The tax department recently reported that claims for the high technology tax credit, also known as Act 221 tax credits, amounted to more than $108 million in tax breaks in the first three years that the tax credit has been available.
While it would seem that the tax credits have been successful in attracting investors, the jury is still out as to whether or not the credits have actually created jobs in the high technology industry and whether or not those jobs will be sustained. True, there are examples of high technology companies that have started up in the period since the credits, but again, there is no information on whether or not the tax credits made a difference.
And that’s the problem with targeted tax credits. The targeted tax credits that go to specific taxpayers are no different than if the legislature had appropriated funds to build a school or a road. When a project such as the road or school is put out for bid, the bids are confidential until the contract is awarded. Once awarded, the public is told how much will be paid for the road or school and which of the bidders won the contract.
It is this transparency in how tax dollars are spent that earns public confidence in government. When the information is made public, taxpayers can then judge whether or not it is a good expenditure of tax dollars. Taxpayers can judge whether the state or county paid too much for that project relative to what the facility will provide. When the spending is excessive or frivolous, such as the purchase of koa benches for the state capitol at a time when services like education and welfare were being cut, it will not sit well with taxpayers.
Similarly, if, as the campaign spending commission discovered, contracts for public work projects are routinely given to the same vendors or contractors who happen to be friends of some elected official, that is something that the taxpayer should know. Again, armed with information, taxpayers can judge whether or not tax dollars are being properly used.
So when it comes to tax credits, which are tax dollars, taxpayers should have every right to know how much has been given out and whom did it benefit. Without that information, taxpayers don’t know if the tax credits are actually encouraging the specific activity or whether or not they are producing the touted results.
The department of taxation and lawmakers have argued that the amounts claimed in credits and the identity of the taxpayer cannot be revealed because tax information is confidential. That argument would hold if, in fact, it is information that is required to be submitted in order to pay one’s taxes.
But in this case, an incentive or benefit is being granted. There is absolutely no reason why that as part of qualifying for the tax credit, the claimant can not be asked to submit certain information about the activity for which the credit is to be granted. There is already precedent for asking such information, the most recent is the Ko’Olina tax credit where the claimant has to submit information about the qualifying costs, the amount of the credits claimed in the previous tax year, and the tax liability under each chapter of the tax law for which the credits will be claimed. The law specifies that all this information is to be a public document.
An earlier tax benefit that was granted to American Hawaii Cruise lines so it would be exempt from paying the public service company tax required that the last time it was renewed for five years, the company submit its financial records to the tax department. While there was no requirement to make those documents available to the public, it does demonstrate that if a taxpayer wants to claim a tax benefit, they can be required to submit certain information.
Given that these targeted tax credits will sap the state’s treasury for millions of dollars that might otherwise have been available to fund public programs and projects, it seems only reasonable that such information be made available, not only to the public, but also to lawmakers. In the latter case, such information should help policymakers determine whether or not the tax incentive is working and whether or not it is achieving the intended goals.
It is amazing that lawmakers recently renewed the high-technology tax incentives without any clue as to how the credit was working or whether it was creating the promised jobs. Hopefully, lawmakers will change the law to require the disclosure of this information. If nothing else, it might restore public confidence in government and how public dollars are being spent out the backdoor called tax credits.