|Last week we looked at why Hawaii continues to struggle to make its way out of the economic downturn that it has labored under for the past seven years, citing the high cost of living and doing business as a formidable hurdle to economic recovery.|
|Transportation costs alone do not account for the differential that many islanders experience when they visit friends and family on the mainland.|| What are the reasons for the high cost of living and doing business in Hawaii aside from the fact that Hawaii is a tiny dot located out in the middle of the Pacific, some 2,500 miles from the mainland? While the cost of transportation or shipping of products certainly adds to the cost of goods consumed in Hawaii or sold to customers overseas, transportation costs alone do not account for the differential that many islanders experience when they visit friends and family on the mainland.
In addition to the high cost of land which contributes to high rent schedules, taxing the rental of property is unique to Hawaii. Considered a service, the transaction we know as rent is subject to the 4% general excise tax. No where else in the United States is rent subject to the local sales tax as sales taxes usually only apply to goods and not to services.
No where else in the United States is rent subject to the local sales tax…
| This is why while most critics decried the fact that Hawaii did not have a hotel room tax, Hawaii had a room tax long before many other jurisdictions because the rental of hotel rooms has always been subject to the 4% general excise tax. This is also why Hawaii’s Transient Accommodations Tax (TAT) is the constant target for proposals to increase its rate. Since the general excise tax is listed separately from the TAT, critics only see the 6% rate and don’t notice that the combined total of the general excise tax and the TAT is more than 10% – which will soon be more than 11%.
The tax on rental of real property means the cost of warehousing goods brought into the state for sale to residents incurs a cost that is not imposed on the mainland. This is one reason why the big box retailers of recent arrival have a price advantage over the “mom and pop” neighborhood groceries. Because the local grocery cannot stock a large inventory, they rely on food wholesalers who warehouse the goods until needed by the “mom and pop” store. The waiting around in that warehouse runs up the tab in the cost of storing the goods.
|Another hidden cost that adds to the cost of goods and services sold to residents is the cost of compliance with state and local laws regulating commerce in our state.|| A big box retailer on the other hand will usually bring the goods right from the docks to the retail shelf because it can sell in volume, moving goods out the front door with little or no time in storage. The storage space is actually the retail space visited by the customer. Thus, the cost of warehousing is not a factor in the prices that a big box retailer charges.
Another hidden cost that adds to the cost of goods and services sold to residents is the cost of compliance with state and local laws regulating commerce in our state. Everything from signage to installation of sinks adds to the cost of a business in Hawaii. While many of these rules or guidelines were enacted with the idea of protecting the consumer, in many cases, the stretch of the protective arm goes farther than necessary. These rules and regulations impose additional costs on businesses which in turn attempt to recover the cost in the prices they charge their customers. And guess who those customers are?
Similarly, for those making goods in Hawaii or operating a service business out of Hawaii, those costs created by overly stringent regulations must be recaptured in the price charged customers outside the state. If a local business is producing a similar or identical product that is being produced by a company operating in another state or country, undoubtedly the cost of the Hawaii made product will be higher as a result of the higher taxes and more costly regulations imposed.
The point of the matter is that if Hawaii is to lift itself out of this economic mess, the constant mantra should be how we can make doing business and living in Hawaii less costly. Sure cutting taxes is one answer, but certainly it is not the only answer. Reducing overhead by reducing regulations and mandated costs is another target for attack. Certainly, we may not protect the consumer from every little pitfall, but that is a choice elected officials will have to make, because if those taxes are not cut and those regulations are not scaled back, businesses and individuals will continue to struggle to make ends meet. And if recent events are any indication, many will not survive.