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HOUSE OF REPRESENTATIVES             H.C.R. NO.            
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                     HOUSE  CONCURRENT
                        RESOLUTION
  REQUESTING THE DEPARTMENT OF BUSINESS, ECONOMIC DEVELOPMENT,
    AND TOURISM, WITH THE ASSISTANCE OF THE DEPARTMENT OF
    TAXATION, TO STUDY THE FEASIBILITY OF REPLACING THE INCOME
    TAX AND GENERAL EXCISE TAX WITH A NEW RETAIL SALES 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; 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   

 
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 1        WHEREAS, the second type of pyramiding is the additional
 2   tax on the tax paid by the consumer.  The tax must be paid by
 3   the seller but may be passed on to the consumer.  When this
 4   happens, the consumer pays a tax on the tax which is passed on,
 5   or 4.166 per cent on an item taxed at four per cent; and
 6   
 7        WHEREAS, the general excise tax puts a particular burden
 8   on the tax on services because of a lack of an equivalent
 9   wholesale rate as provided for sales of goods.  Therefore,
10   since all services are considered a final sale, services which
11   are provided to an item in preparation for sale are also taxed
12   at the four per cent rate, thereby increasing the pyramiding
13   effect; and
14   
15        WHEREAS, another difficulty caused by pyramiding is that
16   projecting the exact amount of taxes on any one product is
17   nearly impossible, creating a wide disparity in the actual
18   taxes paid on specific goods and services, a disparity of which
19   the consumer remains completely unaware; and
20   
21        WHEREAS, the income tax, even though used in most taxing
22   jurisdictions, is a tax that is applied unevenly and can be
23   burdensome to many people, and is paid solely by Hawaii's
24   residents; and
25   
26        WHEREAS, by comparison, a sales tax would be paid in large
27   part by tourists and business visitors, and Hawaii's residents
28   would have the ability to choose to buy only those products and
29   services they need, thereby having the ability to limit their
30   tax burden; and
31   
32        WHEREAS, businesses in Hawaii would be better served if a
33   sales tax were substituted for the general excise and income
34   taxes.  A sales tax would not pose the pyramiding problems of
35   the general excise tax, and it is a well-understood tax used in
36   an overwhelming majority of taxing jurisdictions in the United
37   States; and
38   
39        WHEREAS, a sales tax would provide a more direct, profit-
40   related tax with a large base, but a base more equitably
41   distributed, applying to those who actually gain from the
42   product or service being taxed; and
43   

 
 
 
 
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                                  H.C.R. NO.            
                                                        
                                                        


 1        WHEREAS, there is a need to study the effect of replacing
 2   the revenues produced by the income and general excise taxes
 3   with revenues produced by a new retail sales tax; and
 4   
 5        WHEREAS, the Department of Business, Economic Development,
 6   and Tourism, with the assistance of the Department of Taxation,
 7   is the most appropriate agency to conduct such a study; and
 8   
 9        WHEREAS, the Department of Business, Economic Development,
10   and Tourism works to support business, create jobs, and improve
11   Hawaii's standard of living through diversifying the economy,
12   expanding existing business, and attracting new economic
13   activity; and
14   
15        WHEREAS, in addition, and perhaps more importantly, that
16   Department conducts critical statistical and economic research
17   that is vital to policy makers in determining the best means to
18   regain the State's fiscal revitalization; and
19   
20        WHEREAS, in turn, the Department of Taxation is also
21   ideally suited to assist the Department of Business, Economic
22   Development, and Tourism by generating necessary state tax data
23   to allow the latter department to conduct an economic impact
24   analysis; and
25   
26        WHEREAS, there is an immediate need to analyze the
27   economic and other implications of restructuring the State's
28   tax system to assist in revitalizing the State's economy; now,
29   therefore,
30   
31        BE IT RESOLVED by the House of Representatives of the
32   Twentieth Legislature of the State of Hawaii, Regular Session
33   of 1999, the Senate concurring, that the Department of
34   Business, Economic Development, and Tourism is requested to
35   study the feasibility of replacing the the income and general
36   excise taxes with a new retail sales tax; and
37   
38        BE IT FURTHER RESOLVED that the study conducted by the
39   Department of Business, Economic Development, and Tourism is
40   requested to be in the form of an economic impact analysis of
41   the effects of restructuring the state tax system, including:
42   
43        (1)  Cost estimates of the proposed conversion to a retail
44             sales tax, including anticipated administrative
45             costs;
46   

 
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 1        (2)  The anticipated economic impact on taxpayers in
 2             Hawaii arising from the conversion;
 3   
 4        (3)  The expected percentage of the sales tax that will be
 5             "exported" to visitors to Hawaii who purchase Hawaii
 6             goods and services;
 7   
 8        (4)  The anticipated impact on the collection of state tax
 9             revenues in Hawaii;
10   
11        (5)  The expected rate at which the new sales tax must be
12             established in order to generate sufficient revenues
13             to replace the general excise and income taxes; and
14   
15        (6)  Any other information that the Department considers
16             to be appropriate to policy makers;
17   
18   and
19   
20        BE IT FURTHER RESOLVED that the Department of Taxation is
21   requested to generate and supply appropriate tax data as may be
22   necessary to the Department of Business, Economic Development,
23   and Tourism, to allow the latter department to conduct its
24   study; and
25   
26        BE IT FURTHER RESOLVED that the Department of Business,
27   Economic Development, and Tourism is requested to consult with
28   the Tax Foundation of Hawaii, the Chamber of Commerce of
29   Hawaii, and other private entities as may be necessary in the
30   course of the Department's study; and
31   
32        BE IT FURTHER RESOLVED that the Department of Business,
33   Economic Development, and Tourism is requested to report its
34   findings and recommendations, including any proposed
35   implementing legislation, to the Legislature no later than
36   twenty days before the convening of the Regular Session of
37   2000; and
38   

 
 
 
 
 
 
 
 
 
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 1        BE IT FURTHER RESOLVED that certified copies of this
 2   Concurrent Resolution be transmitted to the Governor; the
 3   Director of Business, Economic Development, and Tourism; the
 4   Director of Taxation; the Tax Foundation of Hawaii; and the
 5   Chamber of Commerce of Hawaii.
 6 
 7 
 8 
 9                         OFFERED BY:  ____________________________