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Proposed Amicus Brief to Supreme Court of Hawaii

Dear Friends,
 
We are asking for your support in a case that is soon to be filed in the Supreme Court of Hawaii seeking invalidation of the ballot measure seeking to allow the Legislature to impose real property tax on investment property to support public education.  The question on the ballot is, “Shall the legislature be authorized to establish, as provided by law, a surcharge on investment real property to be used to support public education?” and we are concerned that it is misleading or deceptive because it doesn’t mention anything about the new tax that would result.
 
You may have seen in the news that the four counties filed a lawsuit against various State officials seeking to remedy this problem.  The Foundation filed a brief in support of the counties’ positions limited to the issue of whether the ballot question was misleading.  (The counties also made other arguments.)  The counties moved for a preliminary injunction, which Circuit Judge Crabtree denied on Friday, Sept. 7.
 
The counties aren’t giving up yet.  They plan to bring the matter before the Hawaii Supreme Court.  We don’t know exactly how, but are assuming they will ask the Supreme Court for an “extraordinary writ” invalidating the ballot measure.  Because such writs are often asked for but rarely granted, we thought it would be useful for the community to demonstrate that the matter is of great public significance by filing an amicus, or “friend of the court,” brief.
 
We at the Foundation already have drafted the brief, and have attached this draft for your consideration, anticipating that things will move very quickly.  We expect the counties to file their petition this week, and we would like to lodge our brief immediately thereafter.  The caption, case number, etc. in the draft will be changed to conform to what the counties actually file.
 
If your organization is interested in weighing in on this issue and is in support of the position the Foundation has taken in this brief, we would be glad to add your name to this brief.  What I will need from you is a “Statement of Interest,” with the name of the person who is acting for your organization.  This statement, with the name and address of the organization and the name of its authorizing person, will be added to the Appendix to the brief, which now contains only the Foundation’s information.  I have also attached a brief filed in the Supreme Court of the United States, prepared by the NFIB Small Business Legal Center, that illustrates how this is done.  Please send tom@tfhawaii.org an email with a Statement of Interest and confirmation that you would like to participate in our brief.
 
Thank you very much for your consideration of this matter.

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 September 9, 2018

Taking Exemptions Without Really Knowing
By Tom Yamachika, President

These days, our General Excise Tax (GET) contains exemptions and reduced rates that are supposed to reflect commercial reality but often contain leaps of faith.

One common example is the wholesale rate.  If I sell you a mango that you then resell to someone else, then I need to pay not the 4% or 4.5% retail rate, but the lower 0.5% wholesale rate, on my income from selling that mango.

The only problem is that I am not you, and I have no way of knowing what you really did with the mango once you bought it from me.  Did you eat it yourself?  (That would explain the suspicious orange stain on your chin.)  Did you give it to Auntie down the street?  Did you use it to make mango jam, and if so, did you sell the jam?

If I get audited by the State, the auditor will ask me those questions, not you, because I am the one who claimed the tax benefit even though you benefited from it when I tacked on only wholesale GET on my invoice to you.  And if I simply told the truth and said that I had no idea whether you ate the mango, the auditor will charge me the 3.5% or 4% rate difference plus interest and penalties.

To bridge this information gap, the State has forms known as “resale certificates,” such as Form G-17.  Before I lower the tax rate I charge you to 0.5%, I need you to fill one of these out and give it to me.  It says that you are reselling the mangoes you buy from me unless you tell me otherwise, and that if you’re lying to me you are going to pay the extra tax and interest that the auditor charges me.  (I probably won’t get charged penalties if I whip out your certificate and tell the auditor that I relied on it.)

Taking a certificate from the buyer helps bridge the information gap for some of the common GET exemptions such as wholesale goods, wholesale services, and some export sales.  There are, however, more complex exemptions such as contracting in an enterprise zone, helping build or maintain an air pollution control facility or a federally funded scientific facility, providing certain nonscientific logistic and support services to a federally funded scientific facility, or for helping plan, design, finance, construct, or sell certified or approved affordable housing projects.  The Department hasn’t prescribed certificates for all these exemptions.

Often an operator of one of these preferred facilities will approach a vendor and say, “Hey!  This facility has a tax exemption that applies to you, so we won’t accept your adding GET to any invoice you send us.”

I pity the vendor in that situation.  The vendor usually has no clue whether the customer is in a tax-preferred facility or not, and usually takes the customer’s word for it to keep the commercial relationship intact.  But if the vendor gets audited, the vendor needs to establish the customer’s tax-preferred status, sometimes with minimal or no help from the customer.  If the vendor loses, the vendor gets charged additional tax, penalties, and interest, even though the vendor gave the economic benefit of the claimed exemption to the customer (which, by this point, has probably made itself scarce).  The vendor is taking most of the risk regarding the exemption and little or none of the reward. 

What can be done about this?  First, lawmakers shouldn’t be enacting complex exemptions that put the risks and rewards in different places like this.  Second, if they really want to use the exemption in this situation, they need to provide for a mechanism to bridge the information gap to reposition, or at least distribute, the risk.  Third, they should be thinking of clear, verifiable rules to determine the beneficiaries of any exemption consistent with the social policy they seek to advance. 

The WMTA supports effort to educate voters to vote "NO" on this constitutional amendment as it has way too many flaws and is not in the best interests of our community to be on the ballot with this limited and misleading information.

View here for info on this proposed amendment:  https://affordablehawaii.net/