A Veil of Secrecy Around Revenue Estimates
By Tom Yamachika, President In this week’s article, we spotlight yet another attempt by a government agency to shroud its operations in the shadows. During any legislative session, our Department of Taxation furnishes a very important service to our legislators. It provides revenue estimates on various bills going through the legislative process. Sometimes it includes in its public testimony the end result—the bill will result in the State gaining $x million per year, for example—but it doesn’t disclose how it got to that number. A local tax attorney asked for the Department’s revenue estimates on a particular bill, including the underlying assumptions, source data and documents, and computations it uses to create those estimates. After the Department refused to turn them over, he went to the state’s Office of Information Practices, or OIP. In May, OIP issued Formal Opinion F19-05, ruling against the Department and ordering the revenue estimate materials turned over. In early July, the Department appealed OIP’s decision to First Circuit Court. It won’t turn over the revenue estimates while the appeal works its way through the court system...which could take years. Under the law, an agency may withhold information if disclosing it would frustrate an important government function. The Department argues that one of its tasks is to produce objective, independent revenue estimates; that task, it argues, is frustrated when it needs to bare its soul to the public. Also, the law permits withholding of “inchoate and draft working papers of legislative committees.” The Department urges that its revenue estimates are provided for the benefit and use of legislative committees and that no other staff or agency is able to perform this function. So, I have a few questions here: Since when is the Department “objective” or “independent”? It takes positions supporting or opposing several bills each session. It’s part of the Executive Branch of government. If the Executive Branch likes or doesn’t like a particular bill, wouldn’t it be natural for the Department’s testimony on the bill, including any revenue estimate, to be colored accordingly? If a revenue estimate is “objective and independent,” what’s the harm in disclosing it to the public? According to a 2015 study published by the Center on Budget and Policy Priorities, a Washington, D.C.-based think tank, thirty-eight states routinely prepare publicly available “fiscal notes” to accompany legislation that would have a significant fiscal impact. Why are we so different from them? Revenue estimation isn’t an exact science. It depends heavily on the underlying assumptions. So, why shouldn’t those assumptions be debated and analyzed like any other opinion from any other legislative testifier? Finally, how could revenue estimates be considered the work product or work papers of a legislative committee? The Department is an Executive Branch agency. If its testimony finds its way into a legislative committee’s work papers, fine, the work papers are entitled to protection, but the source of the information, namely the revenue estimate and Department work papers, isn’t. Folks, taxpayer money paid for these revenue estimates. Shouldn’t we taxpayers at least be able to see what we paid for? This veil of secrecy needs to be lifted. We should be able to make better laws if it is.
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WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers To view the archives of the Tax Foundation of Hawaii's commentary click here. The Special Land and Development Fund
by Tom Yamachika In this week’s spotlight is the Special Land and Development Fund or SLDF, which is administered by the Department of Land and Natural Resources (DLNR). Into that fund goes all land rents the State receives for land that is either leased or used under a revocable permit (such as those used by airport or harbor-based businesses). The fund is also fed by earmarks on two taxes. HRS section 248-8 gives it 0.3% of the highway fuel tax up to $250,000, and HRS section 237D-6.5(b)(5) gives it $3 million of the transient accommodations tax, each year. Recently, the State Auditor came out with Report No. 19-12 concentrating on this fund. The Auditor raised some questions about the way the fund and some of the underlying state lands were managed, and the Department of Land and Natural Resources (DLNR) took umbrage with quite a few of the Auditor’s findings. Just to give you a flavor of the underlying mentality, the first page of DLNR’s response to the audit findings touted “the Land Division’s planning, implementing and accounting efforts [such that] the annual revenues for the SLDF increased exponentially from $6.3 million in 2010, to over $20 million in 2018.” In response, the Auditor thought it interesting to use 2010 as the starting point because it was a tremendous drop from the prior three fiscal years, where revenues averaged $8.4 million. Also, part of the increase was due to the $3 million from the TAT earmark, which took effect in 2016 (Act 117 of 2015), so how could DNLR’s Land Division take credit for that? Also, there seemed to be some problems with basic math. In 2018, DLNR told the Auditor that the SLDF consists of a parent account and 24 subaccounts. That information was used to create Report No. 18-19. This time, the Auditor pointed out that 23 subaccounts weren’t reported