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Just How Much Is That Puppy Going To Cost

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By Lowell L. Kalapa

Over the roughly year and a half since the legislature provided the counties with the option of levying an additional 0.5% rate on the general excise tax to finance mass transit projects in Honolulu and other highway related projects on the Neighbor Islands, elected officials who have been involved at all levels have seemingly tried to do everything except accept responsibility for what will be a tax increase on all taxpayers in Hawaii. 

It has literally been a fiasco from the governor allowing the measure to become law on the promise from legislative leaders to the current dilemma of trying to make the surcharge “fit” the rubric of the general excise tax while trying not to offend Neighbor Island businesses and consumers by insuring that the surcharge does not apply to those taxpayers. In the case of the former, anyone who has had experience with the legislature could have predicted that the legislature would not make the counties administer and collect the surcharge by changing the law. As far as the latter, it appears that the current course being taken by the tax department will insure litigation well into the life span of the surcharge. 

Then there was the “kabuki” of the legislature going through the motions of pretending that they would make the county administer and collect the surcharge. In the end, a handful of senators ended up killing the bill that would have financed the collection of the surcharge because they wanted to force the state to participate in the simplified sales tax project. The ensuing verbal fisticuffs between the governor and mayor of the City & County of Honolulu proved to be just as amusing as they accused each other of not delivering a fix for the collection of the surcharge. 

Now as the imposition of the surcharge looms large over the horizon, with less than ninety days and counting until doomsday, the rules that will govern who will have to pay the surcharge and when the surcharge will be due will come up for public hearing, the attention of taxpayers will be on those rules. At question are a number of issues including when a Neighbor Island business will have to pay the surcharge on its sales to Honolulu consumers, be they businesses or residents. 

Another part of the proposed rules that has raised questions would treat commissioned agents selling real estate in Hawaii differently than every other sales person who is paid on a commission basis. In the case of the former, the commission of the real estate agent would be subject to the surcharge if the property sold is located in Honolulu regardless of where the commission agent is doing business. That means a real estate agent on Maui seeking a new home for his client who is being transferred to Honolulu would be liable for the surcharge on the commission received from the purchase of the property in Honolulu by his client merely because the “product or goods” are to be consumed or used in Honolulu. However, the next door neighbor of that real estate agent on Maui who sells cosmetics to a customer in Honolulu and receives a commission for that sale would not be liable for the surcharge even though the “product or goods” are to be consumed in Honolulu. 

While taxpayers should follow the adoption of the rules that will govern administration and compliance with the Honolulu county surcharge, they should be even more suspect of the future of the surcharge. This includes Neighbor Island taxpayers as well as Honolulu taxpayers as the surcharge will affect all taxpayers regardless of where they live or do business. 

Both gubernatorial candidates promised earlier this month in the one and only debate they will have, that neither would support an additional increase in the surcharge if funding for the Honolulu mass transit system fell short of the cost for the project. But then again, neither promised that they would not extend the life of the surcharge, as neither will be in office when the current life of the surcharge runs out in fifteen years. However, it is almost certain that if Honolulu chooses a rail alternative, the current 0.5% surcharge will not be sufficient to pay for the project. 

Planners have already been directed to shorten the proposed rail line from Kapolei to the University at Manoa to a route that will run from Waipahu to Downtown Honolulu to keep the price tag to $3 billion. Critics have already weighed in saying that this will just not be sufficient to meet the goals of a rail transit system. 

While no one can put a price tag on the proposed rail transit proposal at this time, it is almost certain that whatever length or route the rail system will take, the 0.5% surcharge will not produce enough revenues to pay for the system and in the end, elected officials 10 or 15 years in the future will have to raise that rate. As for the elected officials of today, they don’t care because they won’t be around to make that hard decision.

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