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Key to Better Business Climate is Lower Costs

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By Lowell L. Kalapa

Just over a year ago we made a statement after the announcement that an economic task force was to be convened for the purpose of revitalizing our state’s economy. That statement was: “Come’on guys, let’s just admit that the business climate in Hawaii stinks!”

We went on to point out that for years lawmakers were able to shove all kinds of mandates and requirements down businesses’ throats and business endured it because Hawaii was still a pretty good place to live. We also pointed out that if the task force was to turn this economy around or for that matter if there was anything needed to make this a more attractive place to do business, policymakers had to lower the cost of doing business and living in Hawaii.

Well, as we all know, the task force – despite its many good recommendations – recommended that the general excise tax rate be increased. While elected officials and other members of the task force were convinced that raising taxes in order to cut taxes was going to help the economy, everyone else in the community recognized that an increase in the excise tax would just make things worse.

So what can be done to begin the attack on the high cost of doing business in this state? Well, we have talked about reducing or eliminating costly recommendations for which there is little benefit and which make little sense. Not only would it help to reduce the cost of doing business, but it could help redirect public spending and personnel into areas of really core services that the public needs, such as education.

In the tax area, a number of recommendations have already been discussed such as eliminating the pyramiding of the general excise tax on services and exempting services that are sold to customers outside the state, the so called export services exemption. But there are other ways the general excise tax and other taxes affect the overall cost of doing business.

For example, everyone knows that Hawaii has one of the highest costs of energy in the nation. In fact, it is said that the cost of electricity on the island of Molokai is the highest in the nation. Although there have been efforts to use alternative sources of energy, such as solar panels and geothermal, Hawaii continues to rely on petroleum or fossil fuel products for the bulk of its energy needs.

All of the fossil fuel that is imported by the electric generating companies to burn in the power plants is subject to the 4% general excise tax. Even though the electricity that the burning of fuel oil generates is not for consumption by the electric companies, the fuel oil is taxed at the full retail rate because the law views the burning of oil as a consumption by the electric companies.

This is because of a rule or guideline in the law which says that in order to be afforded the lesser 0.5% rate, the product or ingredient has to be in its original form and perceptible in that form by the sense. Obviously when consumers turn on their televisions or reading lamps, they don’t feel, see or smell the fuel oil that generated the electricity that powers the television or reading lamp, yet without the fuel oil the electricity would not be there to serve the consumer.

While some may argue that reducing the 4% rate to 0.5% is merely giving the big electric companies a tax break, we should remember that businesses don’t pay taxes, it is their customers who bear the brunt of those costs. Given that the 4% tax is imposed on almost all energy consumed in Hawaii and the purchase of the fuel oil is at the front end of the economic chain, the higher rate merely makes doing business and living in Hawaii more expensive.

Some of the diehards may not see the lowering of the tax rate as justifiable. On the other hand, do they have better ideas on how we can lower the cost of energy and therefore the cost of doing business in Hawaii?

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