By Lowell L. Kalapa
Taxpayers across the state may be in for another pinch to their pocket books in a variety of ways. Perhaps the most threatening is the possibility that the legislature, out of the goodness of their heart, will give the counties the option of imposing a 1% “sales tax” in return for giving up all or a part of their allocation of the transient accommodations tax collections.
Because the proposal would impose a “retail sales tax” which is different from the current general excise tax, the Neighbor Islands will probably just break even while the City & County of Honolulu will see the scales tipped in their favor. This is because as a retail sales tax, the 1% levy would only apply to the sale of goods and then only sales for final consumption. With nearly 80% of the state’s resident population, the City & County of Honolulu would be expected to generate the lion’s share of a 1% retail sales tax.
While the Neighbor Island economies continue to support steady growth, that growth is largely in the area of services, be it the rental of hotel rooms or visitor attractions, and not in the sale of goods for final consumption. Thus, collections of a retail sales tax on the Neighbor Islands are not expected to out pace what those counties receive from the TAT.
The option of being able to levy a sales tax is being sold on the basis that it provides “homerule” for the counties, allowing the counties to determine their own “destiny” by raising the money they need. Realizing that all of the county officials have discovered a distaste for “raising” property taxes, lawmakers must believe that dangling such a tempting “bait” out there will get the counties to jump for joy.
Taxpayers should ask themselves why would their county officials take the “bait” and buy into imposing a sales tax when all transaction taxes are considered regressive, falling more heavily on the poor than on those with substantial means?
Why would county officials adopt a sales tax that will be paid entirely by the taxpayer, be it a resident or a visitor, when the counties have the real property tax available to them, a tax which can offset a person’s federal and state income taxes. In other words, as a result of paying the real property tax, taxpayers can reduce the amount of income taxes they would have to pay the state and federal government.
There are two other points that taxpayers need to consider in this offering of a “Trojan horse” to the counties. Not only will taxpayers have to pay more because this indeed is a new tax, but the revenues from this new tax will fall on residents as well as tourists. True, residents do pay the TAT when they go holoholo on another island, but those occurrences are infrequent as compared to purchasing things every day at the local supermarket or drug store.
The other thing is that these are more tax dollars out of the economy. The proposal doesn’t reduce the amount of TAT taxes collected. No, lawmakers get to take back all of the TAT currently shared with the City & County of Honolulu and up to half of the TAT collections shared with Neighbor Island counties if they buy into this proposition.
In Honolulu the administration has made an interesting proposition to generate the money to pay the recently settled pay raises for police officers by suggesting that the county gasoline tax rate be increased by two cents or that the weight tax be increased. Critics have already noted that this would be an increase on what is one of the highest combination of federal, state, and local taxes on gasoline, towering above 55 cents per gallon.
On the other hand, this might be the strategy, to hide the tax increase in the price drivers pay at the pump. This way the wrath of the drivers will be vented at the gasoline companies and not at the county government.
Again, the question has to be asked, why would county officials want to increase the gasoline tax which is supposed to be dedicated for the repair and maintenance of roads when they have the real property tax to raise the money needed to cover pay increases?
Sure raising real property tax rates is a difficult task, but again, the real property tax is one the few taxes left that is deductible against federal and state income taxes. In other words, a part of the real property tax burden is in effect paid by the federal and state governments.
Before county officials jump on a tax raising bandwagon, they should take the time to understand which tax to be raised is most harmful to taxpayers. Next week we will look at the Honolulu shell game.