Shoots from the Grassroot Institute – Feb. 5, 2004-How to Increase State Revenues

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The Hawaii Legislature is consistent. The majority of its members
consistently want to raise taxes. Year after year they complain that
there is never enough money.

Year after year they come up with their solution of choice. Raise


They still have not realized that there are at least two other methods to obtain the desired monetary result.

*1) Cut spending — an idea whose time has not yet come to Hawaii

*2) Collect all the tax revenue that is due.

This second choice is consistently overlooked.

Believe it or not, there are mainland companies doing business in Hawaii that are not paying any Hawaii Tax, be it General Excise Tax or Income Tax.

To illustrate my point, let us take a service sector that I am familiar with, the Professional Employers Organizations industry.

PEOs are required to pay a 4 percent GET on all revenues collected, whether they were collected for the purpose of payment of Payroll Tax or mandated benefits or administrative charges.

PEOs are required to pay the 4 percent GET on the employers portion of FICA and Medicare. PEOs are required to pay the 4 percent GET on State and Federal Unemployment Tax.

PEOs are required to pay the 4 percent GET on mandated benefits, such as Workers’ Comp, TDI and Health Insurance. PEOs are required to pay the 4 percent GET on the administrative costs passed on to their clients.

The amount of money paid to the state via the 4 percent GET by PEOs is substantial to the PEO.

It is also a nice revenue source to the state of Hawaii.

This revenue stream is being eroded by mainland PEOs gaining market
share in Hawaii. These mainland organizations do not pay the GET. This nonpayment gives them a 4 percent competitive advantage.

Local PEOs are subsequently at a 4 percent tax disadvantage compared to mainland PEOs.

The effect of this uneven playing field is twofold. The state is
getting decreased revenues from local PEOs and it is getting a zero revenue stream from the mainland PEOs.

Is the state of Hawaii pursuing these mainland companies? The answer is a very loud no.

The question is: Why not?

The amount of manpower or revenue required to pursue and collect from
these mainland companies would probably be offset by the increased tax collections generated.

So, why not pursue these companies?

Give the local taxpayers an even playing field, and watch us prosper.

Go get ’em Mr. Kawafuchi!

”’Jack Schneider is the chairman of the Board of Directors for the Grassroot Institute of Hawaii and the vice president of Small Business Hawaii. He can be reached via email at:”’

”’This editorial is intended to provoke thought, discussion and an examination of issues. It does not reflect official policy of the Grassroot Institute of Hawaii. See the GRIH Web site at:”’

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