Report Title:

General Excise Tax Exemptions; Methodology; Study

HOUSE OF REPRESENTATIVES

H.C.R. NO.

126

TWENTY-FIRST LEGISLATURE, 2001

 

STATE OF HAWAII

 
   


HOUSE CONCURRENT

RESOLUTION

 

requesting the legislative reference bureau to formulate an objective methodology that the legislature may use to review the justification for existing general excise tax exemptions.

 

 

WHEREAS, the general excise tax is a tax on the gross proceeds of sales and is levied on enterprises for the privilege of doing business in Hawaii; and

WHEREAS, the general excise tax is extremely broad in its scope, and applies to almost all goods and services in the State, not only at the retail level, but also as they are sold by the wholesaler, manufacturer, or producer; and

WHEREAS, the Legislature has added a number of exemptions to the general excise tax over the years; and

WHEREAS, these exemptions have often been enacted without regard to an objective analysis of the need for an exemption or the effect of the exemption on those who are required to pay the general excise tax; and

WHEREAS, for example, the Tax Review Commission, in its 1995-1997 report, has identified several criteria that should be reviewed by the Legislature before allowing additional exemptions to the general excise tax, including factors such as equity, efficiency, simplicity, stability and predictability, adequacy, and accountability; and

WHEREAS, in particular, the Commission identified equity as a factor of the utmost importance for Hawaii's tax system, and noted that any exemption or preference that treats any one taxpayer or any class of taxpayers differently from others raises a question as to equitable tax treatment, since it effectively shifts one taxpayer's burden to all other taxpayers; and

WHEREAS, the Commission further noted that equity was important in maintaining the integrity of the system, and that the Legislature should not tinker with the general excise tax by creating new exemptions or anti-pyramiding provisions except to eliminate inequities, since the availability of new preferences might cause taxpayers to lose faith and fall out of the system; and

WHEREAS, the Commission further found that as a general rule, the number of exemptions should be minimized to prevent erosion of the broad tax base and avoid increased complexity in the administration of the tax. If the Legislature desired to address particular social or political concerns, the preferable approach would be to address those concerns through direct expenditures or the net income tax system; and

WHEREAS, there is a need for the formulation of an objective methodology, similar to that used by the Tax Review Commission in its 1995-1997 report, to review the need to retain each of the exemptions in the general excise tax law; now, therefore,

BE IT RESOLVED by the House of Representatives of the Twenty-first Legislature of the State of Hawaii, Regular Session of 2001, the Senate concurring, that the Legislative Reference Bureau is requested to formulate an objective methodology that the Legislature may use to review the justification for existing general excise tax exemptions; and

BE IT FURTHER RESOLVED that the Bureau is requested to review the methodology used by the Tax Review Commission in its 1995-1997 report to evaluate the State's tax structure as an example of appropriate objective methodology; and

BE IT FURTHER RESOLVED that the Bureau is requested to apply this objective analysis to each existing general excise tax exemption, and make recommendations as to whether each such exemption is justified or not under those objective criteria; and

BE IT FURTHER RESOLVED that the Bureau is requested to report its findings and recommendations, including any proposed legislation, to the Legislature no later than twenty days before the convening of the Regular Session of 2002; and

BE IT FURTHER RESOLVED that certified copies of this Concurrent Resolution be transmitted to the Acting Director of the Legislative Reference Bureau.

 

 

 

OFFERED BY:

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