Report Title:

Public Transit; County Surcharge on State Tax

Description:

Authorizes counties to levy a county surcharge on State tax to fund public transportation systems in their respective counties; repeals transit capital development fund. Eff. 7/1/2020. (SD1)

HOUSE OF REPRESENTATIVES

H.B. NO.

1309

TWENTY-THIRD LEGISLATURE, 2005

H.D. 2

STATE OF HAWAII

S.D. 1


 

A BILL FOR AN ACT

 

relating to TAXATION.

 

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

SECTION 1. The history in Hawaii of mass transportation financing by taxation has been one of high hopes and dreams, only to be extinguished by failure in implementation. This Act is a turning point in that history.

Act 300, Session Laws of Hawaii (SLH) 1967, enacted chapter 51, Hawaii Revised Statutes (HRS), relating to mass transit to grant the counties condemnation powers to acquire, condemn, purchase, lease, construct, extend, own, maintain, and operate mass transit systems, including motor buses, street railroads, fixed rail facilities such as monorails or subways, and other forms of mass transit.

Act 183, SLH 1990, enacted chapter 51D, HRS, relating to the transit capital development fund. The fund was intended as a receptacle, in part, for tax monies raised by the counties pursuant to Act 184, SLH 1990, which authorized the counties to establish a general excise and use tax surcharge of one-half per cent. Act 184 granted the counties that authority until December 31, 2002. Pursuant to that enabling legislation, the Honolulu city council narrowly defeated a measure by a five-to-four vote to pass an ordinance in the early 1990's that would have established the tax. No county adopted an ordinance to enact an excise or use tax surcharge, and the taxing authority was repealed by Act 135, SLH 2003.

Act 184 recognized the inherent difficulties and disparities in mass transit planning and other funding priorities among the counties by providing that the city and county of Honolulu develop a fixed rail rapid transit system, and the counties of Kauai, Maui, and Hawaii develop public transportation systems, including mass transportation, sewage, or water development, and parks, including park operation, maintenance, infrastructure, and purchase.

Act 180, SLH 1975, enacted chapter 279E, HRS, relating to the establishment of the metropolitan planning organization to provide for comprehensive planning transportation improvements, as required by federal law.

S.B. No. 2052, regular session of 2004, would have established a mass transit excise tax and created a mass transit special fund. According to senate standing committee report no. 2051 of the senate committee on transportation and intergovernmental affairs on that measure, "Your Committee estimates that this measure would bring in $130 million a year. Within ten years, the tax would generate $1.3 billion, or half the cost of the rail system. This measure will demonstrate to Congress the seriousness of Hawaii's intentions regarding mass transit, and that Hawaii is willing to put in $1.3 billion. Federal officials have informed your Chair that Hawaii should not bother to ask for federal funds without a mechanism in place to fund the local government's portion."

On February 7, 2005, in a joint hearing before the senate committees on transportation and government operations and intergovernmental affairs, the Honorable Neil Abercrombie, United States Representative for urban Honolulu, urged the legislature to pass a "local funding initiative" to have a "funding mechanism in place" to demonstrate to the Federal Transit Administration that Hawaii is serious about constructing a rail mass transit system. Hawaii is competing with the other states to secure federal monies to subsidize the costs of construction of a mass transit system. There are currently two hundred twenty six projects nationwide seeking to have their projects accepted for funding. Hawaii may be able to obtain half of the cost of the system paid with federal monies. However, there is a deadline of March 3, 2005, in the U.S. House of Representatives to pass out of the House Transportation and Infrastructure Committee a federal mass transit appropriations bill covering a six-year period, and a deadline of June 1, 2005 for a conference committee to act on this measure. Rep. Abercrombie is confident the Federal Transit Authority stands ready to include Hawaii in its list of favored mass transit projects if this Act is passed. The Honorable Congressman told your Committees, "You're doing something that will shape the future of urban Honolulu for the next 100 years." Rep. Abercrombie further stated:

"I want to be explicitly clear to the people of the First District of Hawaii, the Governor, the Mayor of the City and County of Honolulu, the State Legislature, and the Honolulu City Council that final authorization of our transit project is directly related to the passage of a local funding initiative. I believe that the hearing today and the legislation under consideration sends a strong signal to Washington that there is a will and a way to fund the local share. ...

