Editor’s Note: Civil Beat is examining why life in the islands is so expensive in an ongoing series, Living Hawaii. Over the next year we will look at what’s behind high prices here and discuss ways to bring them down.

A bill making it’s way through the Hawaii Legislature seeks to provide a small measure of relief for livestock producers by exempting transportation costs for milk, poultry and other meats from the state’s general excise tax.

It’s a narrow proposal that isn’t likely to pass, but it raises the question of what kind of burden the state’s general tax on doing business imposes on food producers and, ultimately, consumers.

“When you think about how much money it’s costing to do business in the state, it really just makes no sense,” said House Agriculture Committee Chairwoman Jessica Wooley, who introduced the proposal. “We’re shooting ourselves in our foot by applying this tax to this particular industry.”

Most states don’t tax groceries, according to 2013 data from the National Conference of State Legislatures. A 2009 study from the Center on Budget Policy and Priorities found that Hawaii was just one of 14 states that taxes food in some way.

Hawaii’s general excise tax is 4 percent for most counties and 4.5 percent in the City & County of Honolulu. Businesses pay the tax on their gross receipts, and the law allows them to pass on the cost to consumers.

The tax already has an exemption for the shipping of “agricultural commodities,” but the definition includes fresh fruits and vegetables and not meats. Wooley’s measure would expand that definition so that dairy products, poultry, beef, aquaponics and other items get similar relief.

She said the bill is mainly intended to help bring down costs for cattle ranchers on the neighbor islands.

It’s not the first time that the idea has been considered. A past version of the proposal sought to create a tax exemption for shipping between Hawaii’s various islands to allow local food to be more competitive with mainland products.

But the idea failed because of concerns that such rules would break the U.S. Constitution’s interstate commerce clause, which is widely interpreted as preventing states from discriminating against interstate commerce.

The House Committee on Consumer Protection is meeting Monday to consider the latest bill, and the committee’s chairman, Rep. Angus McKelvey, said he’ll likely move the bill forward to the Finance Committee.

The biggest question is how much revenue the state would lose if the proposal is approved, but that amount is unclear.

The state Department of Taxation doesn’t keep track of how much the state earns from the general excise tax on specific items. The tax is levied on businesses’ gross receipts, not the products themselves, so it makes it hard to tell how much money the state is making from taxing milk versus poultry, for example.

Wooley says that this is a puka that should be filled.

“It’s really disappointing that the Department of Taxation cannot give us more information,” she said. “It really inhibits our ability to make good policy decisions.”

Alan Gottlieb from the Hawaii Cattlemen’s Association who supports the proposal suggests that the revenue lost may not be significant. He said the shipping company Young Brothers collected just $6,100 in 2009 to cover the cost of general excise taxes on moving agricultural products between Hawaii islands.

But given that the exemption would have to apply to food regardless of origin, that amount could end up being a lot higher.

And what if Hawaii wanted to try to lessen the burden on taxpayers by finding a way to exempt groceries specifically from the 4 percent tax? The lost revenue could run into the millions of dollars.

Eugene Tian, a researcher for the Department of Business, Economics and Tourism, estimated using U.S. Census data that losing 4 percent on tax revenue from dairy products and meats could result in a revenue loss of more than $25 million.

It’s a very rough estimate, he said, but it falls in line with some members of the legislative leadership who say that proposals for exemptions like Wooley’s would be too expensive.

Hawaii had an $844 million surplus in general funds in 2013, but Gov. Neil Abercrombie and lawmakers are considering using the money to mitigate homelessness and help the elderly, rather than cutting taxes.

And even if the proposal had the political will behind it to advance, economists like Paul Brewbaker and even advocates for the measure say that it wouldn’t translate into cheaper food.

Sen. Sam Slom, the only Republican in the Senate, supports the idea of an exemption but says that local farmers are also dealing with factors such as the cost of labor, feed, storage and utilities.

“In the end, I doubt if it would be capable of lowering the overall price for the consumer,” he said.


DISCUSSION QUESTION: What do you think can be done to lower the price of food in Hawaii?

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