I was recently traveling with a friend from Southern California who owns many rental properties. I told him that the gross receipts from rent on properties in Hawaii are subject to the General Excise Tax. He was stunned. He said if that were the case in California he'd go out of business.
Here's our law: On gross income, gross receipts, or gross proceeds of all business activities at following rates: 4 percent (4.5 on Oahu) on retail sales of goods, sale of services, contracting, commissions, rent, interest, and other activities.
What's more, if I understand the law correctly, an excise tax payment on rent — it not being a sales tax — is not deductible on either your federal or state return, right?
I would guess (I'm not in the rental business) that what happens here is that landlords build that tax, plus the state's tax-on-the-tax, into the rent charged to the tenant. Plus the property tax.
I fully understand the need for sources of government income through taxes. I pay federal and state income tax and the 4.5 percent excise tax on every column I write for MidWeek. Fair enough, I guess.
But I have some reservations, not totally clarified, about taxing rental income and exacerbating our severe rental and homeless problems. I definitely don't approve of the excise tax on food and have always supported the local GOP effort to remove it.
I'd like to see state lawmakers revisit tax policy in 2009 in the spirit of making life better for low-to-moderate income households.
I'd encourage them to drop the food tax and find another source borne by upper income earners, consider restraints on rental-income excise taxation, and perhaps make up the difference by permitting a more progressive property tax on homes evaluated at more than $5 million; also use some of that added revenue to allow greater depreciation on rental owners who freeze or adjust rents at nothing more than the current property tax adjustment (allowing for renter payment of utilities.)
This will not be a year for tax cuts unless we cut spending drastically. I know that. But I firmly believe in putting a large share of the tax burden on those with the highest incomes and holdings.
So I'd suggest some kind of excise tax surcharge on a favored rental property owner at the time that a property is sold for a profit after recaptured depreciation.
In return we should elevate the immediate capture of transfer-of-property taxation on all properties sold in excess of $5 million. And for the building permits for those properties.
I know these are social solutions anathema to conservatives who want to make and keep their money, but it's become obvious in the current financial crisis that we do have many "socialist" interventions in this country for the good of all people.
Mine are not radical.
Bob Jones is a columnist at Midweek. Email him at mailto:BanyanHouse@hula.net