Federal transit officials have acknowledged that the traffic congestion in Honolulu is, to use their words, unparalleled in the United States."

The capital costs for a fixed rail system with an initial trunk line extending from Kapolei in West Oahu to Iwilei in the central business district was estimated in 2004 to be in excess of $2,000,000,000 by the department of transportation. A major portion of the costs is anticipated to be paid with federal funds. The legislature further finds that a fixed rail mass transit system is not possible without additional dedicated funding from a county mass transit surcharge.

The legislature further finds that the apparent haphazard development of mass transit development and financing plans over the years is due to the fact that a solution to transportation problems on all islands has eluded the State for many years. Every attempt has fallen short, despite the best efforts of many informed and knowledgeable people, including a multitude of experts. Bigger highways, more buses, and ferries are inadequate over the long term to serve transportation needs, and are unsuitable for many areas of the largest county. In contrast, a fixed light rail system has possibilities but the costs are prohibitive without a heavy investment of revenues. Nevertheless, light rail is not suitable for every county.

The legislature is reluctant to in effect provide for a raise in taxes. However, the legislature believes that there is no alternative if mass transit is to become a reality. The costs are simply prohibitive. The time is now, following fifteen years in the making, to decide to implement light rail or not. The legislature further finds that the past unsuccessful attempts by the counties to levy an excise tax surcharge were due not to the lack of adequate planning, but rather to ambivalent attitudes of policymakers at that time. Testimony by the mayor of the city and county of Honolulu and two Honolulu city council members indicates that the time is now ripe for the city to pass such a measure.

The legislature is concerned whether in the long run, a rail transit system can become self-supporting. The legislature further finds that in cities having a rail transit system, the fare box revenues do in fact exceed the operating costs of the system.

The necessity for the right level of mass transit, ranging from bus to fixed rail, appears to correlate directly with county population. The most populous county, Honolulu, needs to be able to raise more taxes to pay for a more expensive fixed rail system. For the residents of Honolulu, who will benefit from a rail system, an added excise tax may not be an unreasonable burden when considered from a cost benefit analysis of tax imposition. Even if some residents do not ride the rail, the resulting decrease in traffic congestion from such a mass transit system is a benefit by itself. For example, the daily morning commute to work and the afternoon commute from work from West Oahu and Central Oahu can amount up to one-and-one-half hours each way for a total of three hours of sitting in traffic. This time could be reduced dramatically to allow time for people to do other things in their lives, including being with their families. The Honorable Mufi Hannemann, Mayor of Honolulu, called traffic congestion the "number one quality of life issue in Honolulu," and said "the only long-term thing we can offer to help is rail." A rail system that would allow Central Oahu commuters to board a rail originating from West Oahu would meet the expectations of the legislature.

The legislature urges the counties to contemplate carefully if an excise tax ordinance is justified for their respective county. This entails adequate planning of a mass transit system suitable for the particular county. The legislature further urges the department of transportation to provide advice, insight, and expertise to assist the counties in making the right decisions in planning for mass transit. For example, Hawaii county could probably best be served by an efficient, timely, and integrated bus system within and between towns.

The intent of the legislature is to provide the counties with assistance in mass transit design and planning, and with construction financing ability. The department of transportation as well as the Honolulu department of transportation services have assured the legislature that in fact they are working collaboratively to that end.

The purpose of this Act is to authorize counties to levy a county surcharge on state tax by ordinance to fund public transportation systems.

