Tax and Fee Hikes Looming at the Hawaii State Capitol

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BY MALIA ZIMMERMAN – There are more than two-dozen tax bills still alive at the Hawaii State Capitol.

Lawmakers want to pile new and additional taxes on to everything from car registrations, rental cars to alcohol, sugary drinks and Internet purchases.


The new pension tax was crippled in the Senate, but the House is still pushing the proposal.

And some lawmakers warn that although the 1 percent hike to the state’s General Excise tax might appear dead, no tax proposal really is gone until the session concludes on May 5 at midnight.

Several tax exemptions on businesses that already pay the state’s General Excise Tax, and would be double or tripled taxed without the exemption, are likely to be repealed. That also goes for General Tax exemptions for large Hawaii companies including Hawaiian Airlines, which said it needs the exemption to compete on a global scale against other airlines that don’t pay the tax but fly the same routes.

The tax and fee hikes and exemption removals are being proposed to cover a $1.3 billion shortfall for a $22 billion biennium budget, which still does not have any significant cuts or spending reductions. All reductions moving forward are due to the increases in spending that newly elected Gov. Neil Abercrombie proposed.

And although lawmakers in the House and Senate, including Reps. Kymberly Pine and George Fontaine and Sens. Malama Soloman and Sam Slom pushed for legislation that would help to improve the business climate and stimulate the economy, no significant legislation that would help business has momentum. In fact, several bills that will hurt business, including a minimum wage hike, are pending.

One tax that will likely pass is the Internet purchase sales tax. Right now there are two federal legal rulings opposing attempts to tax businesses that don’t have a physical presence in the state (see comment section below for more details). That is under the theory that the businesses don’t have to pay taxes for government infrastructure improvements and services that they will never use.

While some retailers want the Internet tax so people will be encouraged to buy local, Amazon is the main Internet business fighting the proposal in Hawaii and nationwide.

Pushing the plan in the Senate is Sens. Suzanne Chun Oakland and Carol Fukunaga and Rep. Isaac Choy in the House.

Waiting patiently on the sidelines are gambling advocates who want gambling legalized in Hawaii. Hawaii is one of two states with no forms of legalized gambling allowed. They say an estimated $1 billion worth of gambling money is leaving the state every year for Las Vegas and other gambling friendly destinations.

Proponents have suggested everything from poker tournaments, to legalized bingo on Hawaiian homelands, to a single hotel in Waikiki that houses a gambling operation.

The plan with the most momentum right now is for a single hotel in Waikiki to obtain a 10-year state license at $10 million a year for $100 million. Advocates said the state will also benefit from between $80 million and $100 million a year in General Excise Taxes as the hotel would pay 15 percent GET instead of 4 and a half percent.

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Pushing for tax hikes and legalized gambling as a means to boost state revenue are many social service providers who don’t want to see their budgets cut. They walk the halls of the capitol daily meeting with lawmakers to strengthen their relationships and their positions.

The cost for social service programs and services through the Department of Human Services will soon overtake the cost of public education. Today, Department of Education consumes $2.8 billion a year, while the Department of Human Services is at an estimated $2.3 billion per year.

Meanwhile, the public is not represented on a daily basis at the capitol, however, more than a 1,000 people wrote in to oppose the plan to raise the General Excise tax. In addition, protests are planned in every county this Friday, April 15, by the various Tea Parties and other tax hikes opponents.





  1. The Liliuokalani regime was filled with corruption. The Queen was desperate to get more money for the government. During the final few days before the revolution of 1893, the Queen used bribery and severe pressure to ram through the Legislature the last three bills of the Kingdom: to establish a government distillery, government lottery, and government licensing for a monopoly for opium sales. Thank goodness her government was overthrown before those bills could be implemented. The opium license alone carried a price tag of $500,000 — an enormous fortune back then (remember that Iolani Palace cost only $360,000). Maybe Abercrombie will balance our state budget like the Queen wanted to do — booze, gambling, and drugs.

  2. I would like to articulate the following statement:

    “Right now there is a federal law that prevents states from taxing businesses that don’t have a physical presence in the state.”

    Actually, there is no “federal law,” as described – rather there are two Supreme Court rulings: Bellas Hess v. Illinos (1967), and Quill v. N. Dakota (1992).

    In Bellas Hess it was decided that a remote retailer (then mail-order catalogs) should be obligated to collect sales tax just as a local retailer must, but the court also conceded that unlike a local retailer, a remote retailer would be “entangled in a virtual welter of administrative and record keeping burdens.” To resolve this undue burden, the remote retailers were relieved of the obligation to collect unless they had local physical presence or nexus (although the sales tax obligation of the consumer was not discharged).

    The matter also came before the Supreme Court again in 1992 (Quill v. N. Dakota), which largely reaffirmed Bellas Hess, adding that economic nexus (door-to-door salespeople) would also trigger collection obligations.

    These are important to understand because they frame the debate between the two pieces of legislation now pending in Hawaii regarding application of GET to internet retailers.

    The two questions you should ask yourself to understand these two bills:

    1. Can technology possibly calculate accurate sales tax for every jurisdiction in the US (even though it may have been to burdensome in 1967)? If you say yes, then you should support Sens. Chun Oakland and Fukunaga’s efforts.

    2. Should a hyper-link on a web page be construed to being equivalent to having a door-to-door sales person in the Aloha state? If you say yes, then you should support Rep. Choy’s efforts.

    Of course, you are free to say yes to both – although they have some overlapping goals, they are quite different pieces of legislation which are not mutually exclusive.

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