230
HOUSE OF REPRESENTATIVES             H.C.R. NO.            H.D. 1
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     HOUSE  CONCURRENT
                        RESOLUTION
  REQUESTING A STUDY ON THE FEASIBILITY OF REPLACING THE INCOME
    TAX AND GENERAL EXCISE TAX WITH A NEW RETAIL SALES TAX OR
    OTHER TAX.



 1        WHEREAS, there is an urgent need to revitalize and expand
 2   the State's stagnant economy for the well-being of all Hawaii
 3   residents; and
 4   
 5        WHEREAS, one way to revitalize the economy is to overhaul
 6   Hawaii's tax system to provide a more business friendly
 7   environment by replacing the general excise and income taxes
 8   with a new retail sales tax or other tax; and
 9   
10        WHEREAS, the general excise tax, which directly taxes
11   businesses, is a tax on the production of goods and services
12   and discourages business in Hawaii by directly increasing the
13   cost of doing business in the State; and
14   
15        WHEREAS, the general excise tax is based on gross income
16   without regard to profit or loss, value added to a product, or
17   taxes already paid.  When a business experiences a loss, this
18   tax must still be paid; and
19   
20        WHEREAS, the general excise tax has also been criticized
21   for its pyramiding effect which adds hidden taxes to the final
22   cost of an item.  Although the final tax that a consumer sees
23   on an item is four per cent on the cost of that item, two types
24   of pyramiding add dramatically to the actual calculated tax
25   cost; and
26   
27        WHEREAS, one type of pyramiding is the possibility of
28   taxes being paid on the item during its creation, which might
29   be taxed at the four per cent rate or at the half per cent
30   wholesale rate.  These costs might also include services taxed
31   at the four per cent rate; and
32   
33        WHEREAS, the second type of pyramiding is the additional
34   tax on the tax paid by the consumer.  The tax must be paid by
35   the seller but may be passed on to the consumer.  When this
36   happens, the consumer pays a tax on the tax which is passed on,
37   or 4.166 per cent on an item taxed at four per cent; and

 
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                                  H.C.R. NO.            H.D. 1
                                                        
                                                        


 1   
 2        WHEREAS, the general excise tax puts a particular burden
 3   on the tax on services because of a lack of an equivalent
 4   wholesale rate as provided for sales of goods.  Therefore,
 5   since all services are considered a final sale, services which
 6   are provided to an item in preparation for sale are also taxed
 7   at the four per cent rate, thereby increasing the pyramiding
 8   effect; and
 9   
10        WHEREAS, another difficulty caused by pyramiding is that
11   projecting the exact amount of taxes on any one product is
12   nearly impossible, creating a wide disparity in the actual
13   taxes paid on specific goods and services, a disparity of which
14   the consumer remains completely unaware; and
15   
16        WHEREAS, the income tax, even though used in most taxing
17   jurisdictions, is a tax that is applied unevenly and can be
18   burdensome to many people, and is paid solely by Hawaii's
19   residents; and
20   
21        WHEREAS, by comparison, a sales tax would be paid in large
22   part by tourists and business visitors, and Hawaii's residents
23   would have the ability to choose to buy only those products and
24   services they need, thereby having the ability to limit their
25   tax burden; and
26   
27        WHEREAS, businesses in Hawaii would be better served if a
28   sales tax were substituted for the general excise and income
29   taxes.  A sales tax would not pose the pyramiding problems of
30   the general excise tax, and it is a well-understood tax used in
31   an overwhelming majority of taxing jurisdictions in the United
32   States; and
33   
34        WHEREAS, a sales tax would provide a more direct, profit-
35   related tax with a large base, but a base more equitably
36   distributed, applying to those who actually gain from the
37   product or service being taxed; and
38   
39        WHEREAS, there is a need to study the effect of replacing
40   the revenues produced by the income and general excise taxes
41   with revenues produced by a new retail sales tax or other tax;
42   and
43   

 
 
 
 
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                                  H.C.R. NO.            H.D. 1
                                                        
                                                        


 1        WHEREAS, the Department of Business, Economic Development,
 2   and Tourism (DBEDT) and the Department of Taxation (DoTax), are
 3   the most appropriate agencies to conduct such a study; and
 4   
 5        WHEREAS, DBEDT works to support business, create jobs, and
 6   improve Hawaii's standard of living through diversifying the
 7   economy, expanding existing business, and attracting new
 8   economic activity; and
 9   
10        WHEREAS, in addition, and perhaps more importantly, that
11   DBEDT conducts critical statistical and economic research that
12   is vital to policy makers in determining the best means to
13   regain the State's fiscal revitalization; and
14   
15        WHEREAS, in turn, DoTax is also ideally suited to assist
16   in the study by generating necessary state tax data for
17   conducting an economic impact analysis; and
18   
19        WHEREAS, there is an immediate need to analyze the
20   economic and other implications of restructuring the State's
21   tax system to assist in revitalizing the State's economy; now,
22   therefore,
23   
24        BE IT RESOLVED by the House of Representatives of the
25   Twentieth Legislature of the State of Hawaii, Regular Session
26   of 1999, the Senate concurring, that DBEDT and DoTax, with the
27   assistance of the Legislative Reference Bureau, are requested
28   to study the feasibility of replacing the income and general
29   excise taxes with a new retail sales tax or other tax; and
30   
31        BE IT FURTHER RESOLVED that the study be in the form of an
32   economic impact analysis of the effects of restructuring the
33   state tax system, including:
34   
35        (1)  Cost estimates of the proposed conversion to a retail
36             sales tax, including anticipated administrative
37             costs;
38   
39        (2)  The anticipated economic impact on taxpayers in
40             Hawaii arising from the conversion;
41   

 
 
 
 
 
 
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                                  H.C.R. NO.            H.D. 1
                                                        
                                                        


 1        (3)  The expected percentage of the sales tax that will be
 2             "exported" to visitors to Hawaii who purchase Hawaii
 3             goods and services;
 4   
 5        (4)  The anticipated impact on the collection of state tax
 6             revenues in Hawaii;
 7   
 8        (5)  The expected rate at which the new sales tax must be
 9             established in order to generate sufficient revenues
10             to replace the general excise and income taxes; and
11   
12        (6)  Any other information that DBEDT and DoTax consider
13             to be appropriate to policy makers;
14   
15   and
16   
17        BE IT FURTHER RESOLVED that DoTax is requested to generate
18   and supply appropriate tax data as may be necessary for the
19   study; and
20   
21        BE IT FURTHER RESOLVED that DBEDT and DoTax are requested
22   to consult with the Tax Foundation of Hawaii, the Chamber of
23   Commerce of Hawaii, and other private entities as may be
24   necessary in the course of the study; and
25   
26        BE IT FURTHER RESOLVED that DBEDT and DoTax are requested
27   to report their findings and recommendations, including any
28   proposed implementing legislation, to the Legislature no later
29   than twenty days before the convening of the Regular Session of
30   2000; and
31   
32        BE IT FURTHER RESOLVED that certified copies of this
33   Concurrent Resolution be transmitted to the Governor; the
34   Director of Business, Economic Development, and Tourism; the
35   Director of Taxation; the Tax Foundation of Hawaii; the Chamber
36   of Commerce of Hawaii, and the Legislative Reference Bureau.
37