Report Title:

County Surcharge on State Tax

 

Description:

Clarifies the law with respect to the State's withholding of 10% of the county surcharge on state tax.

 


THE SENATE

S.B. NO.

1007

TWENTY-FIFTH LEGISLATURE, 2009

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT


 

 

relating to the withholding of ten per cent oF county surcharge on state tax.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


     SECTION 1.  The purpose of this Act is to eliminate the current practice of the State government withholding ten per cent of the existing 0.5 per cent general excise tax county surcharge collection.

     Act 247, Session Laws of Hawaii 2005, provides that the State shall deduct ten per cent of the gross proceeds of a respective county's surcharge on state tax to reimburse the State for the costs of assessment, collection, and disposition of the county surcharge incurred by the State.

     The city and county of Honolulu, in enacting Ordinance 05‑027, established a one-half per cent surcharge on the state general excise tax to begin January 1, 2007, to fund a mass transit project pursuant to Act 247, the proceeds of which are collected by the State.  The mayor of the city and county of Honolulu negotiated an arrangement with the legislature and agreed to the subsequent revision of Act 247, whereby the State retains ten per cent of the county surcharge proceeds.  The Honolulu city council adopted Ordinance 05-027, believing that the State would subsequently reduce the ten per cent deduction to more accurately reflect the true cost of administering the collection of the county surcharge.

     An October 2007 department of taxation report, required by section 121 of Act 213, Session Laws of 2007, that details the level of staffing and funding necessary to administer county surcharge collections identified twenty-three positions costing $749,876 for fiscal year 2008, and twenty positions costing $700,508 for fiscal year 2009, that support the collection of the surcharge.  That report further indicates that just sixty per cent of those positions' work time was spent on general excise and county surcharge tax related matters, with the other forty per cent spent on individual income tax, business income tax, tax clearance, and other state tax matters.

     According to a department of taxation report, the State collected $187,903,947 of county surcharge proceeds for fiscal year 2008 and retained $18,790,395 of that amount as its reimbursement for the costs of assessment, collection, and disposition of the county surcharge pursuant to Act 247.

     Based on the facts cited above, the amounts being retained by the State are in excess of the funding needed to collect the county surcharge, amounting to over $18,000,000 in unwarranted payments in fiscal year 2008 alone.  Retention by the State of millions of taxpayer dollars intended to fund a mass transit system but not used for the transit system undermines the justification for establishing the county surcharge, weakens the city's ability to implement a successful mass transit system, and disguises the use of the county surcharge to fund other state programs.

     Therefore, this Act amends Act 247 to only withhold the amount necessary for the costs of assessment, collection, and disposition of the county surcharges on state tax.

     SECTION 2.  Section 248-2.6, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:

     "(a)  If adopted by county ordinance, all county surcharges on state tax collected by the director of taxation shall be paid into the state treasury quarterly, within ten working days after collection, and shall be placed by the director of finance in special accounts.  Out of the revenues generated by county surcharges on state tax paid into each respective state treasury special account, the director of finance shall deduct up to ten per cent of the gross proceeds of a respective county's surcharge on state tax to reimburse the State for the costs of assessment, collection, and disposition of the county surcharge on state tax incurred by the State.  Amounts retained shall be general fund realizations of the State.

     (b)  [The] Only the amounts deducted for costs of assessment, collection, and disposition of county surcharges on state tax shall be withheld from payment to the counties by the State out of the county surcharges on state tax collected for the current calendar year."

     SECTION 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect upon its approval and apply to proceeds received after December 31, 2009.

 

INTRODUCED BY:

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By Request