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. Weekly Commentary For the Week of March 31, 2019 Judgments Aren’t Necessarily the End of Litigation By Tom Yamachika, President Several online travel companies engaged in protracted litigation against the Department of Taxation over whether and to what extent they are liable for Hawaii General Excise and Transient Accommodations Taxes on hotel accommodations that they sold to third parties on their respective platforms. The litigation spanned multiple years, resulted in one exhaustive Hawaii Supreme Court opinion, In re Travelocity.com, Inc., 135 Haw. 88, 346 P.3d 157 (2015), and then resulted in entry of judgment. Before the ink was dry on those judgments, the Department of Taxation produced additional assessments against the taxpayers, this time on car rental commissions, for the same tax type (General Excise Tax) and for many of the same years as those covered in the judgment. Can they do that? The Supreme Court of Hawaii’s answer: Yes, they can. The case name is In re Priceline.com, Inc. The decision was rendered on March 4, 2019. Normally in civil litigation, if A sues B, both A and B need to include in the lawsuit all the claims that each of them has against the other. If the lawsuit goes to trial and final judgment is rendered, the controversy between A and B is at an end. The courts won’t be too happy if either A or B had some other beef, for whatever reason forgot to put it into the suit, and now wants to do another trial. “Not happening,” they’ll say. When one of the litigants is the Department of Taxation exercising the government’s sovereign power, however, the rules are a little different. Basically, they want to make sure that the government’s rights are not lost through a boo-boo made by some random government official. Such as the ones who agreed to the lower court’s judgment when there were still car rental taxes to be paid. This decision isn’t as outrageous as it sounds. First, it only applies when the accused taxpayer has not filed a return. If a return has been filed, there is a statute of limitations that runs against the State. Second, if the taxpayer and the State have actually litigated the issue that the taxpayer is complaining about, the State is barred. It won’t get another shot at litigating an issue it has already litigated and lost. The rule is apparently designed to protect the State if the taxpayer has never filed returns and is not forthcoming with any information, the Department digs up information about income source #1, assesses, litigates, and obtains judgment, and then later digs up information about income source #2. Still, it’s tough to accept that the second wave of assessments should be allowed here. When the online travel companies were first audited, their books were exposed to a thorough and searching examination. If no one was playing “hide the ball” (if some of that went on, that would be actual fraud, with understandably dire consequences to the fraudster), the financial details of both the hotel and the car rental income would have been fully exposed to the Department’s auditors. If the Department was fully aware of the issue but decided not to pursue it in the assessments and litigation, then they should be made to sleep on the bed that they made for themselves. Judges and taxpayers alike should take this ruling to heart. Taxpayers need to understand that filing their annual returns is critical. Those with disputes must make sure that the case being litigated contains all the Department’s claims. If the Department is declining to pursue one or more issues that come up in an audit or assessment, this fact must be made clear in the record so the Department cannot later claim to be blindsided and take advantage of this case precedent.
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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. Weekly Commentary For the Week of March 24, 2019 Post Those Tax Returns, Darn It! By Tom Yamachika, President One of the more debate-worthy bills at our Legislature (Senate Bill 94) involves requiring candidates for President and Vice President of the United States to post their tax returns on the Internet. If they don’t, the bill says, they won’t appear on the Hawaii ballot and even if they somehow win, the folks that we send to the Electoral College won’t be allowed to vote for them. Is this kind of restriction even legal? After all, the qualifications for federal elected office are prescribed by the Constitution of the United States. Does the state have any business adding to those qualifications from their own perspective? The Supreme Court already has said no. In Arkansas, voters amended their state constitution to set term limits on their own Congressional Representatives and Senators, and if the term limit was up, the candidate’s name would not appear on the ballot. The Supreme Court, in U.S. Term Limits, Inc. v. Thornton, 514 U.S. 779 (1995), held that Arkansas couldn’t do that. That’s why our own Attorney General has raised questions about this bill. In addition, we in Hawaii have a constitutional right to privacy. Private information includes financial information, and information on tax returns is confidential under our state law, as it is in all states. We ask taxpayers to bare their souls, or at least the financial part, to our tax agencies so they can collect the right amount of tax; and in return, we instruct our agency workers, under pain of criminal penalty, not to share that information with others unless they have a legitimate right to