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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!
Community meetings on Maui for the HiRUC (Hawaii Road Usage Charge) for Lahaina on
Other Maui Locations:
Full Press Release below has Statewide listing for Community Meetings.
Full Press Release (as copied below) Source: hidot.hawaii.gov/blog/2019/03/12/community-meetings-scheduled-for-input-on-potential-road-usage-charge-for-hawaii/
COMMUNITY MEETINGS SCHEDULED FOR INPUT ON POTENTIAL ROAD USAGE CHARGE FOR HAWAIIPosted on Mar 12, 2019 in Highways News, Main, NewsOnline community presentation also being held April 18, 2019
HONOLULU – The Hawaii Department of Transportation (HDOT) will hold 14 community meetings across the state to get public feedback on the concept of a road usage charge (RUC) to fund upkeep of roadways and bridges. Community meetings are currently scheduled for the following dates and times:
“The reality is fuel tax revenue, which provides a third of state highways funding, continues to decrease as cars become more fuel efficient,” said Ed Sniffen, HDOT deputy director for Highways. “We need to look at a long-term replacement for the gas tax that is sustainable and fair to all road users.”
In an RUC system, vehicle owners pay for actual miles driven versus a gasoline tax system where owners pay by the amount of fuel their vehicle consumes. Hawaii is one of a dozen states including California and Oregon that is investigating whether the switch to a pay-per-mile-driven charge is feasible and how it might be implemented.
Hawaii’s study looks at a RUC system as a revenue neutral replacement to the current 16 cents per gallon state fuel tax. As a part of this study, important factors such as sustainability, fairness, information and privacy protection, and other topics will be addressed.
The scheduled meetings are important to share information with Hawaii residents about road usage charges and gather community feedback.
The Hawaii Road Usage Charge Demonstration is a three-year project to investigate the use of a per-mile fee to fund upkeep of roads and bridges instead of a system where drivers pay at the pump. The demonstration will allow Hawaii drivers to experience what a road usage charge (RUC) system could be like and provide their feedback, opinions, questions, and concerns to Hawaii Department of Transportation. More information is available on the website at www.hiruc.org