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.
Let's Not Tax Transportation
By Tom Yamachika, President, Tax Foundation of Hawaii
Some folks ask me if I have any radical ideas to change the tax system in Hawaii. Here’s one: Stop taxing transportation of goods and people.
Before you stop laughing uproariously, though, consider this.
First, we can’t tax air transportation. There are federal laws prohibiting us from applying a gross receipts tax (like our General Excise Tax) to transportation charges. Back in the late 70’s and early 80’s, we tried to tax air carriers by imposing our Public Service Company Tax, which applies to public utilities in lieu of GET. We were very creative. The Hawaii Supreme Court held, and our state told the U.S. Supreme Court, that our tax was actually a tax on real and personal property (which was allowed), but because it was so difficult to value the kinds of property that utilities had, like airspace rights, rights-of-way for power and cable lines, or easements for water pipes, the tax used the gross income of an airline as a proxy for valuing its property.
The U.S. Supreme Court didn’t buy the argument. “It’s still a tax measured by gross receipts, which is a gross receipts tax under federal law, and we get to interpret that federal law,” they said, in effect, in a unanimous 8-0 decision in 1983.
Despite this ruling, zealous tax auditors still tried to go after helicopter tour companies and those companies pushed back, leading the Department of Taxation to rule, in Tax Information Release 89-10, that those gross receipts were immune both from the Public Service Company Tax and the GET.
There are also federal restrictions on taxing transportation by water. Federal law prohibits anyone other than the federal government to tax a vessel, its passengers, or its crew while the vessel is operating on navigable waters. In 2010, our Intermediate Court of Appeals ruled that the GET as applied to charges for chartering a sport fishing boat was valid because it was a tax on the business and not on the vessel, passengers, or crew. The court reasoned that the federal law was meant to prohibit fees and taxes on a vessel simply because the vessel sails through a given jurisdiction and didn’t mean to affect whether sales or income taxes can apply in general. The Hawaii Supreme Court declined to review the case, as did the U.S. Supreme Court. So, GET can be applied to transportation by water, at least for now.
In the meantime, fine distinctions are already being made. In cases involving UPS and Lynden Air Freight, the Hawaii Supreme Court held that when a shipper pays for a shipment to go from your office to your counterpart on the Mainland, GET can apply only to the transportation by ground between your office and the airport.
In short, the landscape here is filled with complexity and disparities between transportation industries. Are there good reasons why, as a matter of tax policy, we should tax water and ground transportation when air transportation can’t be taxed? (Other than, “Because we can.”) We’re an island state. One of the reasons often given to explain our astronomical cost of living is that goods and people need to be shipped in and out, and that isn’t done for free. So, what would happen if the tax goes away? The industries would compete on a more level playing field, residents would feel some relief in the cost of living department (or at least sellers wouldn’t be able to use the tax as an excuse), and the government revenues might not go down because fewer costs may lead to more buying, and thus more total revenue subject to GET taxation.
Good idea, or the ravings of a madman? Let the debate begin!
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.
This week we focus on our safety net systems for people or families in need. In the early 1990s, a major part of this net came from the federal Aid to Families with Dependent Children (AFDC) program, which matched state dollars of financial assistance for a needy family. That program was replaced with what we have now, Temporary Assistance for Needy Families (TANF), which is a federal block grant program that, at least in theory, gives states a substantial amount of federal money for purposes like cash assistance, work activities, work supportive services, and child care.
Hawaii gets about $99 million a year under this program. In 2017, it spent $52 million in federal funds while it spent about three times that amount from its own funds.
That means there was $47 million in federal money left over just from that year. A state can (at least for now) carry the money over to future years, but…as of last year, Hawaii had $281 million in unspent TANF money. That means our state was underutilizing this money on a consistent, year-to-year basis.
A post on the website efficient.gov quotes an assistant division administrator for the Department of Human Services as saying, “I’m concerned the reserve is larger than it needs to be. I do worry that if we don’t spend it, then our clients aren’t benefiting from it. We definitely need to make changes to get that money out the door.”
The federal program also has what is known as a maintenance of effort (MOE) requirement. It says that states must maintain a certain level of state TANF spending which is based on a state’s spending for AFDC and similar programs before TANF was enacted. In other words, we needed to and did spend our taxpayer dollars on this program while we left the federal money on the table.
Worse, a good chunk of the federal dollars we did spend were spent in a questionable place—at least in relation to the purpose of the TANF program. The Center on Budget and Policy Priorities stated that nearly $32 million of TANF money was spent on the University of Hawaii. Perhaps the justification was that the dollars went to financial aid for needy students. But CBPP pointed out that this “funding served families with incomes up to 300 percent of the federal poverty line and was not focused on helping TANF cash assistance recipients prepare for work. In comparison, the TANF benefit level for a single-parent family of three in Hawaii represents 31 percent of the federal poverty line.”
Not only that. Another central principle behind the TANF program was that states could spend more of the funds on child care subsidies — which are essential to enabling low-income parents to work — rather than on direct financial assistance. Nationally, states spent about 16% of TANF money on child care. Hawaii spent just 5%.
So here we have a double-edged problem. We aren’t spending the federal money we can get, thereby increasing the burden on local taxpayers. We are spending the money on programs targeted not just to the poor, and we are as a result shortchanging the effort to get people off the dole and into the workforce. To put it another way, the money intended to help the poor is being skimmed off to do something else.
Lawmakers, wake up and smell the plumerias! Let’s get some of this federal money pulled down. Let’s get our state money directed to where it is supposed to do the most good. Maybe we can even use it to combat our homeless crisis!
