Lawmakers should be quick in restoring gas tax exemption

THE ISSUE A state law exempting gasoline containing ethanol from the general excise tax expired at the end of 2006.

HAWAII motorists began this week to pay the nation's highest gasoline tax because of the failure of last year's Legislature to extend a general excise tax exemption for gas containing ethanol. The neglect was egregious and should be addressed as soon as this year's session convenes in two weeks.

The exemption was enacted in 1980 to encourage the use of biofuel but had no effect until last April, when regulations began requiring 85 percent of all gasoline in Hawaii to be blended with at least 10 percent ethanol. That made most of the state's gasoline exempt from a general excise tax amounting to 11 cents a gallon.

The 1980 law was due to expire at the end of last year, and legislators considered a bill to extend it through 2009. The bill died in a House-Senate conference. Incoming House Democratic Leader Kirk Caldwell said the proposal "fell through the cracks."

Gov. Linda Lingle proposed a similar extension of the tax exemption as part of a bill outlining a comprehensive energy policy. Versions of that bill died in the House Finance Committee and Senate Ways and Means Committee after being approved by other committees in both chambers.

With the tax exemption, Hawaii's total gasoline tax bite was 50.2 cents a gallon, nearly a nickel above the national average but below the tax rate of nine other states. Without it, Hawaii motorists now pay 61.5 cents a gallon in taxes, replacing New York's 60.1 cents as the nation's top gasoline tax guzzler.

Caldwell said last year's Legislature might have been distracted by the attention paid to the now-suspended wholesale gasoline price caps to extend the tax exemption for three years.

Lingle has criticized legislators for rejecting her proposed extension of the tax exemption. "Had the Legislature approved our proposal to extend the general excise tax exemption," she said in a statement last week, "Hawaii consumers would have an additional three years of reduced costs for ethanol-blended fuels, rather than having to pay more at the pump starting Jan. 1."

However, Lingle's tax-exemption proposal was buried in a more extensive bill addressing the state's energy policy. The death of that bill -- and with it the end of the tax exemption -- should not be surprising.

The Lingle bill proposed establishment of "a bold, strategic energy policy framework of integrated measures to encourage and support market-based development of reliable, cost-effective, more self-reliant energy systems."

Legislators should seriously consider such a bill and seek agreement with the Lingle administration about what it should contain. However, that should not delay prompt resumption of the tax exemption as a separate item.