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TAX NEWS - 2010

Hawaii Tax: Hawaii Tax Burden Goes Higher July 1

Smokers, drivers, rental car customers, insurance agents and tourists all have something to dread with the start of July.

The state is raising taxes on their activities in the hopes of raking in more than $110 million more over the coming year.

The state already collected $4.71 billion in taxes last year, according to the U.S. Census Bureau. That ranked the state 39th in total taxes, or higher than its position as the 42nd most populous state.

Some of Hawaii's higher ranking may be due to general excise taxes paid by visitors and collections to support a statewide school system. But Hawaii's per-capita taxation of $3,639 ranks sixth nationally, according to the Federation of Tax Administrators.

Visitors will incur the bulk of the tax increases because of a hike in the hotel room tax. However, residents will be impacted by a number of tax changes that may have them doing a double take at cash registers.

"At least it helped them avoid a general increase like a 1 percent increase in the general excise tax," said Lowell Kalapa, head of the Tax Foundation of Hawaii, a non-partisan group that provides research on taxes and government spending.

"On the other hand, it's an indication that the legislature has an inability to make good, deep cuts that are necessary without raising taxes."

Lawmakers made changes to the state's tax code in facing a yawning budget shortfall because the severe economic downturn had sapped tax coffers.

The biggest of the changes taking place today is the increase in the transient accommodation tax, commonly referred to as the hotel room tax. It will climb 1 percentage point to 9.25 percent.

With the increase visitors can expect to pay $16.37 a day based on the current average statewide price for a hotel room of about $175 daily.

The tax hike is expected to bring in $60 million in the coming year.

That's almost three times the amount estimated for an increase in the so-called barrel tax.

The measure was heavily debated over the past two years as proponents argued for an expansion of the tax that was originally imposed for environmental response to oil mishaps.

The increase raises the tax to $1.05 a barrel on petroleum products sold by distributors to retailers or users. It had been 5 cents a barrel.

Proceeds from the tax will continue to go for environmental response, but also provide funding for clean energy and more production from local food sources.

Proponents argued the increase was needed to help to weaning the state off of imported oil while encouraging more local food production.

Its opponents included Gov. Linda Lingle who vetoed the measure prior to the legislature overriding her decision. Lingle said the measure would cost residents $22 million in higher  taxes.

"I am particularly concerned that the tax increase occurs at a precarious moment when the state economy is beginning to stabilize and progress out of the slump created by the global recession," Lingle said in vetoing the measure.

Whatever side of their views on the issue, residents will see prices at the pump increases along with higher electricity rates.

Barney Robinson, owner of two gasoline stations, said the barrel tax will raise the state, county and federal fuel taxes on gasoline to 70 cents a gallon from 67 cents.

"It's going to increase prices 3 cents a gallon," Robinson said.

Hawaiian Electric Co. estimates the new tax will add 66 cents to the typical Oahu residential customer's monthly bill.

The utility's billing system is such that it does not take a mark-up on its fuel. But it passes through the cost of the low-sulfur, diesel and other fuel to the customer. Any increase in fuel costs and taxes is felt by its customers.

Trucking companies are also bracing for an increase in taxes on diesel and gasoline.

"From our standpoint there's nothing good about it," said Gareth Sakakida, managing director of the Hawaii Transportation Association, which has about 420 members involved in ground transportation.

Sakakida said members are also worried how the tax will be used in the future, since the tax was originally conceived for use in response to oil spills.

"The wider you open the door, the easier it is to add more encumbrances."

There are a host of other tax measures going into effect this year.

They include:

- The rental car facility charge will rise from $1 a day to $4.50 a day to help pay for plans to build $500 million of new airport car rental facilities.

- A change in the way refundable and non-refundable tax credits can be combined.

Previously someone who had both types of credits could apply the non-refundable credit first against a tax bill.

If there was still some tax owed, the taxpayer could then use the refundable credit. If anything remained from the second credit it could be refunded.

The law has been changed so that the refundable credit is applied to tax bills first.

The state has estimated this change will save it $17 million over a two-year period.

- The state expects to collect about $10.8 million more from a hike in taxes on cigarettes and small cigars.

A pack of cigarettes will have $3 of state taxes now, up from the $2.60 prior to the increase. Hawaii's state cigarette tax will be the fourth-highest in the nation, according to Campaign for Tobacco-Free Kids.

At Non Stop Liquor in Aiea, manager Terry Wong said the price for a pack of Marlboro cigarettes will rise to about $7.60 to $7.65, including the new $3 state tax and the federal tax of $1.01.

Customers have been talking about the tax hike.

"They remark it's time to quit, but that's not likely," Wong said. He expects some smokers will switch to less expensive brands instead.

- An inheritance tax for estates of more than $3.5 million was reinstituted for deaths that occurred starting  May 1. Estates that are subject to the estate will face levies starting at more than $200,000.

- While not a state tax, a new federal indoor tanning levy of 10 percent takes effect today.

- Insurance industry licensing and certificate fees are being doubled.

- Also passed this year, but not taking effect until January 2011 is a repeal of tax deductions for certain contributions to political parties and candidates.

Not all the news is bad for taxpayers, though.

A measure that was passed last year on deducting gambling losses was repealed. Residents who have winnings from gambling now can deduct what they lost while gambling.

Kalapa said someone who won $1,000 at a slot machine, therefore could deduct $750 lost playing cards and only face tax on $250 of the winnings.

Overall, though, Kalapa said Hawaii residents face too much in tax levies.

"The tax burden is heavy here in Hawaii and now they've added more," he said.

"They (legislators) really should spend some time during this interim and do a more judicious job of reducing expenditures."
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