to the Legislature. DLNR’s response was that the SLDF has only one subaccount, and that the 23 other subaccounts, which together contained over $1 million, were sent to other divisions within DLNR. Huh? Even if the 23 other subaccounts were being managed by different divisions within DLNR, the subaccounts are still under the SLDF as the parent account and are still within DLNR. Apparently, DLNR’s Land Division apparently has a “silo mentality” that is so strong that “we don’t manage it” means “it doesn’t exist.” But the response to the Auditor isn’t supposed to be Land Division’s response, it’s DLNR’s response. The response was on DLNR letterhead and signed by its chairperson, so why doesn’t it contain input from the other affected divisions? Finally, let’s focus on another statistic the Auditor pointed out: the delinquency rate on State lands rented out. As of the end of June 2017, DLNR had $7.3 million in accounts receivable. $2.1 million of that, or 29%, was more than 60 days unpaid. Of the $2.1 million, DLNR determined that $1.6 million, or 75%, was uncollectible. DLNR’s response: “However, the Auditor’s report fails to cite to comparable delinquency rates from other State or County landlords … or the private sector. Therefore, the Department believes this criticism lacks support and is unwarranted.” Excuse me? Rent is being charged for state lands (less than market rate in many instances), the rent isn’t being paid on time 70% of the time, and it will never be paid more than 20% of the time. True, those statistics apply to just one point in time, but if you were the landlord and those statistics came from your property management company, wouldn’t you at least be asking questions? Would you even care about “comparable delinquency rates”? By the way, you’re a taxpayer so you ARE the landlord. Stop shooting the messenger and concentrate on cleaning house! WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers To view the archives of the Tax Foundation of Hawaii's commentary click here. It’s July 2019, and already we are starting to see laws passed in the 2019 Legislature take effect.
One of these laws concerns “resort fees” that hotels both here and in other states and countries have been charging their guests. A resort fee is supposed to be a payment for amenities provided to guests of the hotel. But some hotels made it so difficult to decline the fee that tax authorities, including ours, concluded that such a fee could be a disguised part of the room rate. Here, the reason why it matters is that we impose the Transient Accommodations Tax (TAT), a 10.25% tax on transient accommodation rentals, but the tax doesn’t apply to charges for Internet, laundry, meals, or other amenities. (The General Excise Tax, however, applies to both.) Last year, the Legislature concluded that the State was getting shorted because it wasn’t getting the appropriate taxes on resort fees. It passed a bill to fix the issue but ran into problems by saying that EVERYTHING charged to a tourist is a resort fee. Clearly that wasn’t the right answer, and the bill was vetoed. This year, the bill clarified that “mandatory” resort fees are subject to the TAT. The word “mandatory” is supposed to mean that if the charge can’t be avoided when a person stays at the resort, then the charge is part of the room rate and should be taxed accordingly. That bill was signed into law (Act 20 of 2019) and took effect on July 1st. The Department of Taxation recently came out with a tax information release and proposed rules to implement this new law. That guidance was the first tax information release published on any 2019 law. In it, the Department concluded that it must be possible for a guest to decline a resort fee just by asking; if not, it’s mandatory and needs to be taxed. One example in the proposed rules discusses a hotel guest who wants to decline the resort fee and is told that the fee will be charged but may be removed if the guest calls the hotel’s customer complaint line later. Too much work! It’s a mandatory fee and will be subject to TAT. Or, suppose the guest is told that the fee may be removed if the guest goes online and fully completes a customer satisfaction survey. The conclusion is the same – the fee is subject to TAT. The proposed rules also try to tackle one other topic: whether GET and TAT are “visibly passed on.” TAT is not imposed on taxes that are visibly passed on, and GET is not imposed on TAT visibly passed on. On a $100 room where $10.25 TAT and $4.71 GET are charged and the tourist pays $114.96, the hotel would need to pay $16.38 (10.25% of $114.96 + 4% of $114.96) if the taxes are not visibly passed on and $14.96 (10.25% of $100.00 + 4% of $104.71) if they are. The proposed rules say that the taxes are visibly passed on if (1) there are separate line items in the hotel folio for GET and TAT; (2) there is one line item for tax but the rates of GET and TAT passed on are separately stated; or (3) there is one line item for tax, the taxpayer passes on both taxes at the maximum rate allowed, and there are no charges on the folio subject to GET only. These, of course, are still proposed rules, and the Department is welcoming public comment on them before finalizing them. The Tax Information Release includes the full text of the proposed rules and contact information for those who would like to make their views known |
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