SECTION 2. Chapter 46, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§46-    County surcharge on state tax. (a) Each county is authorized to establish a surcharge on state tax at the rates enumerated in sections 237-   and 238-  . A county electing to establish this surcharge shall do so by ordinance; provided that no ordinance shall be adopted until the county has conducted a public hearing on the proposed ordinance. Notice of the public hearing shall be published in a newspaper of general circulation within the county at least twice within a period of thirty days immediately preceding the date of the hearing.

(b) A county electing to exercise the authority granted under this section shall notify the director of taxation within ten days after the county has adopted a surcharge on state tax ordinance, and the director of taxation shall levy, assess, collect, and otherwise administer the county surcharge on state tax for the taxable year beginning after the adoption of the ordinance.

(c) Each county with a population greater than five hundred thousand that adopts a county surcharge on state tax ordinance pursuant to subsection (a) shall use the surcharges received from the State for:

(1) Operating or capital costs of public transportation within each county for public transportation systems, including fixed rail rapid transit, public buses, trains, ferries, pedestrian paths or sidewalks, or bicycle paths; and

(2) Expenses in complying with the Americans with Disabilities Act of 1990 with respect to paragraph (1).

The county surcharge on state tax shall not be used to build or repair public roads or highways.

(d) Each county with a population equal to or less than five hundred thousand that adopts a county surcharge on state tax ordinance pursuant to subsection (a) shall use the surcharges received from the State for:

(1) Operating or capital costs of public transportation within each county for public transportation systems, including public roadways or highways, public buses, trains, ferries, pedestrian paths or sidewalks, or bicycle paths; and

(2) Expenses in complying with the Americans with Disabilities Act of 1990 with respect to paragraph (1).

(e) As used in this section, "capital costs" means nonrecurring costs required to construct a transit facility or system, including debt service, costs of land acquisition and development, acquiring of rights-of-way, planning, design, and construction, and including equipping and furnishing the facility or system."

SECTION 3. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§237-   County surcharge on state tax; administration. (a) The county surcharge on state tax, upon the adoption of county ordinances under section 46-  , shall be levied, assessed, and collected as provided in this section on all gross proceeds and gross income taxable under this chapter. No county shall set the surcharge on state tax at a rate greater than one per cent of all gross proceeds and gross income taxable under this chapter. All provisions of this chapter shall apply to the county surcharge on state tax. With respect to the surcharge, the director shall have all the rights and powers provided under this chapter. In addition, the director of taxation shall have the exclusive rights and power to determine the county or counties in which a person is engaged in business and, in the case of a person engaged in business in more than one county, the director shall determine, through apportionment or other means, that portion of the surcharge on state tax attributable to business conducted in each county.

(b) Each county surcharge on state tax that may be adopted pursuant to section 46-  (a) shall be levied beginning in the taxable year after the adoption of the relevant county ordinance.

(c) The county surcharge on state tax, if adopted, shall be imposed on the gross proceeds or gross income of all written contracts that require the passing on of the taxes imposed under this chapter; provided that if the gross proceeds or gross income are received as payments beginning in the taxable year in which the taxes become effective, on contracts entered into before June 30 of the year prior to the taxable year in which the taxes become effective, and the written contracts do not provide for the passing on of increased rates of taxes, the county surcharge on state tax shall not be imposed on the gross proceeds or gross income covered under the written contracts. The county surcharge on state tax shall be imposed on the gross proceeds or gross income from all contracts entered into on or after June 30 of the year prior to the taxable year in which the taxes become effective, regardless of whether the contract allows for the passing on of any tax or any tax increases.

(d) No county surcharge on state tax shall be established on any:

(1) Gross income or gross proceeds taxable under this chapter at the one-half per cent tax rate;

(2) Gross income or gross proceeds taxable under this chapter at the 0.15 per cent tax rate; or

(3) Transactions, amounts, persons, gross income, or gross proceeds exempt from tax under this chapter.

(e) The director of taxation shall revise the general excise tax forms to provide for the clear and separate designation of the imposition and payment of the county surcharge on state tax.

