By Lowell L. Kalapa
While the big tax issues before this year’s legislature, like the proposal to increase the general excise tax rate for the Honolulu transit project, have garnered much of the media’s attention, there are just as many tax related proposals that have escaped the taxpayers’ radar screen.
For example, there is a measure that would exempt all the wages and salary received by police officers from the state personal income tax. Promoted as a means to attract people to the profession, it can also be seen as nothing more than a backdoor pay raise as the taxes that would have been paid stay in the pocket of police officers. While it is certainly difficult to testify against such a measure, someone has to question the logic of this proposal as police officers, like all other taxpayers, utilize the services paid for with state tax dollars like education for their children.
Then there is the little noticed proposal to provide a tax credit to those who make a contribution that would establish and maintain technology laboratories. The credit would be equal to 10% of the aggregate of these in-kind contributions. The contributions would be made to public schools. Never mind the fact that contributions to government are already tax deductible under both the federal and state laws. Forget the fact that someone has to verify the value of the goods being contributed. Will this tax credit be enough of an incentive to attract those types of contributions or will it be just a give away to someone who would have given the in-kind contributions anyway?
Then there is the 100% exclusion of any income received by the fee owner of real property as a result of selling the fee interest in what has been a leased multi-family residential unit. No doubt this is in reaction to the recent repeal of a law in the City & County of Honolulu that forced landowners of multi-family residential units to sell the underlying land to the unit owners. Although some would say that this windfall of not having to pay taxes on those sales would entice landowners to sell, did anyone consider that this income is still taxable at the federal level where the tax rates are much higher?
There is a spate of proposals that would grant all sorts of tax benefits to members of the National Guard or armed services reserves or in some cases active duty military personnel. There are tax credits for employers who employ members of the National Guard regardless of whether or not the National Guard member is deployed overseas. Sure it makes for a good selling point if you are an applicant for a job.
Then there is a credit of $100 for every member of the National Guard or armed forces reservists who can claim a dependent. Never mind that you might be single and have no dependents and therefore can’t claim the tax, credit or if you are married and have seven children, you still get only $100. No reason is given for the credit other than one is in the National Guard or the reserves.
Even more interesting is the exemption for active duty members of the military who are residents of the state. While these members of the military are stationed outside the state, they will be able to exclude their military pay from state income taxes. The argument is that Hawaii residents who join the military must continue to pay state income taxes while they are stationed outside the state. To avoid having to pay state income taxes they change their residency or domicile to a state that has no income tax such as Florida, Nevada or Texas. Thus, this proposal would exempt active duty personnel from the state income tax if they are residents of Hawaii.
However, the point that is missed is that those personnel retain all the rights of a resident of Hawaii including the ability to use state services and register to vote in Hawaii. Secondly, if Hawaii residents are switching their residency to states that don’t have an income tax, what does that say about military personnel from other states switching their residency to Hawaii?
Finally, there is the proposal to exempt National Guard members and reservists from paying the state vehicle weight tax as long as the vehicle was a noncommercial vehicle registered in the name of the member. When it was pointed out that all five cars in a family could be registered to the guard member or reservist, the exemption was limited to only one vehicle. It was also pointed out that the member would still be driving the car on state and county roads, so the exemption was limited only to the duration the member is deployed to the Middle East.
Regardless, all of these proposals raise serious questions about state tax policy. None of them pass the test.