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 December 25, 2017 Constitutional Convention By Tom Yamachika, President The 2018 general election is going to be a special one for our state because we get to vote on whether to have a constitutional convention. Normally, our legislature acts as the gatekeeper for any changes to the Hawaii Constitution. No proposed amendment can even get on the ballot if our legislature hasn’t approved it. In a way, this is like the fox guarding the henhouse because one of the most fundamental functions of a constitution is to provide limitations on the power of government. If there were no limitations, the majority could do whatever it wants and could be accountable to no one except themselves. The biggest exception to this gatekeeper rule is the constitutional convention, where the people elect delegates directly, the delegates organize and vote at the convention, and the approved proposals are then presented to the voters for ratification whether the legislature or the governor likes them or not. Since we have been a state, this happened only in 1968 and 1978. A constitutional convention is authorized only when the people vote for it in an election. Normally, a proposal to have a constitutional convention can be put on the ballot only if the legislature approves it – there’s that gatekeeper role again. But our constitution itself provides that if such a proposal isn’t put on the ballot for nine years in a row, then it automatically goes on the ballot in the next scheduled general election. That is why this question is going to appear on the 2018 general election ballot. Once the question is on the ballot, the people will then need to decide if we will indeed have a constitutional convention. To have one, “yes” votes are needed – leaving the ballot blank will be counted the same as a “no” vote. Any of your government officials who are comfortable where they are can be expected to discourage people from voting yes. A constitutional convention and constitutional amendments would mean change, and change would mean discomfort for them. Change could also mean more limitations on the power of government, which those in government would instinctively resist. And then, if the constitutional convention is approved, we would need to go through the process of electing delegates. Delegates to a constitutional convention run in nonpartisan races, similar to many county offices. They campaign and get elected the same way as other politicians. Public employees are also eligible to become convention delegates. Indeed, a person who is so inclined may run for convention delegate and another elective office at the same time. They also get paid -- delegates to the 1978 convention were paid $1,000 a month. However, this election is a one-shot deal and being a convention delegate is not a realistic career for anyone. Nonetheless, there is much to be said for having a constitutional convention. Since the last time we had one, we have had revolutionary changes in our daily lives, many brought about by technology. The now-ubiquitous smartphone, for example, didn’t even exist in 1978. Its progenitor, IBM’s Simon Personal Communicator, debuted in 1992 and the Apple iPhone came out in 2007. Also, the state-county balance has radically changed since 1978. Before then, the state administered and collected real property tax; many readers of this column today probably know the real property tax only as a county function. Now, the counties have exclusive control of the tax but are constantly battling state lawmakers for other moneys such as a share of the Transient Accommodations Tax (which also didn’t even exist in 1978). As voters, we want to think hard about whether the sweeping changes in our society merit a review and perhaps an update of the document forming the bedrock of our state government. This chance might not come by again for another ten years. 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 December 17, 2017 Cybergambling By Tom Yamachika, President Our state was recently in the news when State Reps. Chris Lee and Sean Quinlan held a press conference in response to the controversy surrounding loot boxes and microtransactions in video games. Lee announced that he would be looking to introduce legislation to combat predatory practices by game publishers. He called Star Wars: Battlefront II an “online casino specifically designed to lure kids into spending money.” He added that he wants to “protect kids who are underage, not psychologically or emotionally mature enough to be able to gamble which is why gambling is prohibited under 21.” In Hawaii, our law says that gambling is where a person (1) stakes or risks something of value, (2) upon the outcome of a contest of chance or a future contingent event, (3) upon an agreement or understanding that there will be something of value received upon a certain outcome. Which means that gambling needs to have a bet, an element of chance, and a prize. Our supreme court held in 1961 (State v. Prevo, 44 Haw. 665, 361 P.2d 1044) that an entry fee, or paying just to play the game, satisfies the “bet” element. Most games, online or not, have a chance element (rolling a pair of dice, for example). So, we need to think about whether games such as this have a “prize.” The Entertainment Software Rating Board, or ESRB, as well as the U.K.’s gambling regulator, took the position that a “prize” needs to have value outside the game in which it is generated before it could be considered a prize from gambling. They feel that if only in-game items result, the “bet” is a sunk cost. It may be different if the game allows, or at least turns a blind eye to, a “black market” where people can and do trade real money for in-game items. The Hawaii law defining gambling, HRS section 712-1220, defines “something of value” in the prize context as “any money or property, any token, object, or article exchangeable for money or property, or any form of credit or promise directly or indirectly contemplating transfer of money or property or of any interest therein, or involving extension of a service or entertainment.” The last few words in this definition may be broad enough to include