(f) The taxpayer shall designate the taxation district to which the county surcharge on state tax is assigned in accordance with rules adopted by the director of taxation under chapter 91. The taxpayer shall file a schedule with the taxpayer's periodic and annual general excise tax returns summarizing the amount of taxes assigned to each taxation district.

(g) The penalties provided by section 231-39 for failure to file a tax return shall be imposed on the amount of surcharge due on the return being filed for the failure to file the schedule required to accompany the return. In addition, there shall be added to the tax an amount equal to ten per cent of the amount of the surcharge and tax due on the return being filed for the failure to file the schedule or the failure to correctly report the assignment of the general excise tax by taxation district on the schedule required under this subsection.

(h) All taxpayers who file on a fiscal year basis whose fiscal year ends after December 31 of the year prior to the taxable year in which the taxes become effective, shall file a short period annual return for the period preceding January 1 of the taxable year in which the taxes become effective. Each fiscal year taxpayer shall also file a short period annual return for the period starting on January 1 of the taxable year in which the taxes become effective, and ending before January 1 of the following year."

SECTION 4. Chapter 238, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§238-   County surcharge on state tax; administration. (a) The county surcharge on state tax, upon the adoption of a county ordinance under section 46-  , shall be levied, assessed, and collected as provided in this section on the value of property taxable under this chapter. No county shall set the surcharge on state tax at a rate greater than one per cent of the value of property taxable under this chapter. All provisions of this chapter shall apply to the county surcharge on state tax. With respect to the surcharge, the director shall have all the rights and powers provided under this chapter. In addition, the director of taxation shall have the exclusive rights and power to determine the county or counties in which a person imports or purchases tangible personal property and, in the case of a person importing or purchasing tangible property in more than one county, the director shall determine, through apportionment or other means, that portion of the surcharge on state tax attributable to the importation or purchase in each county.

(b) Each county surcharge on state tax that may be adopted shall be levied beginning in the taxable year after the adoption of the relevant county ordinance.

(c) No county surcharge on state tax shall be established upon any use taxable under this chapter at the one-half per cent tax rate or upon any use that is not subject to taxation or that is exempt from taxation under this chapter.

(d) The director of taxation shall revise the use tax forms to provide for the clear and separate designation of the imposition and payment of the county surcharge on state tax.

(e) The taxpayer shall designate the taxation district to which the county surcharge on state tax is assigned in accordance with rules adopted by the director of taxation under chapter 91. The taxpayer shall file a schedule with the taxpayer's periodic and annual use tax returns summarizing the amount of taxes assigned to each taxation district.

(f) The penalties provided by section 231-39 for failure to file a tax return shall be imposed on the amount of surcharge due on the return being filed for the failure to file the schedule required to accompany the return. In addition, there shall be added to the tax an amount equal to ten per cent of the amount of the surcharge and tax due on the return being filed for the failure to file the schedule or the failure to correctly report the assignment of the use tax by taxation district on the schedule required under this subsection.

(g) All taxpayers who file on a fiscal year basis whose fiscal year ends after December 31 of the year prior to the taxable year in which the taxes become effective, shall file a short period annual return for the period preceding January 1 of the taxable year in which the taxes become effective. Each fiscal year taxpayer shall also file a short period annual return for the period starting on January 1 of the taxable year in which the taxes become effective, and ending before January 1 of the following year."

SECTION 5. Chapter 248, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§248-   County surcharge on state tax; disposition of proceeds. (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 each month, within ten working days after collection, and shall be placed by the director of finance in special accounts. Out of the county surcharges on state tax paid into the state treasury special accounts, the director of finance shall retain, from time to time, sufficient amounts 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 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.

(c) The costs of assessment, collection, and disposition of the county surcharges on state tax shall be borne by each of the counties in an amount proportional to the total amount of surcharges allocated to that county divided by the total amount of surcharges collected for the entire State for the preceding calendar year.

