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Nibble Nibble Soon They Eat You Out of House and Home

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By Lowell L. Kalapa

When is a tax increase not a tax increase? Why when it is a matter of home rule or at least that is what the state administration says about a proposal to give the City & County of Honolulu the ability to levy a retail sales tax of up to one percent.
Under the proposal as it left the House, any county with a population of more than 200,000 may levy a general excise and use tax surcharge of an unspecified percentage. Again, the only county that meets the population criteria is the City & County of Honolulu. Should the City & County levy the surcharge, it would lose its share of the transient accommodations tax (TAT) revenues which currently amounts to $31 million annually. The City & County’s share would then be redistributed to the other counties.
Thus, it sounds like a sweet deal for both the City & County of Honolulu and the neighbor island counties as the City & County gets the power to levy a new tax and the neighbor islands get to pick up the bounty left behind by the City & County. But what happens to the taxpayer?
In this case, the loser is the taxpayer because it is the taxpayer who will be asked to shell out more for the City & County. And if you think the neighbor islanders will walk away tax-free, think again. Where do most of the goods and services purchased by neighbor islanders come from? If those goods and services flow through Oahu to reach the neighbor island consumer, then the cost of the additional surcharge will be imbedded in those goods and services.
Well, that was a couple of weeks ago. Just last week, the bill got an airing before the Senate Tourism Committee because it would affect the TAT. Senators thought it was a darn good idea, but they thought the general excise idea would have a dampening effect on businesses because it imposes the tax on business-to- business transactions and on transactions that were not for final consumption, such as sales at wholesale.
So instead of a surcharge on the general excise and use tax, they thought the retail sales tax found on the mainland would be a better tax structure to give the City & County of Honolulu. This is because the tax is levied only on goods and not on services and then only on the final consumption of those goods. This way the consumer would not be hurt . . . too much.
Well, not too much – just enough to generate $120 million annually. And if the City & County doesn’t want to hurt the bulk of its taxpayers they could exempt food and drug purchases from the retail sales tax or so one senator suggested.
Thank you senators because now there will be two taxes to collect on the same transaction. Not only will the additional tax mean a tax increase, but it will mean added costs to the business or vendor because the retail sales tax is not the same as the general excise tax. The general excise tax is a tax on gross income where the tax “passed on” by the vendor or business is included in the gross income of the business. That’s why we sometimes see 4.166% on our bills. The retail sales tax is a tax paid by the customer and the business merely collects it on behalf of the tax department. And an interesting question arises. Will the added 1% retail sales tax be considered a part of the vendor’s income subject to the 4% general excise tax? In any case, the vendor or business will have to keep track of what is the retail sales tax separately from what is collected as the general excise tax.
And lest neighbor island residents think they will see a wind fall from the imposition of the retail sales tax by the City & County of Honolulu, note well that the chair of the Ways & Means Committee already has his eyes on the Honolulu share of the TAT. He figures that since the state is faced with financial problems, why not just keep the Honolulu portion for the state’s budget.
And there is even talk of giving all the counties the ability to levy their own sales tax so that the state can take back the TAT collections currently shared with the counties. Now let’s see, if the state gives the counties the power to raise a new tax and we as taxpayer pay more, albeit to the counties, but the state takes back the TAT collections to spend on the state budget . . . that surely sounds like a tax increase adopted by the state legislature. And now back to the governor who believes that this is a step in the right direction to return homerule to the counties. Now let’s see if you are shelling out more in taxes, albeit to the counties, it seems like a tax increase in anyone’s book, but apparently not in the governor’s book, a book that pledged no increase in taxes.

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