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 April 16, 2017 Tax Casualty? Maui County Carnival By Tom Yamachika, President The 2nd Annual Maui County Carnival, scheduled for April 6-9, 2017, has been cancelled. Skyrocketing state government fees have been blamed as one reason for the cancellation. In April 2016, E.K. Fernandez Shows brought the carnival to Maui for four days at the War Memorial Complex in Wailuku. The inaugural event featured rides, games, food, entertainment and special attractions. The Boys & Girls Club on Maui was the primary nonprofit beneficiary of the carnival. This year, E.K. Fernandez Shows announced that it was cancelling the carnival. The company cited huge increases in shipping rates, over 40% in the past three years, which they said made it almost impossible to ship the necessary equipment from Oahu to Maui. They said that they tried unsuccessfully to negotiate a more competitive shipping rate with the shipper. In Hawaii, there is only one company licensed to provide interisland shipping, namely Young Brothers. A company spokesman said that E.K. Fernandez was offered a special charter voyage to take all the equipment over on a single trip, the rate for which was about 9% higher than it was in 2016. More than half of the increase, around 5%, was blamed on an increase in State wharfage fees. Wharfage fees are what the State Department of Transportation, Harbors Division, charges shippers using the harbors in Hawaii. As we reported earlier this year, wharfage fees charged by the Harbors Division were hoisted 17% on February 1, 2017, with two more double-digit increases swiftly coming down the river: 15% to hit on October 1, 2017, and another 15% on July 1, 2018. At our Governor’s office, no one seems to be fazed by the magnitude of the increases. Instead, in a news release dated February 7, 2017, the Governor commended the Department of Transportation when Standard & Poor’s upgraded its rating of Hawaii’s harbor system revenue bonds. Per the release, the upgraded rating “reflects a positive view” of the Harbors Division’s actions, including “[r]ecent and frequent tariff increases that have allowed for consistently strong debt service coverage given rising costs,” and “[e]xceptional liquidity position in unrestricted cash, equal to almost five years of operating expenses.” If we are holding five years of operating expenses in unrestricted cash, why aren’t we considering paying down some of these bonds (which represent borrowed money)? Money sitting around in the bank is certainly not drawing more interest income compared with the interest expense we are paying to float the bonds. In addition, the last thing we want to do is have a wad of cash sitting around waiting for some legislators to think up ways to raid it as they have tried to do with other programs such as GEMS (which also involves lots of borrowed money). And then, does anyone realize that these recent and frequent tariff increases get baked into the costs of the clear majority of goods and many of our services? If these are praiseworthy in our government’s mind, then it is no wonder we have an astronomical cost of living. The Maui County Carnival may be one casualty caused by this mentality. Let’s hope that our policymakers can take a more expansive view of what it takes to boost the general welfare of our state. WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers Weekly Commentary For the Week of April 9, 2017 CreditAbles By Tom Yamachika, President This year’s legislative session, as in many others, considers many and varied forms of tax relief. Terms being bandied about include exemptions, deductions, and tax credits, and among tax credits there are the “CreditAbles” – refundable, nonrefundable, and assignable credits. This week we will take some of the mysteries out of those terms. An “exemption” or “exclusion” describes something that normally would be subject to tax – an item of income, perhaps – and says it won’t count toward figuring your tax. A “deduction” describes something that may or may not be subject to tax in the first place – such as an expense – and will be subtracted when figuring your tax. For personal income tax purposes, for example, a payment you get from an employer to reimburse you for bills you paid on your employer’s behalf is exempt (payments from your employer are normally taxable), but interest you paid to the bank on your mortgage is a deduction. Exemptions or deductions can be worth a little or a lot, depending on the tax rate. For state income tax where you are in the 8.25% bracket, for example, a $100 exemption or exclusion would change your tax bill by $8.25. Tax credits don’t reduce the income on which the tax is based. Instead, tax credits reduce tax directly. Different kinds of CreditAbles work differently, however. Refundable credits are functionally the same as cash. You can pay your tax bill with refundable credits, and if there are credits left over after all the tax is paid, the government will write you a check for the difference, just as if you paid your tax with the same amount of money. Typically, the Department of Taxation (DOTAX) doesn’t like refundable credits. They’re a lot of work, and involve more than one agency because under our system DOTAX can’t cut refund checks. Instead, a refund request needs to go through DOTAX’s checks and balances to the Department of Accounting and General Services, and those folks, after going through their own checks and balances, cut and mail the checks. I still wonder why DOTAX can’t cut its own