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Now The Absurd

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By Lowell L. Kalapa

(Released on 02/25/07)

For the average citizen taxpayer, the comings and goings of the legislature are only noticeable when the media picks up on some juicy issue like pedestrian safety or sending prisoners to the mainland, but taxpayers would have a good chuckle if they knew of some of the absurd ideas lawmakers throw into the legislative hopper.

For example, one lawmaker thinks that it is important that we control the canine and feline populations in our state and is willing to offer a special tax deduction if pet owners will spay or neuter their cat or dog. For some, perhaps spaying and neutering ones pet is important, but to allow it as a tax deduction when many other medical procedures on human beings don’t qualify borders on the absurd.

Then there is the proposal that does take pity on the ill and infirmed by exempting medical services performed by a licensed medical practitioner, hospital, medical facility, nursing home or rehabilitation facility from the 0.5% county surcharge imposed in Honolulu. Perhaps a wee bit too late to realize that the county surcharge is an added burden. After all, the county surcharge would not be here if the legislature had not voted to approve it.

However, this proposal does highlight the fact that most taxpayers, if not all legislators, seem to fail to understand about the general excise tax and that is that it is not a sales tax like those found on the mainland. The general excise tax is a tax for the privilege of doing business in the state. It is a measure of the amount of gross income received for that privilege of doing business in Hawaii. Thus, while the tax is usually visibly passed on to customers of the business, it is really a tax on that business.

Even the amount of the tax that is “passed-on” to customers becomes a part of the gross income of the business and is subject to the general excise tax. Thus, when a proposal to exempt certain goods or services is submitted, one has to ask what type of business is being exempted, not who the customer of that service is. In this case, medical professionals, hospitals, care homes, and rehabilitation facilities are being excused from the tax or at least the county surcharge. As businesses, there is no apparent need for these particular taxpayers to be relieved of their tax burden but for the fact that they pass on some of the cost of the surcharge to their customers. But do medical professionals need any more assistance than the auto mechanic who works on their Porsche or BMW?

If there is any finger pointing for the blame in raising the cost of purchasing these services, it is the very lawmakers who enacted the surcharge. And what about all the other necessities of life? It is a bit late to think about the added burden of the surcharge. A bit absurd to say the least.

Then again, back for the third time, and perhaps the third time is the charm, is a measure that proposes to exclude all of the capital gains realized from the sale of leasehold property. However, this time it is limited to units within a condominium property, or cooperative project or a planned unit development. The exclusion would apply to sales of fee interest made between January 1, 2008 and the end of 2009.

While previous versions of this bill were argued on the basis that this exclusion would encourage owners of the fee interest to sell that interest to the lessees of the property, it is really hard to believe that this exclusion would be any more of an incentive to fee owners of land under condominium units to sell when they didn’t want to do so when there was a county ordinance that told them they had to do so.

Further, it is hard to believe the “savings” under the state income tax law would be any more of an incentive when the federal tax, which has much higher capital gains tax rates, would apply to those same sales. Having been introduced for a third time with a very limited window of opportunity, one has to wonder if this piece of legislation has a particular taxpayer in mind.

Finally, there is the political pandering to our men and women in uniform with a proposal to exempt non-commercial vehicles owned by members of the Hawaii National Guard, reserves, and armed services from all motor vehicle taxes. The rationale is that a similar exemption is provided for under the Servicemen’s Relief Act and this would be a way that Hawaii could show its appreciation to our men and women in the armed forces and the National Guard.

Of course did anyone read the Servicemen’s Relief Act? The reason the exemption exists is that it recognizes that service personnel who already paid vehicle taxes in their home location could be transferred to another location or state thereby preventing payment of two different state motor vehicle taxes. Conversely, if the exemption were enacted and a locally based service person is transferred to say, Alabama, having paid no motor vehicles taxes on his motor vehicle, would the state of Alabama be able to tax that car? How absurd!

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