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Figuring Out the Strategy By Lowell L. Kalapa (Posted on 3/22/98) |
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One measure that captured the attention of legislative observers in the past few weeks was HB 2399 which the House Finance Chairman submitted for public hearing. |
...[HB 2399] would have imposed a special general excise tax rate of 1.5% on activities and organizations which are currently exempt from the tax. |
And boy, did the interested parties come out of the woodwork, for the bill would have imposed a special general excise tax rate of 1.5% on activities and organizations which are currently exempt from the tax. Most notable by their presence were the churches, charitable, and educational organizations. Trade associations, business leagues, and other nonprofit organizations also turned up to testify against the bill. Nearly one hundred witnesses either appeared in person or submitted written comments on the bill. In the end, the Chair told the members of the Finance Committee that this exercise was to examine what types of entities currently enjoy an exemption from the general excise tax and the kinds of services they provide the community. It appeared that the Chair wanted to remind members that nonprofit organizations, in a sense, enjoy a public subsidy through the exemptions from the general excise and income taxes. Perhaps it is with the idea of reminding members that when it comes time to cut, some of the state spending cuts may involve grants that are currently given to nonprofit organizations in the community. |
...gifts, bequests, and inheritances would also be subject to the new tax rates. Thus, if you give your kids a gift or when they receive a bequest from "dear auntie Mame," they will have to pay the general excise tax... |
On the other hand, part of the effort seemed to be in response to the administration's suggestion that the tax base could be broadened (i.e., add more taxpayers to the base) so that the tax rates would not have to be increased to reap the revenues the state needs to stay in business. So while lawmakers may want to save their favorite nonprofit from the state budget axe, the Chair wanted to remind them that nonprofits already receive a public subsidy. When the measure was released last week so that it could be passed over to the opposite house for further consideration, many nonprofit organizations were deleted from the proposal. However, a new stipulation was added to the law to require all those who enjoy an exemption from the general excise tax to file an annual return with the department of taxation, outlining where they get their money. Although there is no such requirement at this time, most nonprofits of any size already file such a report with the Internal Revenue Service. What is more interesting is what was left in the bill and now forms the base of those currently exempt activities which will be subject to some sort of general excise tax. "Some sort" is used here because no rate is specified in the bill, although the language implies that a general excise tax will be imposed. Among the debatable organizations are hospitals and infirmaries. Originally established to reduce the cost of health care, a tax would increase the cost of hospital care. Another currently exempt activity, if taxed, would have a dramatic, if not detrimental effect, on the cost of living in Hawaii. An exemption currently exists for the loading and unloading of ships and airplanes otherwise known as stevedoring. If an additional tax is imposed on this activity, the amount of the tax will ripple through the economy as it will form the base of the cost of all goods shipped into Hawaii. Thus, taxing stevedoring activities would be contrary to what legislators are trying to achieve - a reduction in the cost of living and doing business in Hawaii. Then there are those surprising items that will be subject to the new general excise tax rate. Among the amounts that would be subject to the new tax rate are proceeds from life insurance policies. So when you die and your insurance companies pay off your beneficiaries, your beneficiaries will have to pay a general excise tax on that amount. |
Is the positioning of this proposal to tax nonprofits a matter of strategy in the negotiations of the conference committees that will eventually get all of the tax legislation? Who knows? |
Similarly, gifts, bequests, and inheritances would also be subject to the new tax rates. Thus, if you give your kids a gift or when they receive a bequest from "dear auntie Mame," they will have to pay the general excise tax on those gifts and bequests. Also under the gun would be amounts received as a result of a suit or tort. Thus, if you sue to recover damages in an automobile accident, that settlement will also be subject to the new tax rate. Now, while the Chair of the Finance Committee may have a point, it does seem somewhat ludicrous to tax these amounts especially when one realizes that none of these amounts have anything to do with the privilege of doing business in the state. So the question then arises - why? Is the positioning of this proposal to tax nonprofits a matter of strategy in the negotiations of the conference committees that will eventually get all of the tax legislation? Who knows? Trying to figure out what the strategy will be is part of the legislative process that defies logic. (HB 2399, HD-2 was heard by and is currently in the Senate Committee on Ways and Means. Webmaster)
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