Hawaii News Now: Tax Foundation files lawsuit against state for skimming rail tax

Hawaii News Now

By Jade Storms Posted: Oct 21, 2015 5:17 PM HST Updated: Oct 21, 2015 5:29 PM HST

Hawaii News Now – KGMB and KHNL

HONOLULU (HawaiiNewsNow) –

A new lawsuit is accusing the state of skimming millions of dollars from the Honolulu rail project.

Since 2007, the State Tax Department has charged Oahu residents nearly $170 million just to collect the half percent tax to fund the rail project.

But in a lawsuit filed in state Circuit Court on Wednesday, the Tax Foundation of Hawaii says the state has been illegally overcharging for those collection services.

The Tax Foundation said it wants that money to be spent on the rail project or returned to taxpayers.

“Because the state is collecting the tax on behalf of the city, they’re entitled to something. But this is too much. It’s way too much,” said Tom Yamachika, president of the Tax Foundation of Hawaii. “We basically want the practice of skimming stopped.”

The state declined comment, but in a recent opinion the Attorney General’s office said the fee is legal since it was approved by the state Legislature.

The state receives a 10 percent cut, or $20 to $30 million a year, for collecting the half a percent rail tax. But Yamachika says the state’s true costs are about $2.5 million a year.  [Editor’s Note:  At the time the law was being considered the Department estimated ongoing costs at $2.5 million a year, according to its testimony.  Actual costs were probably far lower.]

Honolulu Mayor Kirk Caldwell said he unsuccessfully lobbied the state Legislature two years to reduce the fee to 2 percent. He said the money could help ease the rail project’s projected cost overruns.

“I calculate it over $400 million over the life of the project. It’s a lot of money,” Caldwell said.

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