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OPINION: Don’t Give Counties Power to Raise GE Tax

December 4, 2013, 7:45 PM HST
* Updated December 4, 7:46 PM
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Call it tit for taking our TAT.

With the Hawai`i legislature already devouring an impressive chunk of each county’s hotel room taxes, officially known as the Transient Accommodation Tax, mayors around the state may be getting ready to bite … themselves.

Well, their own constituents, anyway.

Apart from attempting to restore their previously juicy helpings of TAT, outer-island mayors may soon be lobbying the Legislature for the ability to increase general excise (GE) taxes by up to 1% on their own — presumably with council approval.

Understandably, the mayors are concerned about making up a sudden budget shortfall forced upon them by the state Legislature which earlier this year capped county TAT revenues at a total of $93 million per year.

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Prior to the cap, counties shared to varying degrees 44.8% of the TAT revenues. Honolulu received the lion’s share of 44.1% of that total, while the Big Island’s portion was 18.6%.

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But with a cap now in place, and recently made permanent, the counties have found themselves losing tens of millions of dollars in revenue annually. Ironically, the Legislature has also chosen to raise the TAT rate 1% each of the past two years to a total of 9.25%, which brought in a total of $324 million in 2012.

For the Big Island alone, the difference in revenue between the old formula and the newly capped one is a reduction of $9.7 million.

While we agree a lack of TAT is a real fiscal letdown, trying to compensate by letting the counties give our GE tax rates a sudden lift could only end up squeezing residents and businesses even more rudely than a hike in property taxes would.

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This is because unlike the one-time sting imposed by property taxes, or for that matter even vehicle fees, Hawai`i’s GE tax manages to milk money out of every attempt at commerce, increasing costs for consumers along the way.

The tax is levied nearly every time a purchase is made, whether from suppliers, manufacturers, wholesalers or retailers.

Under GE taxation, goods can be taxed several times before hitting store shelves. Photo by Dave Smith.

Under GE taxation, goods can be taxed several times before hitting store shelves. File photo.

This means that while the GE tax typically adds 4% to the cost of goods purchased at say, a supermarket, those goods may have already been taxed several times (at various rates) along the way, raising the cost of products before they even hit store shelves.

This pyramiding system of taxation is of course, great for government, making up around half of state revenue. But put simply, it stinks for businesses, and is especially harmful to lower-income consumers.

Rather than penalize residents with higher GE taxes, counties should turn to other one-time fees  to make up any budget shortfalls, or, in the alternative, cut spending.

But in the meantime, Hawai`i’s mayors absolutely should lobby to reverse the state’s recent TAT-grabby ways, and the public should be cheering their efforts loudly.

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