WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
​To view the archives of the Tax Foundation of Hawaii's commentary click here. ​​​​​​​
 
Weekly Commentary

For the Week of May 21, 2018

Finding the Magic Bullet:  City’s Share of Rail Administrative Costs
By Tom Yamachika, President
 
In a recent hearing in the Honolulu City Council’s Budget Committee, council leaders say that they might have found a “magic bullet” – one that they say will get the City’s share of rail funding done painlessly.

Here’s the issue.  The City needs to cover $44 million in administrative costs for rail for 2018 and 2019.  The City previously didn’t provide for them in its budget, on the ground that the project already had enough money to cover those costs, but the Federal Transit Administration didn’t like that, thinking that the City didn’t have enough of its own skin in the game.  Thus, the Mayor included that money in the City’s fiscal 2019 budget.

The City Council’s budget chair proposed to deal with it by putting it in the Honolulu Authority for Rapid Transportation’s capital budget.  That way, dollars from the Hawaii general excise tax surcharge, which are restricted in that they can pay for the capital cost of the project only, would be available to pay those charges.  So, the City wouldn’t need to endure the pain of paying them out of its own operational funds. 
But wait.  Is that really a viable solution to this problem?

Normally, an operating budget pays for the ongoing operational costs of a business, including salaries, wages, office overhead, and other day-to-day costs.

A capital budget normally pays for the costs of building something and getting it into a state of readiness for its intended use.  If you are building something very large, for example, those costs may include buying the parts, paying for the labor to move those parts to their intended location and to assemble them, for example.  Those costs are incurred to build the asset and then stop when the asset is built and in use.

The general and administrative costs of HART – the salary of the executive director, for example – are not going to stop after the project is built, so it is hard to think of those as capital costs.

There is also the matter of state law.  Hawaii Revised Statutes section 248-2.7(c)(2), which was added in the special session of 2017, says that the monies in the mass transit special fund, which includes the GET surcharge as well as the extra percentage point of transient accommodations tax, can’t be used for: “Administrative, operating, marketing, or maintenance costs, including personnel costs, of a rapid transportation authority charged with the responsibility for constructing, operating, or maintaining the mass transit project.”

Merely putting the administrative costs of HART into its capital budget isn’t going to get around these requirements.  Unless the City Council budget chair has a secret weapon.

Maybe the Council can argue, “Guys, the GET surcharge is City money from the outset because we raised it through a City taxing ordinance, so you folks at the State don’t have the right to restrict our ability to spend it.”

Mayor Caldwell, in the meantime, issued a statement saying that he would support the plan if the FTA does.

Has the Council found the magic bullet?  Only time will tell.

WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
​To view the archives of the Tax Foundation of Hawaii's commentary click here. ​​​​​​​
 
Weekly Commentary

For the Week of May 13, 2018
 
Reactionary Reaction To Resort Fees
By Tom Yamachika, President
 
One of the bills that has come out of the recently concluded legislative session is SB 2699, which proposes to make “resort fees” subject to our Transient Accommodations Tax (TAT).

A “resort fee,” which also goes on your bill if you stay at a hotel, and not only in Hawaii but around the world, is to pay for other amenities such as use of the hotel’s weight room, or pool, or Wi-Fi internet service.

“Oh?” you might say.  “I thought those things were included in the room rate.”

That’s precisely the point, both for the hotels and the Tax Department.  The TAT is 10.25% of the gross room rate.  Our supreme court has said, “in determining tax liability it is fundamental that substance, rather than the form of the transaction, governs.  Actualities and consequences of a commercial transaction, rather than the method employed in doing business, are controlling factors in determining such liability.”  In re Kobayashi, 44 Haw. 584, 358 P.2d 539 (1961).  Thus, if a “resort fee” is actually a piece of the room charge, by any other name, then it’s taxable as a room charge.

One of the tests that the Department is now using to figure out if a resort fee is a room charge with another name is whether the charge is “mandatory.”  If the fee is not part of the room charge, then a guest staying at a hotel should be able to opt out of it.
 
Some of the bills that were going through the session, such as HB 2432 SD 1, would define a “resort fee” subject to the TAT as:  “any mandatory charge or surcharge imposed by an operator, owner, or representative thereof on a transient for the use of the transient accommodation's property, services, or amenities.”  That definition doesn’t seem to be different from what the Department was already enforcing, so there wouldn’t be much harm in enacting that version.  That bill died.

