Who's Watching The Store?
By Tom Yamachika, President

It seems like every year we have a legislature, we have dozens of legislative tax proposals to wade through.  Some would lessen the burden on the beleaguered consumer, but most would do the reverse.

Most of the tax bills, as always, would put more money in the hands of lawmakers and bureaucrats at the expense of most of us who must work for a living and try to make ends meet. 

When do they know that enough is enough?

Here’s the simple answer:  When somebody — or preferably LOTS of somebodies — tells them. 

Here are some examples.  The House was considering the state improvement surcharge (House Bill 1990), which we wrote about here.  It’s just another name for “temporary” GET hike.  Before the House Finance Committee, there were eight pieces of testimony, including ours.  Four were in support, two in opposition, and two offered comments without taking a position.  Not what you could call a groundswell of opposition.

How about the bill to hike our income tax rate yet again (HB 2385), this time to add 12% and 13% income tax brackets, and make Hawaii the second in the nation in top tax rates, only a hair behind California’s millionaire’s tax of 13.3%?  Before the House Finance Committee, there were six pieces of testimony, including ours.  Four were in support, some requesting amendments; two offered comments without taking a position.  Ho-hum. 

And what about the carbon tax, Senate Bill 3150, would immediately add 17 cents per gallon to our already pricey gasoline prices and keep going until the increment was more than 50 cents per gallon, as we previously wrote about here?  We counted 94 pieces of testimony before the Senate Ways and Means Committee, of which there were 71 in support, 12 opposed, and 11 comments.  The opposition was enough to get our Senate Transportation chair and one other senator excited enough to vote “no” at the Ways and Means hearing, but the bill still passed. 

You may think, “Well, what are you doing about it, Tax Foundation?”  We’re the alarm.  We can bark.  We can explain what the bills do so you, the public, and the lawmakers have a better understanding about them.  But we can’t do much more than that.  You, the electorate, can decide whether to keep the same lawmakers or whether to show them to the door. 

Put yourself in the shoes of your senator or representative.  A bill comes across your desk, there is a cadre of people who support it, but there is visible and substantial opposition.  Wouldn’t you pause and think before casting your vote?  You certainly would need to be accountable and have reasons prepared to give the side that you didn’t vote for.

And what if the same bill came across your desk with its supporters, but this time there were no opposition or token opposition?  Wouldn’t you vote for it too?  You might not even want to or need to understand what the bill is about.  After all, there are literally thousands of bills going through the legislative hopper each year.  It’s a Herculean task to thoroughly understand the benefits and detriments of each one, so it’s only natural to focus on those bills that people really care about.

Do you care about the amount of money that gets sucked away from your wallet by our government?  Do you feel that enough is enough?  If you do, you need to show your lawmakers that you care.  Then, at least, lawmakers will be forced to think about the implications of what they are voting on and, hopefully, come to principled decisions instead of simply following the herd of lemmings before them.

April & May Legislative Breakfast Briefings Will Be Rescheduled Once New Legislative Schedule Is Announced

Each briefing counts as 1 CE Credit for CPAs licensed in the State of Hawaii. 

Green Fees - But Not The Golfing Kind
By Tom Yamachika, President

Senate Bill 2696, which the Senate has just given to the House for consideration, is a bill “Relating to Green Fees.”  These green fees have nothing to do with playing golf, however; they are per visitor, per stay charges the money from which goes to protect and preserve the environment.  Some national governments already charge them, including the Republic of Palau, New Zealand, and the Maldives.  So, SB 2696 is calling for a feasibility study and implementation plan, assuming that the fee will be charged beginning in 2022.

The State Office of Planning is budgeting the cost of such a study at $450,000.  Let’s save our money, folks.  No other state in the United States charges such a fee.  Not because they don’t want to, but because it’s unconstitutional.

A very long time ago, in 1865 to be exact, Nevada passed a law imposing a tax of one dollar upon every person leaving the state by any railroad, stagecoach, or other common carrier.  (I said this was a long time ago.  Motor buses with internal combustion engines hadn’t been invented yet.)

Mr. Crandall, who was employed by a stagecoach company, challenged the tax.  The Nevada Supreme Court sustained it, and an appeal brought the case to the U.S. Supreme Court.  That case, Crandall v. Nevada, 73 U.S. 35 (1867), established the constitutional right to travel and struck the tax down.

