TAXWatch: Thirty Years of State Tax, Part 2

Q:  We continue our series on the past 30 years of state tax with our researcher, the Hawaii State Tax Watch Doggie’s wife.

Watch Doggie:  And me!

A:  Oh!  So you finally finished barking at the garbage truck?

Q:  We’ve been talking about the taxes that have ballooned over the years.

Doggie:  And next on our list is conveyance tax.  This needs to be paid whenever real estate is bought or sold.

A:  It also applies to some real estate transactions other than sales.  For example, when real estate is leased. In that situation the taxable amount is the present value of the rent payments.

Doggie:  When the tax was originally enacted in 1966, the tax rate was 5 cents per $100 of price paid.

A:  That was the rate 30 years ago.  The tax didn’t raise much revenue.  It was designed to require buyers and sellers to report the amount paid in real estate transactions because it wasn’t in the recorded deeds.  That information was needed to properly administer the real property tax, which the State handled before the 1978 Constitutional Convention decided to transfer the real property tax to the counties.

Doggie:  Over the years, the tax rate was hiked again and again.  Now, the top rate is $1.25 per $100 of price paid for a condo or single-family residence that doesn’t qualify for a county homeowner’s exemption, and $1.00 per $100 for other property.

A:  And there are two earmarks on the tax, 10% for the land conservation fund and 50% for the rental housing revolving fund.  According to the Department of Taxation’s annual reports, the tax brought in about $3.5 million in fiscal year 1995 and a whopping $100.6 million in fiscal 2018.

Doggie:  How’s that for explosive growth?

Q:  So what happened to our individual income tax, which is near and dear to our hearts?

A:  In 1989, our top individual tax rate was 10%.  The standard deduction for a married couple filing jointly was $1,900, and personal exemptions were $1,040 per person.  A family of four at median household income ($38,829 in 1989, according to DBEDT’s 2018 Data Book) would have $32,769 of taxable income and would need to pay $2,393.  They would be in the second bracket from the top where any extra dollar made would be taxed at 9.5%.

In 2018, the most recent filing year, our top individual tax rate is 11%.  The standard deduction for a married couple filing jointly is $4,400, and personal exemptions are $1,144 per person.  A family of four at the 2017 median household income ($91,460) would have $82,484 of taxable income and would need to pay $5,359.  They would be in the fifth bracket from the top where any extra dollar made would be taxed at 7.9%.

Doggie:  That doesn’t look like explosive growth.

A:  I think that’s because people watch the income tax carefully, while they might not understand or appreciate the specialty taxes.

Q:  Our mission at the Foundation for the past 60 years has been to promote and encourage efficiency and economy in Hawaii government at both the state and county level and to make sure people have enough information to watch all the taxes carefully.

Doggie:  If people don’t, bad things might happen, as we found out with the TAT, the barrel tax, and the conveyance tax.  Keep your eyes peeled and bark if something looks funny! We will!

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Tom Yamachika is the President of the Tax Foundation of Hawaii, a private, nonprofit educational organization dedicated to informing the taxpaying public about the finances of our state and local governments in Hawaii. Tom is also a tax attorney in solo practice and has been since early 2013. Prior to 2013, he was with the accounting firm Accuity LLP, which was formed in 2006 from the Honolulu office of Coopers & Lybrand (which later became PricewaterhouseCoopers). Before that, he served as an Administrative Rules Specialist in the State of Hawaii Department of Taxation from 1994 to 1996, where he drafted rules, interpretive releases, and legislation on several different state taxes. Prior to that, he practiced litigation and tax law with Cades Schutte Fleming & Wright in Honolulu.