Courtesy of the Tax Foundation of Hawaii:
Legislative Update: Winners and Losers of the 2018 Session
We’ll now go through some of the losers, the bills that are now dead, and the winners, which have been sent up to the Governor’s office for approval or veto.
Some Bills Dead for This Session
HB 207 Status: Dead (Estate and Conveyance Tax Hikes)
HB 1718 Status: Dead (Nonrefundable Credit for Child Care Costs)
HB 2007 Status: Dead (GET Exemption for Service and Maintenance Facilities for Non-Jet Aircraft)
HB 2462 Status: Dead (GET Exemption for Sales of Farm Equipment and Machinery to Producers)
HB 2605 Status: Dead (“AirBnB Bill” to Allow Withholding Tax on Transient Vacation Rentals)
HB 2702 Status: Dead (Tax on Real Estate Investment Trusts)
SB 2100 Status: Dead (Expand Solar Credit to Include Battery Backup Systems)
SB 2890 Status: Dead (GET Applied to “Marketplace Providers”)
SB 2905 Status: Dead (Credit for On-Site Early Childhood Facilities)
SB 2910 Status: Dead (Loan Green Infrastructure Fund $ to State Agencies at 3.5%)
TrumpTax Is Alive and Well, but Hawaii Is Stuck in 2017
For the last sixty years, the Hawaii income tax law has conformed, to a great degree, to the federal Internal Revenue Code. That normally helps both the taxpayer and the State. The taxpayer doesn’t have to do tax returns two radically different ways, and the State can easily piggyback on an IRS audit when the IRC and state law are similar. SB 2821, however, refuses to conform in several key areas, most of which affect individual tax. The federal amendments limit itemized deductions, such as state and local tax, mortgage interest, and miscellaneous itemized deductions (those deductible if they exceed 2% of AGI). The state bill provides that those federal amendments don’t apply. The state bill also decouples from bonus depreciation and section 179 changes, key elements in the federal code. The state standard deduction, personal exemption, and all tax rates are unchanged. Business tax changes, including disallowance of a writeoff for entertainment expenses, are adopted. The federal estate and generation-skipping tax changes similarly are not adopted; the Hawaii estate tax kicks in using the federal limits in place for 2017.
SB 2821 Status: ACT 27
HARPTA! Bless You! A Cure for the Wrong Disease?
The Hawaii Real Property Tax Act, or HARPTA for short, provides that when a nonresident person or company sells Hawaii real property, 5% of the gross price is withheld to pay possible tax liabilities, such as income tax on capital gains. SB 508 changes the withholding percentage to 7.25%, the same as the top capital gains rate. The Senate wanted the rate even higher, at 9%, perhaps on the theory that some of these properties are rented and the GET and TAT on the rentals can be collected from the withheld income tax.
SB 508 Status: ACT 122
The Bob Nakata Act
The Rev. Bob Nakata has devoted 20 years of his life to issues surrounding homelessness and affordable housing in Hawaii, including tirelessly prowling the Capitol halls this year lobbying for affordable housing bills. HB 2748, dubbed the “Bob Nakata Act,” adds $200 million to the Rental Housing Trust Fund, puts $10 million into the Dwelling Unit Revolving Fund, and expands and extends the GET exemption for construction of affordable units.
HB 2748 Status: ACT 39
You Can’t See It or Touch It, But We Can Tax It!
To protect our local business people, Hawaii has a Use Tax. A buyer has a choice between buying from someone who is subject to General Excise Tax (a local store, perhaps) and someone who is outside our taxing jurisdiction (an online seller, perhaps). If the buyer chooses to buy from the latter, the buyer needs to pay Use Tax, generally the same as the GET that would have been levied on the local seller. We already have extended the Use Tax beyond purchases of tangible goods, so that it also applies to the import of services and contracting. HB 2416 broadens the Use Tax to apply to the value of intangible property imported or used in the State, while exempting the sale of intangible property exported or used outside the State. The bill exempts stocks and other securities, bonds and other evidence of debt, commodity futures and similar options and rights, interests in land, or dividends. Still, the trouble is in the details. Intangible property isn’t like a mango that stays put, so figuring out whether it’s been imported will be a challenge. And then, are we ready for the results?