“We are all citizens of the United States,” the opinion says, “and as members of the same community must have the right to pass and repass through every part of it without interruption, as freely as in our own states.  And a tax imposed by a state for entering its territories or harbors is inconsistent with the rights which belong to citizens of other states as members of the Union and with the objects which that Union was intended to attain.  Such a power in the states could produce nothing but discord and mutual irritation, and they very clearly do not possess it.”

A green fee imposed on a per passenger, per stay basis is very similar to the Nevada departure tax that the Court voided.  First, let’s call it what it is:  it’s a tax.  Court cases, including some from the Hawaii Supreme Court, have worked on drawing a line between user fees and taxes, and the imposition envisioned by SB 2696 supports the operations of government, and a taxpayer gets no particular benefit for paying it.  That makes the imposition fall on the “tax” side of the line.

Does the proposed tax have any features that justify treating it differently from the Nevada departure tax?  Both burden the right of any American to travel freely between the states, so the answer appears to be no.

Well then, what about if the tax were imposed only on international departures?  Constitutional problems pop up here, too, because only the federal government may discriminate between citizens and foreigners in applying taxes.  According to a more recent Supreme Court case, Kraft General Foods v. Iowa, 505 U.S. 71 (1992), the Foreign Commerce Clause of the U.S. Constitution creates this prohibition.  Why?  Discriminatory treatment of foreign commerce may create problems, such as the potential for international retaliation, that concern the nation as a whole.  So, the Feds can impose cases discriminating against foreign visitors, but the States can’t.

Maybe we should just limit our green fees in Hawaii to charges for playing golf.

 Just A Technical Change
By Tom Yamachika, President

Some of the bills making their way through our Legislature are sponsored by executive departments.  One such department, the Department of Taxation, is behind a few of them.  One of them worth mentioning, introduced as SB 2922 and HB 2366, proposes to change some criminal penalties in our Transient Accommodations Tax (TAT) law to civil fines … and “to make various technical amendments,” as the bill summary states.

One of the amendments imposes personal liability on responsible officials of any company that is delinquent in its TAT payments.

Whoa!  That’s a technical change?

Business taxes are normally imposed on business entities, at both the federal and state levels.  If taxes aren’t paid, the tax agencies collect from the business assets, but generally don’t shake down the individuals associated with the businesses.

One significant exception to the rule is what we call “trust fund taxes.”  That’s where one person collects another person’s money that is due to the government.  The classic example is payroll withholding taxes.  An employer has agreed to pay an employee a certain amount of money, but the law says part of it must be withheld and turned over to the government.  The part turned over is the employee’s money, but the employee never gets to touch it.  Now, if it so happens that the employer needs to pay some other bills and uses employee money to do that, the government essentially views that act as theft, and will go after individuals who misappropriated that money to make the government whole.  (Note that under current law, the employee, who has done nothing wrong, is still credited with the tax withheld even though the government hasn’t received its money.)

Trust fund tax theory also applies to conventional sales taxes (different from our General Excise Tax).  States where sales tax is imposed on the customer, but the seller is required to collect and remit the tax, present the same fact pattern.  If the seller uses someone else’s money to pay its own bills, those states have no problem going after responsible officials of the seller for the unpaid tax.

In Hawaii, we adopted this principle and imposed “trust fund liability” with respect to the General Excise Tax (GET).  But under the GET law, there is no trust fund.  The tax is imposed on the seller.  So, it’s not possible for the seller to pay other creditors with someone else’s money.  Indeed, if Tomco, Inc. sells something for $100 and charges its customer $4 tax for a total price of $104, the whole $104 is considered Tomco’s money and Tomco is assessed tax on all of it.  If Tomco fails to remit the $4 to the government, responsible officials of Tomco are personally liable.  Also, whether Tomco passed on the $4 to the consumer has no legal significance.  Personal liability applies even if no tax is passed on.

It is this principle that the Department now wants to apply to the TAT as a “technical change.”  When asked why, the Department representatives said it was “for consistency [with the GET]” and “to be just another arrow in our quiver.”  Lawmakers of course want people and companies to pay their taxes, so they are moving the bill.  Both the House bill and the Senate bill are now being considered by the opposite chambers.  Unless something very unusual happens, the bill will pass.  The Governor can’t be expected to veto legislation that his own agency sponsored, so this bill will probably make it into law.

Although we at the Foundation think that blurring the lines between business liability and personal liability isn’t always a good idea, we don’t support or oppose bills.  We just let people know how the bills work so they can make the value judgments and take the action they deem necessary.  Even if the bills are simply making “technical changes.”