airline," Cayetano's veto message said. "Every business that rents equipment should be equally deserving of a tax credit if that is the tax policy call."

Hawaiian Airlines Inc. in particular wanted the measure because it would apply to the $430 million worth of new quieter planes it has ordered from Boeing Corp. to replace its interisland fleet.

While details of the financing for the Boeing 717s have yet to be finalized, it is likely they will be bought on a time-purchase plan structured like a lease.

Hawaiian had estimated that the tax break could save it up to $1 million a year. "We're obviously disappointed because the bill would have partnered the state with the local airline industry in modernizing the interisland air transportation system," said Keoni Wagner, a spokesman for Hawaiian.

Hawaiian and Aloha airlines both have had a long-running battle with the state over excise taxes on lease payments. The airlines said the companies they lease from are not in Hawaii so don't have to pay the state's excise tax. But the government contends that the equipment is here so the tax is due. Lease agreements normally make the airlines responsible for all such local taxes. Aloha recently made a private settlement with the state.

Cayetano also vetoed a bill that would have put part of the public service tax paid by cruise vessels into a fund for improving cruise ship facilities.

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