know. Occasionally, we require people aspiring to higher office to make financial disclosures. We see these requirements as necessary to protect transparency and ethical behavior. If we know what companies a responsible government officer has a financial interest in, for example, we can scrutinize those transactions more carefully for any conflicts of interest. What people might not already know is that candidates for President and Vice President of the United States already are required to make financial disclosures to the Federal Election Commission, which then turns over the information to the Office of Government Ethics. The financial disclosures for the President and Vice President can be downloaded from this page. The law prescribing the contents of those reports, 5 U.S.C. App. § 102, requires disclosure of the source, type, and amount of income from any source, including honoraria; all gifts, other than from family; all liabilities exceeding $10,000; and tons of other information, more extensive than that normally found on a tax return. President Trump’s financial disclosures for 2017 and 2018 were 98 and 92 pages, respectively. With that kind of information already available publicly, one needs to wonder what, if anything, disclosing a federal tax return would add. Thus, we raise the question, “Why do we need this bill?” Do we need it to thumb our noses at the President and Vice President? Do we want to help the IRS because we think that embarrassing or false information may be in those returns and that the IRS won’t be able to deal with it? Are we trying to prove that Hawaii has more ethics than anywhere else? And if we think it’s such a great idea, why don’t we apply it to state executives, judges, or legislators? 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. Weekly Commentary For the Week of March 17, 2019 Blank the Amount, Defect the Date? By Tom Yamachika, President If you’re following bills as they move through our legislature, there are a couple of practices that we need you to know about. Often, committee chairs will refer to one or both of these practices when they move bills forward. Each bill must have an effective date so that we know when it starts doing what it is supposed to if it’s signed into law. Typically, income tax bills become effective for tax years beginning after a certain date. Excise tax bills usually become effective on July 1st to coincide with the start of the State’s fiscal year. “Defect the date” refers to setting the effective date very far in the future, such as July 1, 2050, so the bill would have no effect if enacted into law in that form. A bill with such an effective date is still alive, but the legislators are not comfortable enough with it to let it pass in that form. Instead, they are willing to let the bill survive for now “so that the discussion can continue,” but they want to take a look at it again, perhaps in conference committee, before deciding whether to send the bill to the Governor’s desk. “Blank the amount” is a similar technique that can be used whenever a bill has a number in it. The technique is often used on an appropriation bill that sets aside a certain amount of money to do what the bill proponents want. It can also be used to earmark tax revenues, as is done with SB 1474 Senate Draft 2 that proposes an increase in the GET. The bill now specifies that “__ per cent or $ _____, whichever is greater, of the revenues shall be deposited into a special account in the general fund for appropriation to and expenditure for operations of the department of education.” A similar clause is provided for operations of the University of Hawaii. Obviously, bills with blank amounts in them won’t have much of an effect if they are enacted in that form, even if they have an effective date that is not defective. (We actually enacted such a bill in 1999. Act 306 of 1999 enacted credits for the construction or renovation of a “qualified resort facility” and a “qualified general facility.” The credit amounts were percentages of the capitalized costs but were left blank. The Department then refused to allow any credit under these circumstances, as it explained in Department of Taxation Announcement No. 99-27.) Bills with blank amounts perhaps serve the same purpose as bills with defective effective dates, but the blank amounts are quite a bit more problematic. First, it’s easy to imagine that what goes in the blank will have a difference in our lawmakers’ willingness to vote for the bill. A lawmaker who might be willing to stomach an increase in the base GET rate from 4% to 4.5%, for example, might be outraged enough to hit the “No” button if the bill’s proponents wanted to fill in the blank with 7%. Next, the Department of Taxation normally calculates the revenue impact of a tax or credit bill, because that information is important to lawmakers. If such a bill has a blank amount in it, it would be easy for the Department economists to throw up their hands and say, “We have no idea! Obviously, it would depend on what you guys put in the blank.” It is common for the defective dates to be fixed, and for the blank amounts to be filled in, when a bill pops out of conference committee. At that point, of course, the deal is done and there is no opportunity for public hearings or testimony. The public can still weigh in on the process by contacting individual legislators in hopes of swaying their votes on the floor, but for many of us that seems to be a waste of effort. Can the system be improved? We hope so! |
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