SB 2699, the one that passed, defines a resort fee as “any charge or surcharge imposed by an operator, owner, or representative thereof to a transient for the use of the transient accommodation's property, services, or amenities.”

Whoa there!  Wouldn’t that make pretty much anything on the hotel bill a resort fee?  Suppose you watch an in-room movie and get billed for it.  Isn’t that a charge for one of the hotel’s amenities, namely the in-room TV and movie system?  What about a charge for a meal?  If you were to eat in your room, or even in the hotel restaurant, for that matter, isn’t the meal charge for the hotel’s property (food), services (servers), and amenities (in your room, or in the hotel restaurant)?  This certainly was not the intent of the TAT when it was enacted, and it would be far different from most hotel room taxes across the country and internationally if the tax is applied in this manner.

Apparently, some lawmakers were unhappy that the TAT was not being applied to resort fees even if they were shown to be truly optional charges for things other than a transient room rental.  So, this bill lurches in the other direction. It’s a reactionary reaction.  Is this really what we want for our TAT system?

WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
​To view the archives of the Tax Foundation of Hawaii's commentary click here. ​​​​​​​
 
Weekly Commentary

For the Week of April 29, 2018

 The Tax Office Said So, So It Must Be True!
By Tom Yamachika, President
 
HB 2432, one of the bills actively being considered this session, proposes to hike the “transient occupancy tax,” or TOT, by an as-yet-unspecified amount.  This part of the bill is noteworthy for the factual support behind it.  Or, more particularly, the lack thereof.  It’s based on “the tax office said so, so it must be true.”

The TOT is like the transient accommodations tax or TAT, sometimes known as our hotel room tax.  It is paid on the occupancy of a timeshare unit.  (Isn’t it strange that we tax the owner of property for using the property that he or she owns?  That’s a debate for another day.)

The TOT is currently imposed at the same rate, 10.25%, as the TAT.  The TAT rate is applied against what a person pays to occupy a hotel room.  A timeshare owner doesn’t pay for occupancy, so the TOT is imposed on 50% of the average daily maintenance fee.  In 1998, when the TOT law was enacted, it was recognized that this amount was an estimate, a practical alternative to requiring taxpayers or the Department to prove up fair rental value.  So, the law said that if either the taxpayer or the Department of Taxation felt that a different value was warranted, the party could prove up the fair market rental value of the unit and the tax would be applied to that value instead.

In 2015, the Legislature considered HB 169 of 2015.  At the time, the TAT was at 9.25% of room price, and the TOT was at 7.25% of fair market rental value.  The bill wanted to jack up the 7.25% to 9.25% “to preserve equality with the TAT” although the percentages were applied to wildly different things.  In support of the bill, the Department testified: “[T]imeshares are afforded a discounted tax imposition in two ways.  First, timeshares are subject to a 7.25% tax rate, rather than the 9.25% tax rate.  Second, the rate is imposed on one-half of the daily maintenance fee paid by the owner of the unit, rather than on the full fair market value of the room.  One-half of daily maintenance fees in most cases is significantly below the true market value of any accommodation.”  The Department then proposed language to change the timeshare tax base from 50% to 100% of daily maintenance fees.

The Conference Committee found that the Department did not exercise its discretion to prove up a value different from 50% of daily maintenance fees in the 17 years since it gave the Department that discretion.  As a result, in 2015 the legislature cut out the provision allowing either party to prove up a different value.  It also jacked up the TOT rate to 9.25% to “promote fairness,” and the bill was signed into law. 

That leads us to this year.  The Department has never explained why or how 50% of daily maintenance fees is inadequate.  Given that the Department never bothered to prove that the 50% was too low when it had the ability to do so, it’s probably fair to say that the Department has no factual evidence.  It’s apparently much easier for them to make broad and sweeping generalizations about the law to get it changed than to be bothered with actual facts.  The tax office said so, so it must be true.

Lawmakers, wake up!  It’s your duty to make laws after weighing facts and considering consequences.  But how can you weigh facts if there are no facts presented to you?  If you believe “the tax office said so, so it must be true,” then there is no check and balance, and we are all in serious trouble.

WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
​To view the archives of the Tax Foundation of Hawaii's commentary click here. ​​​​​​​

​
Weekly Commentary

For the Week of April 22, 2018

​
Mighty Morphin Power Bills!
By Tom Yamachika, President
 
In last week’s article, I said we should look forward to lots of surprises as lawmakers press forward with our legislative session with techniques such as “Gut and Replace” to give our legislative bills content that doesn’t at all resemble what they previously looked like.  Here are some that we have seen so far:

HB 207, which started off as a bill to adjust the amounts of the low-income household renters’ credit for income tax, is now a bill to increase estate taxes for large taxable estates and increase conveyance taxes paid on the transfer of single-family residential investment properties with a value of at least $2 million. 

