More Bills in the Home Stretch
In last week’s column we started a list of bills that the Hawaii Legislature has passed up to the Governor for action. Here’s a list of some of the eyebrow-raising bills that have gone to the fifth floor. Senate Bill 3040 is a bill sponsored by the Department of Accounting and General Services, which handles a lot of the purchasing for the State. It wants to build an automated procurement system that is electronic, accounting-oriented, multi-module, and data-based that integrates procurement activities from solicitation to contract management. So far, so good; such a system sounds way better than the manually intensive processes we have now. But part of the bill requires the procurement office to collect a transaction fee for the use of the procurement automation systems to cover the costs. Which seems to mean that if I am selling something to the State and I want to get paid, I need to pay the State for the privilege of getting paid. Even better, if I want to put in a bid so that the State might buy my products or services, I need to shell out a few bucks for the privilege of offering my wares, whether or not they get purchased. Excuse me, but we already tax the businesses who are selling things to the State. This bill, it seems, will raise the costs of things that the State purchases even more. House Bill 2179, sponsored by the Department of Taxation, allows the Department to convert tax liens to civil judgments if 365 days pass from the date of recording with no response or action by the taxpayer. Why do they want to do this? Recall that back in 2009, lawmakers adopted a 15-year statute of limitations for the collection of taxes, meaning that if you owe back taxes and the Department hasn’t managed to beat the money out of you in 15 years, the Department can stop searching for your money and leave you alone. (The comparable period for federal taxes is ten years.) But if this bill becomes law, a tax lien can be converted to a civil judgment just before the 15th year expires. Civil judgments have their own life of ten years and can be extended for another ten years. Meaning that the Department can do an end run around the 15-year statute of limitations and keep going after a hapless taxpayer for up to 35 years! Unless, of course, the taxpayer takes “action” or makes a “response,” with neither term defined in the law. House Bill 137, another 2021 bill that got dusted off this session, deals with the county liquor commission and its powers to investigate liquor licensees. There’s a State tax on liquor sales, and current law says that if a liquor commission investigator finds out that liquor tax hasn't been paid the investigator can rat out the licensee to the Department of Taxation. Under the bill, that will no longer be legal and the Department of Taxation will need to use its own investigative resources to root out liquor tax scofflaws. I wonder if that means the Department of Taxation will need to be sending investigators to the local bars and buying drinks, at taxpayer expense, “to figure out whether they’re paying their taxes.” In any event, it seems a waste to send law enforcement investigators in and prevent them from reporting any observed violations to another law enforcement agency. And, last but not least, Senate Bill 2379 allows the Department of Taxation’s Special Enforcement Section to examine any sector of the state’s economy, initiate civil investigations, and use enforcement and education to deter taxpayer noncompliance. These are tasks entrusted to the Department generally, so why call them out specifically for this one piece of the Department? The answer is money, of course. The Special Enforcement Section can spend money in the Tax Administration Special (slush) Fund, which we have written about before. That fund, which is fed by certain tax collections and fines, became a cash cow for the Department, so much so that the Legislature raided $15 million from the fund last session. The Department, like many of the other state departments, apparently feels that it is entitled to grab some of the tax collections and use them for itself before the Legislature and the other departments get their grubby mitts on that moola. This is a trend in government behavior that we should be reversing, not fostering. Again, June 27 is the next magic date – that’s when the Governor has to announce his “intent to veto” list.
