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Proposed tax reforms stemming from the twice-a-decade task of evaluating Hawaii’s tax code have been tough to pass. And most of the recommendations that have been implemented have been more housekeeping measures than substantive revamping.
That doesn’t mean the Hawaii Tax Review Commission hasn’t identified areas for major improvement. Suggestions over the years have run the gamut from eliminating the corporate income tax to ending the General Excise Tax exemption for nonprofit organizations. Previous commissions have also suggested revenue generators that quickly became hot-button issues of the 2011 legislative session: establishing a state lottery and taxing pension income.
A commission is formed every five years to try to ensure that taxpayers are paying their fair share. The panel is required by statute to provide lawmakers “an evaluation of the state’s tax structure and recommend revenue and tax policy.” (An online archive of the past commissions’ reports can be found here.)
It’s meeting on Thursday morning to finalize getting a contractor who can help analyze various aspects of the state’s tax policy.
This year’s members make up the sixth commission since 1983.
While the group is charged with a critical task, how much weight do their recommendations carry at the Legislature?
To find out, Civil Beat analyzed a 25-page report listing recommendations made by the five previous commissions, and what resulted from those suggestions. The report was complied by the 2005 commission.
The previous panels made a total of 100 recommendations to lawmakers between 1983 and 2007. Those included:
The phrase “not adopted” appears 54 times in the summary report, while a total of 31 laws were passed in response to recommendations made by the groups.
Twenty-three recommendations were pending at the time the report was compiled. (The numbers don’t add up to 100 because some recommendations had more than one law passed in response.)
Asked about the influence of the commission, Randy Iwase, chairman of the current commission, has said he understands that the Legislature has its own priorities, noting he formerly served as a state senator.
Iwase previously told Civil Beat he’d like this year’s commission “to look at having a 21st century tax structure for Hawaii.” Because the group got a late start this year — it was technically supposed to convene last year — it is expected to complete a report by the end of next year.
Some of the suggestions that have not been adopted over the years include:
Consider a sales tax or a value-added tax to replace the GET
Eliminate or minimize all GET exemptions
Rewrite the GET law to achieve clarity and transparency
Eliminate pyramiding on inter-company transactions
Eliminate or limit the GET exemption for Hansen’s disease patients
Exempt residential rental income from GET
Require GET licenses for nonprofit organizations
Eliminate the exemption for nonprofit organizations or establish a maximum exemption amount
Provide double the standard deduction to taxpayers over age 65
Conform to the federal tax treatment of retirement income, excluding an annual base amount (e.g. $50,000)
Transfer taxing authority of the Transient Accommodations Tax to the counties
Establish a TAT without earmarking the resulting revenue. (Act 340, passed in 1986, enacted a TAT without earmarking. But, subsequent amendments in 1990, 1993, 1998 and 2002 earmarked TAT revenue for various purposes.)
Provide adequate resources to the Tax Research and Planning Office for updating or improving economic forecasting and modeling capabilities
Some of the recommendations that have been adopted through laws:
Adjust the general excise tax credit for inflation: Act 157, passed in 1998, enacted the low-income refundable income tax credit.
Simplify the filing of income tax returns: A new tax form, Form N-13EZ, was introduced for the 2003 tax year. The form was discontinued for the 1995 tax year, and replaced with the Form N-11.
Establish General Fund Stabilization Fund: Act 304, passed in 1999, established the Emergency and Budget Reserve Fund)
Lower the overall level of state taxes: Act 157, passed in 1998, lowered the individual income tax rates as well as the tax rates for trusts and estates, increased the number of tax brackets from eight to nine, and expanded the tax brackets. Act 110, passed in 2006, increased the standard deduction to 40 percent of the current federal standard deduction and expanded the tax brackets by 20 percent.
Provide income tax credits to offset the regressive effects of the GET on food and drugs: Act 321, passed in 1989, enacted a new medical services excise tax credit. But the 4 percent medical services excise tax credit part of this credit was repealed by Act 23 in 1995, and the remaining nursing facilities excise credit portion ended on June 30, 1997. Act 187, passed in 1990, repealed the existing excise tax credit and combined it with an expanded version of the existing food credit. But the excise tax portion was repealed in 1995 and the food credit was repealed in 1998.
Eliminate military exception for non-recognition of gain from principal residence: Act 113, passed in 1998, conformed Hawaii law to the IRS code to exclude the gain on the sale of a residence. This repealed the former deferral of gain provision that included the exception for military personnel.
Subject sales of real property by nonresident sellers to withholding: Act 213, passed in 1990, requires purchasers of real property to withhold 9 percent of the amount realized from nonresident sellers. Act 279, passed in 1991, reduced the amount to be withheld to 5 percent.
Subject public service companies to the GET and eliminate the Public Service Company tax: Act 9, passed in 2001 subjects certain transportation service providers to the GET instead of the Public Service Company tax. Specifies that transportation service providers are service businesses.
Subject imported services to the use tax: Act 70, passed in 1999, subjects imported services to the use tax. Act 198, passed in 2000, subjects imported contracting to the tax.
Subject firms taxed under the insurance premiums tax to the GET for rentals and other business receipts: Act 286, passed in 1991, subjects to the GET and TAT the gross rental income received by taxpayers subject to the insurance premiums tax.