checks. Nonrefundable credits are a lot less work because they are like store coupons. You can pay your tax bill with nonrefundable credits, but if there are any left over after your tax for the year is paid, no check is forthcoming. Instead, you need to wait for another occasion to use the credits – next year’s tax, perhaps. With assignable credits, the coupons can be bought and sold. The concept addresses nonrefundable credits that are earned by folks who typically don’t pay state tax, such as nonprofit charities or out-of-state organizations. A store coupon against tax is useless when you aren’t paying tax, but would be worth something to a person who does owe tax. In states that offer assignable credits, the credits typically trade at a small discount to compensate the buyer for the trouble it is going through. That’s one way a tax credit can be made valuable to a non-taxpayer without making the credit refundable. Putting this knowledge to work, one of the earlier drafts of a bill being considered by our legislature made a certain credit refundable and assignable. We said it didn’t make sense. Who would want to buy or sell cash? Fortunately, the powers that be saw the absurdity and got rid of the assignability feature. It turned out that the bill author wasn’t thinking about having taxpayers make a market to sell the credits, but wanted something slightly different, which might be accounted for in the next bill draft. That covers our list of CreditAbles. We trust that it will make the discussion of tax credits and incentives more understandable, and help make our tax system more tolerable. WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers Weekly Commentary For the Week of March 26, 2017 Yes, Toto, Tourists Also Pay Real Property Tax By Tom Yamachika, President On March 8, the Hawaii Department of Business, Economic Development, and Tourism released a study on Hawaii real property taxes. It may be unusual for a State agency to do a study on a county tax. But this study appeared to be an outgrowth of a move by our teachers’ union during the 2016 legislative session, which we wrote about last year, to establish that our real property tax is too low. (Once that was established, the obvious strategy was to seek a surcharge on that tax to fund education, which we have written about in our last two weekly commentaries here and here.) The bill that we talked about then didn’t pass, but its substance was incorporated into the state budget bill, obligating DBEDT to do the study. One of the study’s key findings: “Nearly one third (32.3 percent) of the property taxes were contributed by property owners residing out-of-state.” To us, the fact that some of our real property tax is being exported is not news. Honolulu’s “Residential A” property classification, for example, was designed to squeeze more dollars out of land owners who had residential properties they didn’t live in. The idea was that most of these absentee owners lived out of state and maybe out of the country, so they could help foot the bill for those of us who actually live here. In addition, residential property is not the only property in town; all counties have different, and more expensive, property classifications for commercial, hotel/resort, and perhaps timesharing uses. A good amount of tax in those classifications is paid by nonresidents. Rather, the news is the extent to which the tax is exported – nearly a third. This number blows a large hole in the City & County of Honolulu’s principal argument in the rail debate. The City administration had been arguing forcefully that the best solution to fund rail is the GET surcharge, and so that the surcharge should be extended forever. Why was it the best solution? About a third of the GET is exported, they said, and if the surcharge is not extended the fiscal shortfall would need to be made up by other county funding sources, the largest of which by far is the real property tax. But the real property tax falls almost exclusively on our residents, the argument goes, so it would be hurting all of us a lot more. Mayor Caldwell’s State of the City address in February 2015, for example, included: “Why would I as mayor want to give the visitors a break and make all of us pay everything? Let’s make the visitors pay one third.” If a third of the GET is exported, as the City claims, and a third of the property tax is exported, as the DBEDT study indicates, then the argument doesn’t hold water. Moreover, the extent to which the GET is exported is a matter of debate. The Hawaii Free Press, using a City Auditor report, concluded that 14.1% of the GET is exported. The Foundation came up with its own estimates using calculations from Hawaii Tourism Authority and Department of Taxation data for 2011-2013, and found that the proportion of the surcharge attributable to visitor spending was 15%-20%. If those numbers are closer to the truth, then the City administration has it backwards, and we might be able to export more tax using the real property tax than by using the GET. But then again, if we rely more heavily on the real property tax to fund transportation, then what is going to happen to the real property tax surcharge to fund education? Clearly, this debate may lead to some cascading effects. We do hope that our policy makers will take the time to consider these matters fully before deciding to amplify the burdens on an already beleaguered populace. To view the archives of the Tax Foundation of Hawaii's commentary click here.
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