(d) For the purpose of this section, the costs of assessment, collection, and disposition of the county surcharges on state tax shall include any and all costs, direct or indirect, that are deemed necessary and proper to effectively administer this section and sections 237-   and 238-  . Costs include refunds or reductions of income taxes under section 235-110.7 attributable to the county surcharge on state tax.

(e) After the deduction of the costs under subsection (b), the director of finance shall pay the remaining balance on a monthly or quarterly basis to the director of finance for each county that has adopted a county surcharge on state tax under section 46-  . The payments shall be made as soon as possible after the county surcharges on state tax have been paid into the state treasury special accounts or after the disposition of any tax appeal, as the case may be. All county surcharges on state tax collected shall be distributed by the director of finance to the county in which the county surcharge on state tax is generated and shall be a general fund realization of the county, to be used for the purposes specified in section 46-   by each of the counties."

SECTION 6. Section 437D-8.4, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Notwithstanding any law to the contrary, a lessor may visibly pass on to a lessee:

(1) The general excise tax attributable to the transaction;

(2) The vehicle license and registration fee and weight taxes, prorated at 1/365th of the annual vehicle license and registration fee and weight taxes actually paid on the particular vehicle being rented for each full or partial twenty-four hour rental day that the vehicle is rented; provided the total of all vehicle license and registration fees charged to all lessees shall not exceed the annual vehicle license and registration fee actually paid for the particular vehicle rented;

(3) The rental motor vehicle surcharge tax as provided in section 251-2 attributable to the transaction; [and]

(4) The county surcharge on state tax under section

46-  ; provided that the lessor itemizes the tax for the lessee; and

[(4)] (5) The rents or fees paid to the department of transportation under concession contracts, negotiated pursuant to chapter 102, or service permits, granted pursuant to title 19, Hawaii Administrative Rules, provided that:

(A) The rents or fees are limited to amounts that can be attributed to the proceeds of the particular transaction;

(B) The rents or fees shall not exceed the lessor's net payments to the department of transportation made under concession contract or service permit;

(C) The lessor submits to the department of transportation and the department of commerce and consumer affairs a statement, verified by a certified public accountant as correct, that reports the amounts of the rents or fees paid to the department of transportation pursuant to the applicable concession contract or service permit:

(i) For all airport locations; and

(ii) For each airport location;

(D) The lessor submits to the department of transportation and the department of commerce and consumer affairs a statement, verified by a certified public accountant as correct, that reports the amounts charged to lessees:

(i) For all airport locations;

(ii) For each airport location; and

(iii) For each lessee;

(E) The lessor includes in these reports the methodology used to determine the amount of fees charged to each lessee; and

(F) The lessor submits the above information to the department of transportation and the department of commerce and consumer affairs within three months of the end of the preceding annual accounting period or contract year as determined by the applicable concession agreement or service permit.

The respective departments, in their sole discretion, may extend the time to submit the statement required in this subsection. If the director determines that an examination of the lessor's information is inappropriate under this subsection and the lessor fails to correct the matter within ninety days, the director may conduct an examination and charge a lessor an examination fee based upon the cost per hour per examiner for evaluating, investigating, and verifying compliance with this subsection, as well as additional amounts for travel, per diem, mileage, and other reasonable expenses incurred in connection with the examination, which shall relate solely to the requirements of this subsection, and which shall be billed by the departments as soon as feasible after the close of the examination. The cost per hour shall be $40 or as may be established by rules adopted by the director. The lessor shall pay the amounts billed within thirty days following the billing. All moneys collected by the director shall be credited to the compliance resolution fund.

(b) A representation by the lessor to the lessee which states that the visible pass on of the charges in this section is mandatory or that it is a government assessment upon the consumer shall be a per se violation of section 480-2."

SECTION 7. Chapter 51D, Hawaii Revised Statutes, is repealed.

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect on July 1, 2020.