2016 Hawaii Legislative Watch: Taxes
The 2016 Hawaii Legislative Session started on January 20. It’s hard to believe, but 2,658 bills are under consideration in the House of Representatives and 2,371 bills are up for debate in the Senate.
This year, I’m highlighting bills that focus on taxes, education, individual rights vs. government powers, and (in my opinion) controversial issues. It would be impossible for me to read every bill in such a short time, so I’m relying on bill summaries to accurately reflect a bill’s intentions.
Here is an overview of the significant tax bills being proposed in the 2016 Legislative Session. There are over 45 income tax credit proposals, over 15 General Excise (GE) tax exemption proposals, and proposals to increase and decrease taxes and fees – a jumble of tax savings and tax increases, but all of it meaning more paperwork and forms.
I’ve grouped the bills into three sections: 6 tax proposals we should fear, 6 tax proposals that help Hawaii taxpayers, and 12 tax proposals to watch for – the good, the bad, and the ugly. If I’ve missed any significant bills, please let me know!
6 tax proposals we should fear:
- General Excise (GE) tax on Internet purchases. SB259 would allow Hawaii to adopt the Streamlined Sales and Use Tax Agreement to tax online purchases.
- Increases to the retail GE tax. HB2731 and SB2599 would increase the GE tax from 4% to 5% to fund Department of Education (DOE) operations. HB 330 would increase the GE tax from 4% to 5% for a two-year period to provide a dedicated funding source for the acquisition of agricultural lands. HB1240 would increase the GE tax by 0.25% to provide a dedicated founding source for the DOE.
- Increases to the wholesale GE tax. HB1137 would increase the wholesale GE tax from 0.5% to 1.5% to fund Hawaii’s unfunded liabilities for the EUTF and ERS. SB1317 would increase the wholesale GE tax from 0.5% to 1.0% in 2016 and 2017 for infrastructure development and public schools.
- Surcharges on real property taxes. HB2065 and SB2292 would raise property taxes to fund public school capital improvements projects. HB2210 would raise property taxes collected from oceanfront properties to fund coastal protection.
- In 2059, you may owe GE taxes you didn’t know you owe. HB968 HD2 SD1 would make a taxpayer liable for any amounts passed on and separately stated as the tax owed by the taxpayer for the transaction in a receipt, contract, invoice, billing, or other evidence of the business activity. There’s also a civil penalty and reporting of violations.
- More GE tax paperwork and higher fees. SB2927 requires that GE tax licenses be renewed annually.
6 tax proposals that help Hawaii taxpayers:
- No GE taxes on wholesale transactions. HB1915, HB1973, SB946, and SB2705 repeal the GE tax on all intermediary business transactions.
- No GE taxes on food and medicine. HB419 proposes GE tax exemptions for food starting in 2020 and for medical services starting in 2018. HB1922 proposes GE tax exemptions for food starting in 2021 and for medical services starting in 2019. HB477, HB984, SB957 propose GE tax exemptions for food, while SB2006 proposes GE tax exemptions for certain food or food ingredients. HB1062 and SB2054 propose GE tax exemptions for medical services.
- Encouraging businesses and economic growth. HB470, HB1977, and SB958 repeal the corporate income tax. HB2667 and SB3012 reduce the corporate income tax rate by 50%.
- Helping seniors who worked and saved. HB245 excludes retirement income from the state income tax for taxpayers 65+ years.
- No penalty (double-taxation) for dying. HB476, HB1978, SB959, and SB2710 repeal inheritance and state taxes.
- A supermajority required to raise taxes or create new taxes. HB423 proposes a constitutional amendment to include a two-thirds supermajority voting requirement for the legislature to pass laws that raise taxes or create new taxes.
12 tax proposals to watch for – the good, the bad, and the ugly:
- GOOD: Tax at every level of production vs. retail sales tax. SB529 and SB1222 create a tax reform task force to review the general excise (GE) tax versus a sales tax.
- BAD: Keeping visitors away from Hawaii. HB2702 and SB2945 increase the Transient Accommodations Tax (TAT).
- GOOD: Tax credit for teachers. HB13, SB821 SD1, and SB2624 give school teachers a tax credit of up to $500 for out-of-pocket classroom supplies.
- BAD: Surcharge on wireless phones. HB431 imposes a prepaid wireless 911 surcharge of 1.2% of each retail sale. HB2276 and SB2805 impose a 66¢ surcharge for E911 per prepaid wireless transactions. SB193 SD2 HD2 imposes an unspecified prepaid wireless E911 surcharge per retail transaction.
- GOOD: Encouraging diversity in hiring. HB343, HB1870, and SB2219 offer a tax credit for six months for hiring an individual with a disability. HB1276 HD1, HB1871, and SB2218 offer a tax credit for an individual age 65 or over.
- BAD: Dollars for voting – can we trust the vote of someone who was bribed to do it? HB789 would offer a tax credit for voting in elections.
- GOOD: Calling all doctors. HB1073 offers a temporary income tax exemption for physicians and osteopathic physicians who relocate and practice in Hawaii.
- BAD: Higher taxes for a bigger social program. HB1253, HB1885, SB272 SD1, and SB2478 establish a long-term care surcharge on state tax to pay for claims for defined benefits under the long-term care financing program.
- GOOD: A helping hand for farmers and food security. HB2117, SB224 SD1, and SB2440 offer a tax exclusion for the first $50,000 earned to farmers earning less than $200,000.
- BAD: Higher taxes for drivers. HB2409 and SB2938 increase the State Fuel Tax and State Motor Vehicle Registration Fee, and state motor vehicle weight tax.
- UGLY: Warning ahead – higher GE taxes possible. HB320 and SB426 extend the deadline to establish a county surcharge and increase the maximum surcharge from 0.5% to 1.0%.
- UGLY: Politically self-serving. HB2600 allows an income tax deduction for political contributions.
If you feel strongly about an issue, please speak up! Contact your state senator and representative by phone, mail, or email. Talk to your family, friends, co-workers, and neighbors. Write to a local newspaper or magazine.