Legislators are backing away from imposing a sales tax on more than three dozen kinds of transactions now exempt, choosing instead to trim the hit list and reduce the proposed tax by half. The change is encouraging evidence that lawmakers recognize the ramifications of drastically increasing taxes rather than reducing state spending.

The transactions have been exempt for lengthy periods from the state's 4 percent general excise tax. Legislators proposed imposing a 1 percent tax on enough formerly immune transactions over the five-year period ahead to generate more than a half billion dollars—$108 million during the next fiscal year alone.

Kurt Kawafuchi, Gov. Linda Lingle's tax director, expressed concern, pointing out “;that all of these exemptions were important at some point and served some purpose.”; Some of them still are and do, according to a number of business people who testified against the proposal.

Kevin Bloom, president of Aston Hotels and Resorts, said the 1 percent tax would have required its 1,300 hotel operators and sub-operators to pay more than $400,000 a year, punishing the tourism industry and forcing hotel and condominium operators to restructure their operations.

Keoni Wagner, vice president of public affairs for Hawaiian Airlines, said imposition of such a tax would have added $5 million this year to the $44 million in taxes and landing fees the airline already pays to the state and would “;multiply”; in years that it brings new aircraft into the state. He explained that such an expense would “;undermine efforts to add jobs and increase tourism revenues for the state.”;

Mike McCartney, head of the Hawaii Tourism Authority, explained to legislators that many organizations would pause in choosing the Hawaii Convention Center for their meetings and trade shows knowing that they would have to pay state taxes on their booth sales. Meanwhile, the company paid to operate the center would have to dish out nearly $100,000 to the state from the money it receives from the Tourism Authority, a state agency.

Legislators have responded by maintaining the exemptions for condominium, homeowner and community maintenance fees, airlines and ship repair, among others. The revised measure would reduce the tax to half of 1 percent for about two dozen activities that have been exempt, generating revenue of about $25 million a year.

Concern should remain regarding imposition of taxes on businesses that may have been unaware of the legislation or of its significance on their ability to stay afloat during the economic difficulties ahead. If the bill is enacted, its effects should be monitored in the year ahead and the tax policy should be altered accordingly.