HB 2432, which started off as a bill to impose transient accommodations taxes on “resort fees,” which some hotels charge, still has that content but was also stuffed with provisions increasing the tax rate on timeshare units, and then applying the tax to “intermediaries” such as Expedia or Priceline that sell Hawaii transient accommodations online.

SB 648, which started off as a bill to increase income tax credits for the poor and pay for them with an income tax hike, is now a bill that allocates additional transient accommodations tax revenues to our neighbor island counties.

At least with the above bills, the committees that gutted and replaced the bills’ contents were good enough to publish a “Proposed Draft” that people could read and testify about before it became the current version of the bill.

And then, there is HB 1652.  It started out as a housekeeping bill, to get rid of some special funds that weren’t being used, following a State Auditor’s report identifying those funds.  The bill remained a housekeeping bill until just recently, when the Senate did two things.  First, it added “auto-raid” provisions placing new dollar caps on fourteen different special funds, so that if the special fund has more money at the end of the State fiscal year the excess is dropped into the state general fund.

 Then, it added a provision that increases by 40% the “central services skim,” a fee that the State sucks out of most special funds and plops into the general fund.  This fee is ostensibly for services that the State provides to the fund.  The fee is increased from 5% to 7% of the fund’s receipts
.
We have written about the central services skim in articles published on August 7, 2017, and August 14, 2017.  At that time, we wondered about whether the 5% was based on verifiable data or was just another made-up number.  We also worried about whether the federal government, which pays a large chunk of the skimmed amount out of the Airport Fund, would push back given that a significant and growing number of special funds are legislatively exempted from the skim, and the Airport Fund isn’t.

Here, we have provisions being inserted into the legislative process with literally no notice.  No proposed draft with these provisions was published.  No testimony or other data justifying either the 5% skim or the 7% revised skim appears in the legislative record.  No one could tell lawmakers about possible ramifications, for example, “You better be careful because the 5% skim is grandfathered under the federal laws governing the airports but the 7% won’t be.”
The fourteen different constituencies behind each of the fourteen special funds being auto-raided, furthermore, might have had something to say about the raid provisions.  But we won’t know because they were never given the chance to testify.

Is Mighty Morphin Power Bills a way to make good laws in this State?

WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
​To view the archives of the Tax Foundation of Hawaii's commentary click here. ​​​​​​​


Weekly Commentary

For the Week of April 15, 2018

 
The Feds Gave You a Break? Now We, the State, Can Turn the Screws?
By Tom Yamachika, President
 
It’s not often that State lawmakers express their justification for imposing taxes in terms other than “We need the money to fund essential services and programs.”  But how about this?  The following language is from an actual bill:  

"The legislature finds that the federal government has significantly raised the threshold for the federal estate tax.  The federal estate tax grants an exemption of $5,490,000 per individual and up to $10,980,000 for a surviving spouse; provided that the surviving spouse elects to use portability of the predeceased spouse's exemption on the predeceased spouse's estate tax return.  Estates valued at less than these amounts are exempt from paying federal estate taxes.  The recently enacted Public Law No. 115-97, originally introduced in Congress as the Tax Cuts and Jobs Act, doubles the threshold to approximately $11,180,000 and $22,360,000, respectively, and will result in a reduction in federal estate tax revenues.  According to Internal Revenue Service data, twenty-one estates in Hawaii paid a total of $23,471,000 in federal estate taxes in 2015.

The legislature further finds that these changes to the federal estate tax provide the State with an opportunity to benefit Hawaii residents.  By amending Hawaii's estate tax thresholds and rates, the State can capture some of the money that certain residents will no longer be required to pay to the federal government and redirect that money to the State."

This, by the way, is from HB 207, Senate Draft 1. 

As it now exists, the bill would jack up the Hawaii estate tax by adding a new top tax rate of 20% to be applied to taxable estates over $10 million.  It would also hike the Hawaii conveyance tax on purchases or sales of condominiums or single-family residences valued at $2 million or more, and there the tax would increase between 66% and 220% depending on the value of the unit being sold.

