House kills tax changes
By Gordon Y.K. Pang
Advertiser Capitol Bureau
Bills that would have hit Hawai'i consumers by allowing for a new county sales tax and increasing the state excise tax have been quashed by House Democrats.
Also dead for this session are bills to curtail the high-tech tax credits made available through Act 221 and to double the motor-vehicle registration fee to $10 to pay for emergency medical services.
House Speaker Calvin Say killed those measures, in effect, for the year by refusing to select representatives to sit on conference committees to discuss the key bills with counterparts in the Senate.
"The House position is that we don't want any tax increases," Say said yesterday. "We can balance the budget and go home without any tax increases."
Senate Democratic leaders wanted the county sales tax bill, in part because it would have required counties to give at least portions of their hotel room tax back to the state's general fund if they levied a sales tax.
Similarly, Senate Democrats were banking on the excise tax increase from 4 percent to 4 1/2 percent to pay for new and existing education programs.
Gov. Linda Lingle, informed of the decisions by Say, said it was too early to know what would happen in conference committee. "It's a process, and we'll just have to wait and see what happens," she said.
The governor said it was not surprising the House was opposing the tax bills. She said the administration would continue to lobby for the changes to Act 221.
But without the House members participating in conference committees to reconcile differences between the House and Senate versions of the bills, those measures, under legislative rules, cannot be placed on the legislative floors for approval. Technically, the language of the bills could surface in other legislation, although that isn't likely because of the opposition in the House.
Say, D-20th (St. Louis Heights, Palolo, Wilhelmina Rise), acknowledged the measures might mean millions less for state coffers, but said he believed Lingle could cope with possible effects on the upcoming budget year through measures already approved, as well as further internal budget cuts.
The demise of the county sales-tax proposal surprised some in the Legislature. Unlike other proposals to increase taxes, the plan had Lingle's conceptual support as a home-rule issue. The House itself passed out a version that gave the City and County of Honolulu authority to charge a sales tax, but it died in the Senate.
The latest version of the bill that moved out of the Senate encountered stumbling blocks. It required each of the four counties to decide within the next several months whether to impose the tax, and set the fee at 1 percent rather than let the counties choose how much to charge. It required the city to give up its entire share of hotel room tax revenues, and the other counties half their portion.
Big Island Mayor Harry Kim said his county wants taxing authority, "but not at the expense of taking away the (transient accommodations tax) revenues from Hawai'i County." Kim called the hotel taxes a significant revenue source, and noted that the tax was divided according to the notion that each county contributes resources that affect the visitor industry.
The House decision not to take the bill into conference committee left officials at Honolulu Hale disappointed.
"I was hoping that the bill would move forward so that we wouldn't have to raise property taxes and all these fees — $25 million in fees," said City Council Budget Chairwoman Ann Kobayashi.
Council Chairman Gary Okino said he preferred a sales tax because it could be applied more equitably among tourists and military, who generally don't pay property taxes.
Senate Ways and Means Chairman Brian Taniguchi also was unhappy with the House majority's decision. If the bill had been approved, the Honolulu City Council appeared ready to incorporate the sales tax as part of its upcoming budget, leaving the state general fund with an estimated $34.7 million in reserve from the hotel room tax account.
That money could have helped in the event that the Council on Revenues, when it meets early next month, projects lower excise tax revenues as a result of the war with Iraq, said Taniguchi, D-10th (Manoa, McCully).
Tax officials are warning him the council might need to lower its current revenue growth estimates "by at least 1 percent," Taniguchi said, which would translate to a minimum $30 million hit to the general fund budget.
Say said he didn't see the need for the new taxes, particularly because Lingle has said she does not think the Legislature will need to meet in emergency session to deal with budget issues tied to the economic ramifications of the war with Iraq.
Rejection of the excise tax increase did not come as a complete surprise, because House members and Lingle have stated that they would not support such an increase. The proposal would have generated an estimated $180 million annually.
Senators had hoped to restore some of the cuts made to public school and University of Hawai'i programs with a portion of the money, return some to consumers in the form of food tax credits, and pay for the Lingle-backed initiative to raise the standard deduction for income tax filers.
Say said House members, besides not wanting to raise taxes this year, could not see targeting education for restored money when budget reductions also hurt human services and health.
House Minority Leader Galen Fox said he and his colleagues, like Senate Republicans, opposed the new taxes and are pleased with the majority decision. "We think the way to deal with the pressures of the economy is to make government work better by lowering costs, not by increasing the burden on the taxpayer," said Fox, R-23rd (Waikiki, Ala Moana, Kaka'ako).
Meanwhile, another bill that won't pass this session would change the controversial Act 221. The measure would have restricted tax credits given to businesses to new investment only, including what amounts to elimination of a 20 percent refundable credit on research and development expenses, in favor of a nonrefundable credit applicable only to increases in research spending.
Lingle had made the proposal to close what she views as a loophole and save the state as much as $55 million. Say said he believed estimates of the losses in revenue caused by the tax credit were inflated, and underestimate the positive effects on the state's revenue stream triggered by the Act 221-related growth.
Advertiser reporter Treena Shapiro contributed to this article. Reach Gordon Y.K. Pang at gpang@honoluluadvertiser.com or at 525-8070.