WEST MAUI HOSPITAL SYNOPSIS- A SHORT HISTORY OF WMTA AND WMIF EFFORTS TO IMPROVE ACCESS TO EMERGENCY HEALTH CARE IN WEST MAUI.
West Maui Improvement Foundation Inc. (WMIF) in conjunction with the West Maui Taxpayer's Association Inc.(WMTA), has been diligently striving to educate our major stakeholder's in West Maui and Government Officials about the need to improved access to critical health care services to West Maui. Neither organization receives any grants in aid from the government and exists solely on private donations and volunteer services.
The non-profit charity, WMIF, successfully raised funds to develop a Fire and Ambulance Station in West Maui with private funds and no taxpayer dollars or government funds in 1999. That had never been done anywhere in the State of Hawaii before nor since. The Napili Fire and Ambulance Station was completed and turned over to the County of Maui to staff and operate since then and it’s ambulance and fire crews have literally saved lives which otherwise would have been lost. That is undisputed.
After that success the board members of the WMIF were persuaded that more was needed. The community voices convinced our volunteer board members to embark on a feasibility study for the need of ambulance delivery of patients to Emergency Medical Service 24/7 within the golden hour with a physical location here in West Maui.
While the board of directors of the WMTA and WMIF are volunteers who serve without pay, their existence as nonprofits; to be operationally viable, depends upon necessary financial support to pay for essential administrative, accounting, special outside contractors/consultants, and other operational and basic office expenses. Neither organization has any “employees.”
Over the past 20 years, the effort to obtain a certificate of need and everything essential to have access to Emergency Medical Services has had series of wins and losses no one could have imagined or predicted. We obtained the Certificate of Need in 2009 which everyone said would be impossible and had a donated 15 acre hospital site lost due to a Hawaii Supreme Court ruling disallowing previously approved permanent easement entry for ingress/egress on “ceded lands,” necessary for final subdivision entitlement and access to the site. That essentially eliminated the financial feasibility of our West Maui Hospital and Medical Center and it seemed all was lost. It was a devastating blow to our mission and literally destroyed plans and expectations for everyone who were in shock that such an unexpected event could destroy our plans and dreams.
The Board of the WMIF decided to see if it was possible for any remedy to restore the use of the donated site. The result was that it was not possible and many supporters abandoned their hope and support. Making matters worse, at approximately the same time, the nation suffered one of the worst financial disasters in U.S. history. Banks went bankrupt as well as nearly all of the major U.S. financial Industries and our largest corporations. The US Government, bailed out the banks and our large corporations like General Motors, but not any non profits like the WMTA or WMIF.
Around that same time, while most everyone suffered financial losses and determined that they could no longer financially support the WMIF’s missions for a West Maui Hospital, the Diane Lynn Family Foundation, Inc. came to the rescue with a donation of financial life support and renewed our hope for searching for alternatives. While President, Joseph Pluta, had personally devoted thousands of hours to the cause in the prior 10 years, and over $100K of his personal funds, the challenges to move forward with alternatives seemed nearly insurmountable.
For the last 10 years or so, the WMIF has been able to keep the doors open and our effort alive, albeit severely challenged, striving for implementation of alternatives towards access for essential life saving medical services located here in West Maui.
The WMIF has endured and surmounted seen and unforeseen political challenges; which brought about the change of ownership and operations of the State Owned Maui Memorial Hospital to private ownership by Kaiser Inc. and creation of Maui Health Systems LLC. It’s unique and the only one of it’s kind in the entire Kaiser System.
We were able to continue our effort albeit with reduced staff and resources, to get another land parcel subdivided and entitled for discounted purchase for the West Maui Hospital Developer below the Kaanapali Coffee Farms.
Even though the developer of the West Maui Hospital, Brian Hoyle and Newport Hospital Inc., has approved building permits, he announced at a recent Kaanapali 2020 Community Planning Group meeting, that he was unable to obtain the financing he wanted for developing the West Maui Hospital and was instead considering moving forward without it and replacing it’s location with independent living facilities instead. He said that he was considering maintaining plans for the skilled nursing facility, assisted living facility and a drug and alcohol treatment center. While he said that this was not “an official announcement,” that’s where he was headed and something official would be forthcoming.
The WMIF has also been working with a group of cancer docs who had opened a cancer treatment facility on Kauai and wanted to open one in West Maui Also. Over the past 4 years, they have purchased a lot in Lahaina Business Park for the Cancer Treatment Center and prepared to submit an Application for a Certificate of Need for which WMIF has been of assistance.
The WMTA-WMIF has been in discussions with Michael Rembis, CEO of Maui Health System’s Maui Memorial Hospital, regarding WMIF assisting them to develop an Emergency Medical Room 24/7 supplemented with an urgent care component and some critical access beds as well as a helicopter station.
Along those lines, the WMIF, would be the community partner with Maui Health Systems, for developmental entitlements and financial support.
They believe that the WMIF is essential to this effort to add credibility that the efforts and financial support would not be suspect with their Wailuku facility at Maui Memorial and solely dedicated to the West Maui facility.
We have been informed that the Board of the Maui Health Systems will be committed to the West Maui Effort and have been analyzing a number of different scenarios on moving forward. One is purchasing an Existing West Maui Urgent Care Facility and remodeling it for Emergency Room Operations as well as finding land for purchase for a brand new developed facility with room for future expansion. We understand that the WMIF will be called upon for more meetings and assistance by the Maui Health Systems Development Team. We are looking forward to these discussions and welcome the renewed hope their commitment has restored in us all.
Joseph D. Pluta, President