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Bills in the Home Stretch
The Hawaii Legislature is done for the year. Its last day for this session was May 5th. It has done all its work on new laws for this season. Some of the bills it finally passed have already been signed into law. Others are awaiting the Governor’s action. Now the important deadlines are June 27, 2022, when the Governor needs to give notice of intent to veto a bill, and July 12, 2022, which is the deadline for the Governor to sign or veto any bills. Some of the more consequential bills that now await the Governor’s action: Senate Bill 514 proposes to give every resident a tax refund. The refund amount is $300 per exemption (which includes self, spouse, and dependents) or, for those households making $100,000 or more, $100 per exemption. To get the refund, a resident needs to file a 2021 income tax return on or before December 31, 2022. Many residents have already filed this return. If you are on extension, don’t delay too long! Also, the bill drops $300 million into the State‘s pension program and $500 million into the rainy day fund. We’ve previously covered this bill in a Frivolous Fable. Senate Bill 3201 fundamentally changes the way tax-exempt organizations are treated under the GET Law. For a nonprofit to be taxable under federal standards, it has to be conducting a business unrelated to its tax-exempt mission. For a nonprofit to be taxable under the GET, it only needed to be raising money. This bill will adopt the federal standards for the GET, making it easier for nonprofits to keep track of the rules. We wrote that this bill would be a game-changer for nonprofits. House Bill 2511 authorizes a $600 million cash infusion into our Department of Hawaiian Home Lands, To many of the Native Hawaiians who had been patiently waiting for Hawaiian homestead lands for years or decades – more than 28,700 are on the list now – this historic funding seems to be a welcome relief. We pointed out that DHHL experienced some inability to spend down the money it was given; specifically federal funds. As we wrote earlier, we hope that DHHL can put that questionable past behind and do some good for the Native Hawaiians who benefit from the Hawaiian Homes Commission Act of 1920. Senate Bill 3289 establishes the Hawaii Retirement Savings Program, a concept heavily pushed by AARP this year. The idea is for the State to establish a program that private sector companies and employees can opt into. For small employers that have to pay oodles of money to keep their own employee retirement plan going, it would be a chance for them to ditch their current plan and adopt the State plan, or for small employers who had given up on retirement plans for their workers because of the associated costs, it would be a chance for them to offer retirement plan benefits once again. Senate Bill 2475 gives an exemption from the GET for stevedoring services, as well as wharfage and demurrage fees that are paid to the Department of Transportation. These fees are unique to the industry of transporting goods by sea. Some time ago, we noted that the federal government came out with an executive order against detention and demurrage charges, and argued that we really shouldn’t be taxing transportation of goods when we depend on that transportation for our very existence. This bill, by knocking the GET off these fees, should be a step toward lowering our stratospheric cost of living. It also promotes more equality between water and air transportation of goods because federal law prevents us from applying our GET to air transportation. We’ll be covering more of these bills in articles to come. To GET or Not to GET – SVOG and RRF Are the Questions
The COVID-19 pandemic made history both here and abroad, but for different reasons. Here, it was remembered not only for the 1,400 lives it claimed, but also for the businesses it hurt or ruined. Our experience was similar to other States across the country, and our federal government stepped in to give us some economic assistance that, we hoped, would blunt the impact of stay-at-home orders and forced business closures. That economic assistance came in the form of some very different federal programs. Everyone got a couple of rounds of stimulus checks. The Feds and we said it’s not income and we won’t tax it. No income tax, no GET. The unemployed got some extra unemployment compensation. The Feds didn’t tax it, up to $10,000 in 2020. We did. We made people pay income tax, but not GET. Then came the forgivable loans: PPP (Paycheck Protection Program) and EIDL (Economic Injury Disaster Loan) is what they were called. They initially were loans to affected businesses, but the businesses obtained forgiveness of all or a part of the loans, meaning that the businesses could keep the money. For tax purposes, loans you get aren’t income because you need to pay the money back. But when the debt is forgiven, the amount of forgiven debt is income. The Congress said that PPP forgiveness doesn’t count as income but EIDL forgiveness does. So, we said that for income tax purposes we would do the same thing. And then, for GET we said (in Tax Information Release 2020-06): “The general rule is that amounts received by a business that replace income are subject to GET. Thus, grants or other payments that replace or supplement income are normally subject to GET. However, in light of the severity of the economic impact of the COVID-19 pandemic, GET will not be imposed on payments received under PUA, loan amounts forgiven under PPP, and EIDL Grants. These amounts will be treated as exclusions from gross receipts and should not be reported on GET returns.” Usually, “severity of the economic impact” is not a legitimate reason why laws that apply to other people or in other situations independently of economic consequence don’t apply here. If our lawmakers pass laws that modify the rules, that’s fine. Or if they pass laws that say that the agency can consider economic impact, perhaps among other things, and grant relief from this or that legal requirement, that’s fine too. Or the Governor could come in and suspend the laws because of the emergency, which he had been doing on a regular basis with emergency proclamations. But no laws were passed modifying the rules or granting the Department of Taxation the authority to bend the laws, and the Governor’s proclamations didn’t suspend the tax code (except to shut off the flow of TAT money to the counties). Now, we have restaurants and bars getting grants from the Restaurant Revitalization Fund (RRF). And we have entertainment venues getting grants under the Shuttered Venue Operators Grant (SVOG) program. The Department of Taxation has yet to officially tell us whether the GET will take a bite out of these grants, although Department staff have informally said that they would be taxable because of the “general rule” quoted above. But what about severity of the economic impact? Does that count anymore? Restaurants and bars getting RRF money, or entertainment venues getting SVOG dollars, need to show pandemic-related revenue loss before the Feds will give them money. Does that matter at all? What say you, Department of Taxation? To GET or not to GET, that is the question today. |
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