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This week, we continue coverage of our legislature by highlighting some of the more unusual or remarkable tax bills being considered. We focus on bills that not only have been introduced, but that have gotten a hearing before a legislative committee and are actively moving toward enactment.
House Bill 65, for example, requires a tax clearance before any professional or vocational license may be issued or renewed. Some regulatory bodies, such as the contractors’ licensing board, do require tax clearances already. But should the same requirement apply to realtors, doctors, cosmetologists, and physical therapists? We’re concerned that there are 160,000 licenses out there. If each of them needs to be cleared every year by a system that now issues about 10,000 clearances a year, for example, it’s easy to see how the Department of Taxation might not be able to keep up with demand. Maybe they’ll have to rent some space in the convention center, bring in a bunch of workstations, and ask for a bunch of volunteers to help get the work out, just like how the Labor Department has been getting help pumping out unemployment claim determinations. The House Consumer Protection Committee heard this bill and is advancing it with some amendments.
Senate Bill 775 tries to deal with the concern that we have too many tourists on our shores (which certainly isn’t the case now). As introduced, the bill looks at visitor arrivals every year, and for every year that visitor arrivals equal or top 9 million, the transient accommodations tax (TAT) rate is automatically hiked by 2 percentage points. If our visitor arrivals drop below 8 million, the TAT drops by 2 percentage points the following year (but not below the 10.25% rate where it is now). The Senate Committee on Energy, Economic Development, and Tourism heard the bill and is passing it out with amendments.
Senate Bill 202 tries to stick it to the rich by eliminating the state income tax deduction for mortgage interest on a second home. It also specifies that the amount of state revenue saved be deposited into the rental housing revolving fund. The Department of Taxation pointed out in testimony on a similar bill last year that implementing a deduction disallowance is doable but figuring out how much was saved might not be. Hawaii net income tax phases out itemized deductions for higher-income filers, so they might not get any appreciable benefit from a second home mortgage deduction. The Senate Committee on Housing heard the bill and passed it out with no changes.
Senate Bill 497 would award a nonrefundable income tax credit to incentivize the food manufacturing industry in the state. The income tax credit would be, up to an unspecified dollar ceiling, 100% of the expenses a taxpayer incurs for buying food manufacturing equipment, training employees on its use, improving energy efficiency in the manufacturing process, or studying or planning the implementation of a new food manufacturing facility. Now, a 100% credit means that up to the dollar ceiling, the food manufacturer pays nothing and the taxpayers of Hawaii pay everything. I would have thought that lawmakers learned about 100% credits through their experiences with the qualified high technology business credit in the early 2000’s – yes, the credit that was widely regarded as a fiscal disaster. That bill was heard by the Senate Committee on Agriculture and Environment, and will move forward in an amended form.
Hold on to your wallets, folks, because this year’s great legislative adventure has just begun!
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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.