A Bold Step Forward from Diapers
Our latest tale of legislative drama starts from diapers. Literally. House Bill 2414 in this year’s legislative session proposes to enact a general excise exemption for diapers. The bill recites that diapers are a large expense for Hawaii families with small children and are essential to babies' and toddlers' health as they each require about fifty diaper changes per week, or roughly two hundred diaper changes per month. However, according to the National Diaper Bank Network, one in three families struggle to afford clean diapers for their children. Our general excise tax, the bill supporters point out, is highly regressive, meaning that people on the lower end of the income spectrum spend comparatively more of their hard-earned dollars on general excise tax. This problem has been known for several decades but has been met with inaction for the most part. It’s been well known that in this state, lots of things that are considered necessities of life are subjected to the GET, including food and medical care. So, the Chamber of Commerce of Hawaii had an interesting comment about this diaper bill. “While the Chamber supports making a general excise tax exemption for the manufacture, production, packaging and sale of diapers, we believe the bill does not go far enough.,” it sald. “The Chamber respectfully asks the committee to consider an amendment that would make a general excise tax exemption for the gross proceeds or income from the manufacture, production, packaging, and sale of food and medicine. Food and medicine are the most important and basic life necessities in this world, and still some struggle to provide those items for their families. We believe including food and medicine into the general excise tax exemption would further help families in need.” Similar comments were made by the Hawaii Restaurant Association, Hawaii Food Industry Association, and Retail Merchants of Hawaii. Apparently, that was enough to spur the Senate Committee on Energy, Economic Development, and Tourism into action. On March 18, the committee voted to amend HB 2414 to add an exemption for food and medicine. The text of the amended bill was not released by our publication deadline. An exemption for food and medicine would indeed be a bold step forward. It would undoubtedly have a massive revenue cost, but a massive impact as well. To be sure, such exemptions have been proposed in the past and have mostly fallen to the wayside. Lots of arguments have broken out, not only here but also in other states that have similar exemptions in their sales tax, about what kinds of food and medical care are “necessities,” presumably deserving of the exemption, versus “luxuries,” which presumably are not. For example, would you exempt a doctor’s fee for performing plastic surgery? Would your answer be the same if the surgery was necessary to put a person back together after getting in a car crash? If a line needs to be drawn somewhere, how do you draw it? But—and this may be the point the Senate Committee is trying to make—the difficultly in drawing that line shouldn’t be an excuse for not doing anything about the problem. We have a social problem in that our tax system is regressive. It hits people harder when they have less of an ability to pay it. How do we address that problem in a fair and thoughtful manner, as opposed to simple-mindedly saying that we should enact more and larger taxes that really beat the heck out of those who have some money?
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Non-Ad Valorem Property Tax Financing
In our Legislature this year, there is a bill advancing that contains an innovative (or horrible, depending on your point of view) idea for financing certain home improvements. Let’s say you own a home and you need or want a septic system, connection to a sewer system, clean energy technology, efficiency technology, or a resiliency measure (whatever that means). The bill, HB 2088, creates a program where you could go to a lender, borrow money to make that improvement, and then repay the loan with payments that are added to your property tax bill. If you have a mortgage on the home, like most folks do, you won’t have to worry about your mortgage lender getting upset about a new loan coming on to the property. The bill provides that although the new loan would be repaid through the property tax system, and property tax payments get paid first if something bad happens and the property is foreclosed, the new lender only has to notify the mortgage holder of the new loan and the mortgage holder would not be able to do anything about it. In that way, the supporters of the bill say, the governments can help homeowners obtain loans for socially desirable improvements to the property that would make the home safer or enable it to use green energy. For example, the bill recites that there are 11,000 cesspools on Oahu that all must be upgraded by 2050 to preserve the integrity of our ground water. In other states, as of 2019, over 200,000 homeowners have made $5 billion in energy efficiency and other improvements to their homes through this kind of financing. Typical home improvement projects include replacement of broken or failing heating and cooling systems and hot water heaters; air sealing and insulation; ENERGY STAR doors, windows, roofing; ENERGY STAR appliances; solar photovoltaic systems; and water conservation and resiliency measures (e.g., seismic retrofits and wind hazard protection). This type of program is now available in California, Florida, and Missouri. The banks, in the meantime, are screaming bloody murder. They point out that when they analyze a potential mortgagor’s collateral and ability to repay a loan, they assume that there will be no other, later loan that will hop ahead of the mortgage in lien priority. There will be situations where the bank will be confident that the borrower would be able to repay both loans, and in those the bank would be willing to voluntarily consent to the non-ad valorem property tax financing. But the banks are worried about the parts of the bill that would force them to accept a new loan that they wouldn’t otherwise consent to, and they say it’s unfair and unconstitutional for the government to come in and alter their contractual relationships with their borrowers in that way. So the Hawaii Bankers Association, the Hawaii Credit Union League, the Mortgage Bankers Association of Hawaii, and the Hawaii Financial Services Association submitted testimony opposing the bill; and even the Department of the Attorney General has weighed in with some concerns that the bill might be unconstitutional because it impairs the obligation of contracts. So what is going to happen here? Is the dogfight between the bill supporters and the lenders going to continue? Will there be a compromise legislation that satisfies all interests? The bill is set to cross over into the Senate, where there will be further testimony and debate. 2022 Legislative Briefings
We are halfway through the 2022 Legislative Session. Join us for this important update on measures after First Crossover. President Yamachika's highly sought after expertise regarding tax, fiscal law and legislation is once again available to you, via Zoom! President Yamachika will discuss tax and fiscal related legislation as well as the potential implications of newly proposed measures so you, Hawaii's tax paying citizens, are informed. Topics will include the status of current/pending legislation affecting taxes and public finance, and the impact of recent external events such as the Hawaii Supreme Court’s “gut and replace” ruling and the American Rescue Plan Act restrictions on states receiving federal aid. The 2022 Sessions will be held on the following Tuesdays at 7:30 a.m. via Zoom: March 15, 2022 April 12, 202 May 17, 2022 These in depth sessions are worth 1 CE credit per session (4 total) for licensed Hawaii Accountants/CPAs. There is a $25 CE processing fee per session. The Legislative Briefings are also open to general public. For those who don't require CE credit, only a donation amount of YOUR CHOOSING is requested to attend. Please register today! Click here to register now! |
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