S.C.R. NO.


















     WHEREAS, section 243-3.5, Hawaii Revised Statutes, imposes a state environmental response tax of "5 cents on each barrel or fractional part of a barrel of petroleum product sold by a distributor to any retail dealer or end user, other than a refiner, of petroleum product"; and


     WHEREAS, the federal government and other states have similar laws that impose a tax to address oil spills and other environmental issues; and


     WHEREAS, Internal Revenue Service Publication 510:  Part 2, Excise Taxes Other Than Fuel, states that no one is exempt from the federal environmental taxes, including foreign trade zones; and


     WHEREAS, our State's law is supposedly mirrored after the federal law; and


     WHEREAS, chapter 128D, Hawaii Revised Statutes, that is referenced in section 243-3.5, Hawaii Revised Statutes, was enacted to support the State's responsibilities under the Federal Emergency Planning and Community Right-to-Know Act; and


     WHEREAS, for the implementation of the tax, section 243-1, Hawaii Revised Statutes, defines pertinent terms as follows:


(1)  "Barrel" means "forty-two United States gallons of crude oil or petroleum product";


(2)  "Petroleum product" means "any liquid hydrocarbon at standard temperature and pressure that is the product of the fractionalization, distillation, or other refining or processing of crude oil";


(3)  "End user" means "any person or government entity who acquires petroleum products for their own use and not for resale";


(4)  "Retail dealer" means "a person who purchases liquid fuel from a licensed distributor, and sells the liquid fuel at retail.  Only sales of liquid fuel for consumption or used by the purchaser, and not for resale, are sales at retail"; and


     WHEREAS, the statutes clearly indicate that the environmental response tax is intended to be imposed on each forty-gallon barrel of "liquid hydrocarbon" that is the product of the "refining or processing" of "crude oil" and sold to a "retail dealer" or "end user"; and


     WHEREAS, publicly available data, however, appear to display some discrepancies in the tax collections; and


     WHEREAS, for example, data from the Department of Taxation for 2008 show that the environmental response tax generated $1,638,873 on a tax base of 32,777,476 barrels of petroleum products; and


     WHEREAS, multiplying the 32,777,476 barrel tax base by forty-two gallons results in a product of 1,376,653,992 gallons; and


     WHEREAS, the same data from the Department of Taxation, however, show that the liquid fuel tax base was 920,041,958 gallons in 2008; and


     WHEREAS, the difference is substantial, suggesting that either the environmental response tax was over-collected or the liquid fuel tax was under-collected; and


     WHEREAS, data for 2005 also raise a question about the environmental response tax collection:


(1)  According to the Department of Taxation, the environmental response tax base in 2005 was 36,921,797 barrels of petroleum products in forty-two gallon barrels;


(2)  According to the Department of Business, Economic Development, and Tourism, 51,262,000 barrels of petroleum in fifty-five gallon barrels were imported into the State;


(3)  Some of the imported petroleum was refined into non-liquid products or refined into liquid products and then exported, thereby excluding those barrels from the environmental response tax; and


(4)  Nevertheless, the difference between the data is very large, and the reason for the difference requires examination; and


     WHEREAS, thus, the Legislature finds that an audit should be conducted on the imposition and collection of the environmental response tax; now, therefore,


     BE IT RESOLVED by the Senate of the Twenty-fifth Legislature of the State of Hawaii, Regular Session of 2009, the House of Representatives concurring, that the Auditor is requested to conduct a management audit of the administration and collection of the environmental response tax by the Department of Taxation; and


     BE IT FURTHER RESOLVED that the Auditor is requested to give particular attention to whether the Department of Taxation is imposing and collecting the tax on the appropriate tax base; and


     BE IT FURTHER RESOLVED that the Auditor is requested to submit the audit to the Legislature at least twenty days before the convening of the Regular Session of 2010; and


     BE IT FURTHER RESOLVED that certified copies of this Concurrent Resolution be transmitted to the Auditor and Director of Taxation.









Report Title: 

Environmental Response Tax Administration and Collection; Management Audit