State Budget Solutions, a nonprofit organization advocating for fundamental reform of state budgets, released its study on the states that tax the highest number of services.
Topping the list is Hawaii with 160 services taxed, leading Bob Williams, the organization’s President, to note “Hawaii takes taxing to a new level.”
Only six states tax more than 100 services, including New Mexico and Washington, which are in second place with 158.
As State Budget Solutions notes in its report, Hawaii taxes “barber shops and salons, dating services, interior design, pet grooming, window cleaning, gift wrapping services, laundry and dry cleaning, bowling alley and amusement park admission and tuxedo rentals.”
Unlike other states, service business is also assessed a General Excise Gross Income Tax, which is equal to four percent of the gross income of the business. Some of these noted in the report are contractors, medical providers, tax preparers, dentists and hygienists, interior designers, hairstylists and/or legal services.
Lowell Kalapa, president of the Tax Foundation of Hawaii, said Hawaii’s ranking as the state taxing the most number of services is not surprising.
“We know that Hawaii’s GET is so comprehensive, taxing both goods and services that’s what is so good and bad about the tax. It has such a broad base that it allows a low rate of 4% to generate so much money and so bad in that it hurts the poor the most because nearly all of a poor family’s budget is spent on consumption of both goods and services.”
Kalapa said that is why “any whisper” of increasing the state’s General Excise Tax rate is “a death knell as it will have a severe impact on living and doing business in the state.”
Both House Speaker Calvin Say, D-Palolo, and Senate President Shan Tsutsui, D-Maui, declined to comment on the study.
Senate Minority Leader Sam Slom, R-Hawaii Kai-Diamond Head, said the “worst thing is that more services are on the horizon to be taxed here.” Slom said the long-term impact of these taxes is negative and “we are seeing that in Hawaii today.”
Williams of State Budget Solutions said states that ranked higher in this study may bring in revenue from taxing a variety of services but the taxes may be detrimental to them in the long run when businesses and taxpayers chose to live and do business in another state where they won’t be subject of over taxation.