Consumers take multiple hits from state's excise tax
|||A sales tax? No, it's a general excise tax|
By Gordon Y.K. Pang
Advertiser Capitol Bureau
Although Hawai'i residents may feel good about living in a place where they pay just over 4 cents on the dollar for goods and services, the state's unique excise tax ends up costing consumers more in the long run.
The distinction between excise and sales taxes will likely be a key issue when the Legislature opens in January as lawmakers debate whether to allow the counties to impose their own excise or sales taxes to help pay for transportation programs or other needs.
Essentially, Hawai'i's 4 percent excise tax actually, 4.16 percent generates millions of dollars more in revenue for the state than a 4 percent sales tax applied in other states, according to Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i.
"A retail sales tax applies to goods. It doesn't usually apply to services," Kalapa said.
The Hawai'i excise tax, however, is applied not just on goods but on services as well everything from attorney's fees to a plumber's call. So while a family in Oklahoma may pay a 9.5 percent sales tax for everything from a pair of jeans to a tire, it doesn't have to pay that amount to visit a doctor.
Also inflating the numbers is the so-called pyramiding effect that allows collection of the excise tax not just at the retail level, but also at the manufacturing and wholesale levels. That, in effect, sometimes leads to multiple assessments of the tax for a single product or service. While the Legislature has passed several laws to reduce the pyramiding effect, there continues to be an unknown amount of multiple counting, Kalapa said.
Kalapa and other tax experts believe the differences between excise and sales taxes, while both are assessments based on gross receipts, are so pronounced that the state would have to impose a traditional sales tax of at least 10 percent to 11 percent to generate the same amount of revenue it now does with a 4 percent excise tax.
Such a sales tax would place Hawai'i among the states charging the highest sales taxes in the nation, according to Kalapa.
(Some businesses charge the actual 4.16 percent to their customers to factor in the pyramiding effect as a result of the 4 percent excise tax the seller is required to pay on the gross amount collected; in other words, $4 for every $100 sale, plus 16 cents on the $4. Other businesses simply round it down to 4 percent.)
After it opens Jan. 21, the Legislature will consider several initiatives that would either raise the excise tax or allow counties to impose their own sales or excise taxes.
One proposal, a holdover from last session, would allow either the City and County of Honolulu, or all the counties, to impose a sales tax in exchange for giving the state back their share in hotel room taxes. A 1 percent sales tax, it has been estimated, would net about $120 million for Honolulu, and $40 million split among the three other counties. A separate proposal that would have raised the excise tax to 4.5 percent to pay for education initiatives was projected to net a minimum of $180 million for the state.
Gov. Linda Lingle and a state-county task force recently announced a $2.6 billion transit project that the governor said would need to be financed in part through additional taxes and, more than likely, additional excise taxes or a new sales tax.
Jack Suyderhoud, a professor of economics at the University of Hawai'i-Manoa's College of Business Administration, said Hawai'i's excise tax base is so broad that it allows for a lower rate than a sales tax. The only goods in Hawai'i exempt from taxes are prescription drugs, he said.
"We do have a relatively low rate, but we don't have a low tax," he said. "And if you look at our excise tax per capita ... we rank No. 1 or close to No. 1 among all the states."
A Washington state study using fiscal year 2000 numbers ranked Hawai'i second among the 50 states and the District of Columbia in the category annual general sales tax collection, which presumably included excise taxes collected in its Hawai'i calculation. Hawai'i taxpayers paid $1,268 per capita while those in first-ranked Washington state paid $1,513. A Census Bureau study using 1999 data also concluded that Hawai'i ranked second in a similar survey of taxes collected.
For county officials, getting a share of the excise tax or being allowed to impose a sales tax is not just about more revenue, but also about determining their destiny.
Honolulu Mayor Jeremy Harris said the counties are forced to rely on property taxes as the main source of revenue. The ability to charge a sales or excise tax would allow the city to better distribute the burden of paying for services, he said.
"Property ownership is not necessarily synonymous with the benefits that are received by the variety of city services that we deliver," Harris said. He noted that many city services, for instance, are used by visitors to the Islands who typically don't own property here.
Officials in the administrations of Big Island Mayor Harry Kim and Kaua'i Mayor Bryan Baptiste also said they support legislation allowing them to impose a sales or excise tax, although no decision has been made to use such powers.
Carol Pregill, president of the Retail Merchants of Hawai'i trade group, said local businesses can ill afford any increase in taxes. While the economy appears to be on the upswing, the positive signs come on the heels of several years in which they saw a number of setbacks.
It was House Democrats who shelved any proposals last session to increase the excise tax or allow counties to impose a sales tax. House Majority Leader Scott Saiki, D-22nd (McCully, Pawa'a), said Democrats will once again look at excise or sales taxes cautiously this coming session.
Reach Gordon Y.K. Pang at firstname.lastname@example.org or 525-8070.
That tax you're paying at the store isn't a sales tax. It's not even a tax you owe. It's a tax owed by the business that's selling you the product. Here's the difference: Does Hawai'i have a sales tax? No What is Hawai'i's general excise tax rate? Between 0.5% and 4.166%, depending on the business activity. Most retail activity is at 4.166%. Many businesses simply round it off to 4%.
A sales tax? No, it's a general excise tax
General excise tax
A tax imposed on consumers who buy goods at the retail sales level. Sellers are required to charge and collect the tax.
A tax imposed on the gross income of a business. It's levied on almost all types of business activity, not just retail sales.
Source: State Dept. of Taxation
The Honolulu Advertiser
That tax you're paying at the store isn't a sales tax. It's not even a tax you owe. It's a tax owed by the business that's selling you the product. Here's the difference:
Does Hawai'i have a sales tax?
What is Hawai'i's general excise tax rate?
Between 0.5% and 4.166%, depending on the business activity. Most retail activity is at 4.166%. Many businesses simply round it off to 4%.