Counties pursue sales tax
By Lynda Arakawa
Advertiser Capitol Bureau
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Only Honolulu's city government officials are interested in immediately imposing such a tax, although Neighbor Island officials support the idea, citing home-rule principles and a mechanism in the proposal that allows the Neighbor Islands to collect additional hotel room tax revenues.
The Hawai'i State Association of Counties is still working on finishing its proposal in time for the legislative session that opens Jan. 21, but the latest draft from the association would allow counties to establish a general excise tax on retail sales of "tangible personal property" in addition to the current 4 percent excise tax imposed by the state. The counties currently do not have authority to levy an excise or sales tax.
Hawai'i County Councilman Gary Safarik, vice president of the Hawai'i State Association of Counties, said county officials are looking at a 1 percent tax on retail sales. Among the issues still being negotiated is whether the tax should be applied to just tangible goods or include services as well, he said.
Under the draft, tangible personal property means items "that can be seen, weighed, measured, felt or touched, or that is in any other manner perceptible to the senses."
| • | Hotel tax use debated
For a look at how tourism and state officials are squaring off on how the transient accommodation tax revenues should be used, see Sunday's Business section. |
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The proposal is an offshoot of a measure debated during the past legislative session. That measure would have given counties the authority to levy a sales tax in exchange for giving up their share of the hotel room tax. It stalled late last session when the House refused to discuss the bill in conference committee.
The Senate supported the measure, and its Tourism Committee led by Sen. Donna Mercado Kim, D-14th (Halawa, Moanalua, Kamehameha Heights), held two hearings on the idea this past summer.
Honolulu officials say the additional taxing authority would help to spread the tax burden among more people who benefit from city services, including tourists, rather than relying largely on property owners. They cited additional costs such as the arbitrated police raises, which along with health fund payments and other benefits, will cost the city about $66.4 million over four years.
Tax officials estimated that a 1 percent general excise tax on retail sales of tangible goods on O'ahu could generate $124 million annually. The city's budget this year anticipates hotel tax revenues of $37.3 million. The hotel room tax rate is 7.25 percent.
But business advocates say imposing a new tax would unfairly burden business owners and Hawai'i residents.
Carol Pregill, president of the Retail Merchants of Hawai'i, said any new tax would hurt businesses and people who are struggling to buy essential goods.
"We are strongly opposed to this," Pregill said. "It's really another tax on the people of Hawai'i and ... the greater harm is to people who can't afford it, who are on fixed incomes.
"It's going to create an additional tax on business because let's say if they decide paper products and office supplies are tangible personal property, businesses are going to have to pay additional taxes too on everything that they buy."
Pregill also said creating a tax on "tangible personal property" would complicate tax structures.
In another development, Gov. Linda Lingle said Thursday that she would ask lawmakers to allow the counties to impose a tax to help pay for mass transit initiatives. Her proposal is linked to a plan announced by state and city officials to build a $2.64 billion light-rail system for O'ahu, which she said would require a tax increase. Lingle's proposal is separate from the counties' tax proposal.
Reach Lynda Arakawa at larakawa@honoluluadvertiser.com or at 525-8070.
