Blockbusters Buried in “Tax Administration”
Every year, our Department of Taxation submits bills to the Legislature for their consideration. Those bills are included in the Governor’s Package. Under our laws (section 231-3(7), HRS), the Department is supposed to recommend “any amendments, changes, or modifications of the laws as may seem proper or necessary to remedy injustice or irregularity in taxation or to facilitate the assessment of taxes.” So the Department of Taxation is sponsoring SB 3145 and HB 2177 (same bill, introduced in both chambers of the legislature) “Relating to Tax Administration.” That bill contains a few things that do sound like boring administrative stuff. It expands the Department’s authority to require electronic filings. It makes professional tax preparers file returns electronically. It takes away the fee for certified copies of tax clearances (but that doesn’t affect the Department’s ability to charge for tax clearances themselves, even though they don’t charge for them now). Then we get to penalty enhancement. This is where the bill starts getting scary. First, it says that late filing penalties, which are now 5% a month but are capped at 25%, can go to 75%. That wouldn’t be relevant to most of us who are diligent and file our taxes on time all the time, but if a person falls off the system for one or two years for whatever reason, the penalties can get pretty intense. Right now, unlike in the federal system, a taxpayer who misses a return can and occasionally does get written up for 70% penalties (25% for failure to file, 25% for negligence, and another 20% for substantial understatement). Penalties are added to the tax and bear interest at 8% just like tax, so everything adds up quickly. The bill would change the 70% to 120%, more than the tax owing. Next, it adds a new penalty for returns that are late but that do not show tax due (including situations where the government owes the taxpayer money). Those returns aren’t currently penalized. The bill gives the Department the authority to impose a penalty anyway and determine the amount of that penalty itself without further legislative action. Next, it takes aim at informational returns where no tax is due. These would include the Hawaii versions of Form 1099 and Schedule K-1. If these forms aren’t filed on time, the penalty is $200, times the number of recipients of the forms, times the number of months that the returns are late. The federal code has a version of this penalty in place and the Department’s saying that it’s high time we adopted it too. It then makes a grab for interest on money paid on disputed taxes on appeal. Occasionally folks don’t agree with the Department’s assessment of tax due, and the system allows the taxes to be paid and set aside while the courts or the Board of Review determine who is right. The bill says that if the taxpayer wins, the State will pay the taxpayer 4% on the money held if the taxpayer is an individual, 3% if the taxpayer is a corporation getting back less than $10,000, and a measly 1.5% if the taxpayer is a corporation getting back more than $10,000. But if the taxpayer wins, it’s the taxpayer’s money so why is the State allowed to profit by giving the taxpayer a below-market interest rate? The Hawaii Supreme Court used to have a rule saying that because the money is held in a special account, the actual earnings in the account attributable to the taxpayer’s money would be refunded to the taxpayer if the court ruled in the taxpayer’s favor. Perhaps we should go back to that rule. Both the House and Senate bills are alive at this point in the legislative session. We’ll give you more session updates in the coming weeks.
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PRESIDENT’S MESSAGE
Aloha Members, We are asking for your support for the upcoming elections. This year in Maui County, there will be races for Governor, Lt. Governor, Mayor, nine County Council seats, three State Senate seats, and six State House of Representative seats. It's a critical year to make sure our voice is heard! West Maui Taxpayers Association (WMTA) Political Action Committee (PAC) Fund – Donate today! We are seeking donations to our WMTA Political Action Committee (PAC). We need to ensure that our voices are heard and support our leaders who promote policies and positions that are favorable to our West Maui community. A strong PAC account will allow us to achieve this goal. WMTA PAC supports Hawaii State and Maui County candidates who understand and back our community needs of both residents and visitors. The WMTA PAC is not affiliated with any political party or candidate. You can donate through a business or personal contribution, or both. Please refer to the PAC Donation Form tab below to review donation guidelines. I invite each of you to support the WMTA PAC and strengthen the voice of our community! WMTA PAC Candidate Committee – Seeking Volunteers! Every election year, WMTA forms a candidate committee comprised of two WMTA Board members and five members from our general membership. These five seats are open to any WMTA member in good standing. There is a significant time commitment, beginning with monthly meetings in March, more frequent meetings this summer, and possible attendance at candidate events. This committee will place a proposed slate of endorsed candidates before the WMTA Board of Directors. If you are interested in participating in the WMTA PAC Candidate Committee, please register using the committee sign-up tab below. Thank you for your consideration and support We Have a Health Care Crisis – And Our Taxes Aren’t Helping We have a health care crisis on our hands. According to a study by the University of Hawaii School of Medicine, there is a shortage of physicians in Hawaii. The school has forecasted that the gap between supply and demand is now close to 1,000 doctors, and it has been getting worse over the years. Source: University of Hawaii, John A. Burns School of Medicine.
This shows a problem, although highlighted by the recent pandemic, that has been years in the making. According to reporting by the Grassroot Institute of Hawaii, Hawaii’s healthcare crisis includes a growing doctor shortage, lack of specialty care in rural areas, high emergency room wait times and the fact that we have among the fewest hospital beds per capita in the nation. Its causes include a low Medicare reimbursement rate, General Excise Tax (GET) applying to medical practices, and our sky-high cost of living. Medicare, for example, is supposed to pay for health care for seniors that need it. Medicare will only reimburse medical work at “reasonable charges” and will not reimburse the doctors for the GET they have to pay. Doctors usually wind up absorbing the tax rather than attempting to surcharge their patients for it, meaning they have to account for yet another expense amidst Hawaii’s high cost of everything. In our current legislative session, there is a bill (HB 1407 / SB 2020) to disallow the wholesale GET rate of 0.5% on a sale unless there is a resale at the retail 4% rate that follows it. The Department of Taxation testified strongly in favor of it, while different hospitals and health care organizations testified it would be a disaster for them. The House committee hearing it advanced the bill forward, while the Senate Ways and Means Committee deferred it. The fate of the bill is uncertain at this point. There may be people out there thinking that, well, doctors are rich fat cats, so why shouldn’t we tax them up the wazoo? The short answer to that question is that they are going to jump on a plane and get the heck out of here – which is backed up by the statistics discussed earlier in this article. Then, of course, they won’t be around when you need them. And we need them. Wouldn’t you say so, legislators? |
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