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The Honolulu Advertiser
Posted on: Monday, April 12, 2010

Hawaii tax plan raises $75M less than hoped

By Derrick DePledge
Advertiser Government Writer

State House negotiators last night offered to significantly scale back a proposal to lift general-excise tax exemptions on several business activities and impose a new GET hike, a move that would generate $25.3 million instead of about $100 million to help contain the state's budget deficit.

House lawmakers had said they thought the original proposal was a creative way to clamp down on about three dozen exemptions that many tax experts believe are outdated or unnecessary. But advocates for community associations, local airlines and tourism fought to keep the tax breaks.

State Senate negotiators also opposed the original House idea.

Under the new draft, the state would lift GET and use-tax exemptions on about two dozen business activities and impose a 0.5 percent GET on the activities through 2015, down from the 1 percent GET initially recommended.

If the new draft is accepted by House and Senate negotiators today, it would mean lawmakers have to look elsewhere for additional savings.

State Sen. Donna Mercado Kim, D-14th (Hālawa, Moanalua, Kamehameha Heights), the lead Senate negotiator, said she still believes lawmakers can find the money to balance the budget without a broad-based GET increase.

"It's not on the table," Kim said.

State Rep. Marcus Oshiro, D-39th (Wahiawā), the lead House negotiator, said lawmakers heard appeals from business interests about the importance of saving the tax exemptions, some of which have been on the books for decades.

"As you are all aware that, any time you give an exemption and/or credit, there is some revenue loss that is subsidized by the other general taxpayers," he told negotiators. "So that's the basis for this. This is our approach to addressing the budget shortfall, in lieu of an increase in (the) general-excise tax."

Condominium, homeowner and community associations want to keep the tax exemption on money received from their residents to pay for common expenses, such as maintenance. Losing the tax exemption could mean higher fees on residents.

Hawaiian Airlines wants to preserve tax exemptions for the loading and unloading of cargo, servicing aircraft, and building aircraft maintenance facilities.

The Hawai'i Tourism Authority wants to keep the tax exemption on reimbursements to the Hawai'i Convention Center.

The GET exemption bill is one of several that state House and Senate leaders want to approve and get to Gov. Linda Lingle by Wednesday, which would force the governor to act on the bills before the session adjourns later this month. Under state law, the governor has 10 days to act on bills passed 10 or more days before session ends. She has 45 days to announce her intentions on bills passed at the end of session.

Many lawmakers would prefer overriding vetoes during session rather than coming back to do it in July in an election year.

Kim said that the scaled-back GET exemption bill should not influence negotiations on a separate bill to take hotel-room tax revenue from the counties.

The Senate wants to cap hotel-room tax revenue to counties at $50 million a year, down from $94 million that counties received this year, to help with the deficit. The House wants the cap at $94 million.

"We've got to see, at the end of the day, if we actually need to take it," Kim said.

House and Senate negotiators deferred talks until this morning.

Honolulu Mayor Mufi Hannemann and Kaua'i Mayor Bernard Carvalho, Jr. were at the state Capitol last night to urge lawmakers not to reduce the counties' share of hotel-room tax revenues. They said it could lead to higher property taxes and county-level program cuts.

"We really believe that it's only fair, it's only proper, it's only appropriate that the counties keep their share of the hotel-room tax," Hannemann said, adding that it helps counties absorb the cost of providing public services to tourists.

Carvalho said losing the hotel-room tax revenue would have a "devastating effect on our counties."