Report Title:

State Tax Expenditures; Annual Report; Evaluation



Requires the department of taxation to provide an annual report on tax expenditures to the legislature on or before September 15th of each odd-numbered year. Requires legislation establishing new tax expenditures to include certain specified provisions. (SD1)



S.B. NO.



S.D. 1















SECTION 1. The legislature finds that requiring an evaluation of all tax expenditures by the State will better enable the legislature to make fiscally-sound and effective spending decisions. Tax expenditures are essentially derived from the revenues generated from the tax code and they generally are used to support the government's spending programs. Tax expenditures are usually less visible than other types of public spending, which makes it harder to evaluate their effectiveness. Fiscal accountability necessitates a review of the fairness and efficiency of all tax exclusions, tax exemptions, tax deferrals, preferential tax rates, and tax credits. The legislature believes that an accurate and accountable state budget should reflect the true costs of tax expenditures and fund only those government spending programs that are effective and efficient uses of limited tax revenue dollars.

The legislature further finds that it is in the best interest of this State to have an annual report on tax expenditures prepared that will allow policymakers to better identify and analyze tax expenditures and to periodically make criteria-based decisions on whether the tax expenditures should be continued. The annual report on tax expenditures will allow the spending of the revenues generated under the tax code to be analyzed and debated in conjunction with the state budget as well as the internal budgets of state departments and agencies. The annual report will also provide a mechanism to eliminate inefficient and inappropriate tax expenditures that will result in greater accountability and effectiveness of state government and its spending programs.

SECTION 2. Chapter 231, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

"231-    Annual report on tax expenditures; definition. (a) On or before September 15 in each odd-numbered year the department shall submit to the legislature an annual report on all tax expenditures currently in effect in the State.

(b) As used in this section, "tax expenditure" means a credit, deduction, exclusion, exemption, or any other tax benefit provided under state law.

(c) The annual report on tax expenditures shall contain the following information:

(1) A detailed description of each tax expenditure;

(2) The statutory authority for each tax expenditure;

(3) The purpose and original intent of each tax expenditure;

(4) The actual revenue loss for the most recent fiscal year for each tax expenditure, or an estimate if the actual amount cannot be determined; and

(5) Whether each tax expenditure has successfully achieved the intended purpose for which the tax expenditure was enacted and currently serves, including but not limited to:

(A) The extent to which the tax expenditure is a successful policy tool;

(B) The cost-effectiveness of the tax expenditure;

(C) Potential policy alternatives for achieving the policy goals of the tax expenditure; and

(D) The feasibility of repealing or continuing each tax expenditure.

231-    Tax expenditures; required elements. Any legislation establishing new or expanded tax expenditures or extending the sunset date for an existing tax expenditure shall include the following:

(1) A sunset provision;

(2) A requirement for an evaluation or study that may also include requirements for the submission of information by taxpayers benefiting from a tax expenditure;

(3) Recapture provisions if a taxpayer fails to meet any requirements that are necessary to qualify for the new tax benefit; and

(4) Measurable goals or objectives."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2009.