2017 Legislative Update: Winners and Losers

May 4, 2017 was adjournment of the Legislature.  This year, there is a lingering sense that something is unfinished – that something being the Rail Bill, SB 1183, which can’t be signed into the law unless the House and Senate agree on a version of the bill.  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.

SB 404 Status:  Dead (Tax on Electronic Smoking Devices)

620 Status:  Dead (Reporting Requirements and Economic Nexus for Remote Sellers)

SB665 Status:  Dead (Expand Solar Credit to Include Battery Backup Systems)

SB 683 Status:  Dead (Constitutional Amendment on Real Property Tax Surcharge for Education)

SB 686 Status:  Dead (Law Implementing Real Property Tax Surcharge for Education)

SB 1290 Status:  Dead (TAT Sharing with the Counties)

HB 1587 Status:  Dead (Vehicle Ad Valorem Tax, Fuel Tax)

HB 263 Status:  Dead (Tax on Medical Marijuana)

HB 1012 Status:  Dead (Tax on REITs)

HB 1471 / SB 704 Status:  Both Dead (Allow Platform to Withhold Tax on Transient Vacation Rentals)

HB1593 Status:  Dead (Uses Green Infrastructure Fund for Energy Storage Rebates)

By far the most drama in this session concerned the Honolulu rail surcharge.  The 0.5% GET surcharge that is imposed in the City & County of Honolulu is set to expire in 2027, after having received a five-year extension in 2015.  The Senate’s version of SB 1183, which the City favors, extends the surcharge for 10 years while dropping the State’s “skim” to 1%, down from the 10% in current law.  The House version cuts the extension to one year while also dropping the “skim” to 1%, making up the difference by hoisting the Transient Accommodations Tax (TAT) by a full percentage point for ten years.  House members noted that their version would result in the City getting more money now instead of waiting for it for ten years, and would have less impact on the elderly and the poor.  However, tourism industry stakeholders, learning for the first time at the end of April that the TAT was in play, gave lawmakers an earful.

SB 1183 Status:  Dead, but a Special Session May Be in the Works

The Hawaii income tax now has brackets that haven’t been adjusted since the 1960’s.  Now a single person making the same as the federal poverty line for Hawaii is taxed in not the lowest or second lowest, but the fourth tax bracket.  To deal with the poor people who are getting taxed anyway, we offer a low-income household renters credit and a food/excise tax credit.

The top tax rates of 9%, 10%, and 11%, which expired at the end of last year, would be resurrected by HB 209 to pay for an extended low-income household renters credit, a renewed food/excise tax credit, and a new nonrefundable earned income tax credit based on 20% of the federal EITC.  These rates take effect in 2018:

In the meantime, HB 375, which used to contain income tax bracket adjustments, has morphed into an appropriation for homeless programs.  The validity of the bill is questionable because it is titled “Relating to Taxation.”

HB 209 Status:  CD1 Passed Final Reading, Enrolled to Governor

HB 375 Status:  CD1 Passed Final Reading, Enrolled to Governor

With Republicans in control of both houses of Congress and the White House, many believed that the end is near for what we now know as the Affordable Care Act or Obamacare, although recent events in Washington, D.C. proved that the Act is still alive and kicking, for now.  HB 552 started out as a bill to make sure that Obamacare lives on in Hawaii by requiring Hawaii health care policies to conform to Obamacare standards, and by requiring individuals to buy minimum essential coverage for themselves and their dependents.  It has turned into a bill requiring further study of the issue.

HB 552 Status:  CD1 Passed Final Reading, Enrolled to Governor

Act 88, SLH 2006, enacted the motion picture, digital media, and film production credit of 15% of qualified spending on Oahu and 20% on the other islands.  The credit was increased in 2013 to 20% on Oahu and 25% on the other islands.  It currently expires at the beginning of 2019.  In the aftermath of a scathing Legislative Auditor’s report criticizing DOTAX’s handling of the credit, this year’s extender bill, HB 423, extends the credit’s sunset to 2024.  It adds verification and reporting requirements, including one requiring a production to get a cost report verified by a CPA.  Controversial “cultural sensitivity” requirements did not make it into the final version of the bill, nor did a requirement for a production getting more than $8 million of credit to agree to provide an advanced screening of the finished product in the county of the island in which most of the production took place.

HB 423 Status:  Passed Final Reading, Enrolled to Governor