HB 2416 STATUS: ACT 183
Class, Your Assignment Is to Fix Our Unreasonably Low Real Property Taxes, and Not Tell the Pesky Money Chairs!
Hawaii has the lowest real property tax in the nation. Many see that as a good thing; the teachers’ union sees it as an opportunity to slap a surcharge on that tax to Help Our Keiki. Because our state constitution now gives all the real property tax to the counties, constitutional changes are needed before such a bill can take effect. SB 2922 puts the question on the ballot for voters in 2018. The voters only will be asked to give the Legislature the power to impose the tax, so the implementing legislation, which would define what is subject to the surcharge as well as the amount of the surcharge, can be changed at any time. Furthermore, there is no guarantee that any of the new tax will find its way into the classroom. Why? The State now appropriates almost $2 billion in General Fund money to the Department of Education. While the constitutional amendment earmarks the new tax for education, there is nothing to prevent the existing $2 billion from being “repurposed.” Interestingly, the legislation in both the Senate and the House bypassed the respective money committees entirely. In the Senate, it was heard by Education and Judiciary, while the House referred it only to Education.
SB 2922 Status: To Ballot
Special Fund Housekeeping Bill Transforms into Money Grab, Then Returns to Normal
HB 1652 started out as a housekeeping bill, to get rid of some special funds that weren’t being used, following a State Auditor’s report identifying those funds. But then the Senate did two things. First, it added “auto-raid” provisions placing new dollar caps on fourteen different special funds, so that if the special fund has more money at the end of the State fiscal year the excess is dropped into the state general fund. Then, it added a provision that increases by 40% the “central services skim,” a fee that the State sucks out of most special funds and plops into the general fund, ostensibly for services that the State provides to the fund (although the skim may exceed by far the cost of those services). The Conference Committee returned the bill to its original mild-mannered form.
HB 1652 Status: ACT 164
Let’s Apply 14% Tax to Everything on a Hotel Bill!
A “resort fee,” which also goes on your bill if you stay at a hotel not only in Hawaii but also in many locations in the mainland U.S., Mexico, and the Caribbean, is to pay not for basic lodging, but for amenities such as use of the hotel’s weight room, or pool, or Wi-Fi internet service. But some think that it’s in substance part of the room charge, so that the Transient Accommodations Tax at 10.25% needs to be imposed on top of the GET at 4% or 4.5%. The Department has been distinguishing room charges from fees subject only to the GET by asking whether the fees are mandatory for a guest staying at the hotel. SB 2699, however, reacts to the issue by making all resort fees subject to TAT whether they are mandatory or not, and by defining a “resort fee” as “any charge or surcharge imposed by an operator, owner, or representative thereof to a transient for the use of the transient accommodation’s property, services, or amenities.” This could mean ANYTHING on the guest’s hotel bill, including meal charges, massages, Internet fees, or phone charges. This certainly was not the intent of the TAT when it was enacted, and it would be far different from most hotel room taxes across the country and internationally if the tax is applied in this manner.
SB 2699 Status: VETOED
Online Sellers Beware! We’re Going After You!
Under U.S. constitutional law, a certain amount of connection between a potential taxpayer and a State is needed before the State has power to impose tax. Quill Corp v. North Dakota, 504 U.S. 298 (1992), held that some physical presence is needed before substantial nexus can be found. However, states have been closing in on online sellers who have lots of business in those states, arguing that a sufficient amount of activity will give the state the necessary nexus. South Dakota took this position and went after one large online seller, and the case, Wayfair Corp. v. South Dakota, has been accepted by the U.S. Supreme Court and may yield a clarifying opinion later this year. In the meantime, SB 2514 adopts provisions similar to those in South Dakota, saying that nexus is established with $100,000 in sales or 200 separate transactions.
SB 2514 Status: ACT 41