in-game items as satisfying the prize element of gambling. But that definition may be broad enough to sweep up lots of other things. How about paying taxes? I pay taxes, which satisfies the “bet” element. If I’m lucky (there’s the element of chance), my trash gets picked up, the pothole on my street gets fixed, or the public school that my kids attend gets a few air conditioners. What about federal law? Federal law doesn’t regulate gambling. The Unlawful Internet Gambling Enforcement Act of 2006, or UIGEA (31 U.S.C. sections 5361 to 5366) prohibits gambling businesses from knowingly accepting payments for Internet gambling activity that is unlawful under any federal or state law. This law doesn’t legalize or criminalize the underlying game. In any event, all we are talking about here is what kind of gambling constitutes criminal conduct. That’s a different question from whether parents should allow their kids to access gaming sites with a valid payment card (especially if it’s not the kid’s money). If you’re a parent who doesn’t want your child spending money on in-game items, you can check to see if games have microtransactions or loot boxes. You can also make sure that no payment method, such as a debit or credit card, is attached to consoles or accounts that they’re using. Whether you complain about loot boxes or microtransactions, the reality is that if consumers are buying them, developers and publishers will want to keep offering? them. But if you as a citizen make your voice heard, you can help make a difference as lawmakers or governments may start listening to the dialogue, as they did with the Star Wars: Battlefront II controversy. 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 December 3, 2017 The Tax Administration Slush Fund By Tom Yamachika, President In early November 2017, the State Auditor issued Report 17-10, which reviewed special, revolving, and trust funds administered by the Department of Taxation. One of them is the Tax Administration Special Fund, which, although not an area of concern for the auditor, is becoming an all-purpose slush fund for which corrective action is needed. The Tax Administration Special Fund was established by Act 215 of 2004, one of the major purposes of which was to rein in the High Technology Business Investment Credit, a whopping incentive for the high technology industry and others that was rapidly spiraling out of control. The thought at the time was that because the Department of Taxation was spending a lot of time issuing rulings on the applicability of the credits, the Department would be allowed to charge user fees for the rulings and thereby pay for a few more bodies to review the cases and pump out the rulings. The special fund was enacted for that purpose. Its authorizing statute was placed in the Income Tax Law because the high technology credit was an income tax credit. In 2009, Act 134 created a special enforcement section within the Department that was primarily targeting “cash economy” transactions, typically those where the buyer pays in cash and the seller “conveniently forgets” to pay General Excise Tax (GET). This Act amended the special fund statute so that whatever the special enforcement section brought in the door, up to $500,000, would go to the special fund; any more would go to the general fund like most tax collections. The fund was then allowed to pay for the employees in the special enforcement section. In 2015, Act 204 enacted new compliance requirements aimed at transient vacation rentals, such as bed and breakfast operators who “conveniently forget” to pay both GET and transient accommodations tax (TAT). The bill imposed fines upon those who failed to comply, and allowed those fines to go into the special fund. At this point, the fund was fed by activity relating to the income tax, the GET, and the TAT, but the statute authorizing the fund remained in the Income Tax Law. On the expense side, the Department apparently found itself with too much money in the special fund, so it asked the legislature for authority to spend the fund money on taxpayer education programs and publications. That bill breezed through the legislature and became Act 89 of 2014. Even with this extra spending authority, the fund has ballooned in recent years: Source: Office of the Auditor, Report 17-10 (2017).
The lion’s share of the State’s tax revenue goes to the general fund. The expenses of collecting that revenue should therefore be paid by the general fund. (Special funds are also charged for central administrative expenses, as we described in a previous article.) Giving any agency a special fund allows it to spend money while bypassing legislative oversight. Moreover, when fines and penalties are channeled directly into a special fund out of which tax collectors are paid, it incentivizes the Department to penalize people to maximize its revenue, when they should be administering the revenue laws equitably and fairly. For similar reasons, the Foundation raised concerns about a bill sponsored by the Department of Public Safety in 2016 that proposed to scoop any fines raised from violations of the State drug laws. That department wanted to drop those fines into their special fund so they could hire more enforcement personnel. We said that wasn’t a good way to fund government operations. Thankfully, the Conference Committee snipped out that provision from the final version of the bill. The facts and figures in the Auditor’s report highlight these concerns. The Tax Administration Special Fund, originally intended to hold a few hundred thousand dollars, has grown to $5.7 million in just a few years. Why? Has the bloodlust to collect fines and penalties taken over at the Department? The Department is given statutory powers that can and do ruin businesses and lives, and, under HRS section 662-15(2), the Department is absolutely immune from liability for erroneous, intentional, or even fraudulent misuse of those powers. So, there are very good reasons why we need the Department to act responsibly. We need to give the Department adequate resources to do its job, but a slush fund should be out of the question. |
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