The bill as the House passed it in 2017 looks nothing like the current bill.  Surprise, surprise, this bill is another victim of the much-hyped “gut and replace” technique.  What does that mean?  The only thing about a bill that can’t be changed during its journey through the Legislature is its title, and under the Hawaii Constitution, the contents of a bill must relate to its title.  Therefore, if a legislative committee has before it a bill with a broad title like “Relating to Taxation,” it can amend the bill by gutting it and replacing its entire contents with something very different.  This bill as the House passed it, for example, was an income tax bill relating to the low-income householder renters’ credit.  But because its title is “Relating to Taxation,” the income tax contents can be deleted and replaced with hikes in the estate and conveyance taxes. 

Now, the Senate adopted some rules that sound like they wanted to curb the “gut and replace” technique.  Senate Rule 54(2) says, “The fundamental purpose of any amendment to a bill shall be germane to the fundamental purpose of the bill.”  In practice, however, gut-and-replace is still alive and well, and a technique in the playbook of many of the House and Senate committee chairs.  So, as our legislative session finally winds down, there will be lots of surprises such as bills previously thought dead being resurrected by incorporating their contents into other bills.

It ain’t over till it’s over, folks!

 Contact:
Joseph Pluta
Vice President/President Emeritus
West Maui Taxpayers Association
Ph: 808-661-7990
pluta@maui.net
 
PRESS RELEASE-- FOR IMMEDIATE RELEASE
 
April 13, 2018
 
Lahaina, HI -  WMTA ANNOUNCES MAY MEETING for HHARP --- DRAFT OF THE WEST MAUI EMERGENCY PLAN
Please be reminded that the next West Maui Community Disaster Planning Meeting Scheduled for Wednesday, May 9, 2018 at the Lahaina Civic Center, 1840 Honoapiilani Hwy, Lahaina at 5:30 p.m. There will be no meeting in April.
 
Speakers will be General Bruce Oliveira, Hawaii State Department of Defense, Community Programs Director, along with Joe Pluta, Vice President/President Emeritus, West Maui Taxpayers Association, and Dennis Terpin, Ph.D, O.H.S.T., FEMA/DHS Certified Master Level Instructor. Together they will lead our upcoming meeting to discuss the Draft of the West Maui Emergency Plan.   
 
The West Maui Taxpayers Association (WMTA) is working with the Maui Emergency Management Agency, The Pacific Disaster Center, and the State Emergency Management Agency on developing a customized disaster plan designed to meet West Maui’s specific needs. The isolation from the Island’s major hospital and airport, due to frequent road closures, fires and flooding, have highlighted the need for special preparedness planning – seems that “missile launch” may be added?
 
The Hawaii Hazards Awareness & Resilience Program (HHARP) is a series of monthly workshops, presented by subject-matter experts, to provide education for hazard understanding and offer tools and information resources to guide community mitigation, preparedness, response and recovery planning.      
 
These meetings are free and open to the public.
 
The WMTA invites you to join us and be a part of the solution to plans that may well be the reason why lives will be saved when disasters strike. Please put these meetings on your calendar and plan to attend!
 
More Information on WMTA and Disaster Preparedness can be found at www.westmaui.org.
 
###

Direct link:
​ http://seagrant.soest.hawaii.edu/sites/default/files/publications/webhomeownershandbooknatural_hazards_0.pdf 

We are excited to participate in the 40th Annual Maui Hotel & Lodging Association Charity Walk on Saturday, May 12, 2018. Join our team for the walk or donate to support our efforts!

Ways to support WMIF and WMTA  in the MHLA Charity Walk (WMIF organization code is 487):

• From Computer: Visit our MobileCause page for West Maui Improvement Foundation or copy the following link in your web browser:  

​http://igfn.us/vf/MauiCW/team/487%20W%20Maui%20Improvement%20

• From Mobile Phone: Text MauiCW64 to 71777 to support my campaign" (you will then get a link to donate directly from your phone)
• Walker forms can also be emailed to you - email jdp@maui.net. 
• Walker forms can be download by clicking here.
• Walker forms available in our office. Please call 8708-661-7990 to schedule a time when you would like to pick up.  (Typical hours are 9:00 am - 2:00 pm, Mon-Thurs)

​West Maui Improvement Foundation and the West Maui Taxpayers Association continues to serve the West Maui Community. Its mission remains, "To improve the West Maui community by receiving and expending funds for the erection and maintenance of public and community facilities for the overall betterment of public services for West Maui residents and visitors, including enhancements for health and safety improvements."