Hawaii’s Tax Benefits & Headaches
The Hawaii Tax Department is still working on its final reports for 2004 and 2005, but they show that the latest estimate of tax credits claimed in 2002 was $123 million and $143 million in 2003. Tax credits are available for a range of expenses and investments, covering the purchase of an infant car seat, to the making a movie. The Honolulu Star-Bulletin reports Hawaii collected $4 billion in taxes in 2005.
The qualifications for each tax credit are listed on five pages in the instruction booklet for form N-15, the standard state tax form. You then calculate your tax credit on a separate worksheet, according to the Honolulu Star-Bulletin.
“Generally speaking, tax credits are designed to encourage certain activity. Or sometimes they are also used for social policy,” according to Kurt Kawafuchi, Hawaii’s taxation director to Honolulu Star-Bulletin. Some of these eligible expenses for tax credits include:
- A portion of the bill for installing solar panels on your home or business
- Commercial fishermen can credit themselves for the amount of certain fuel taxes paid over the year
- A portion of a contractor’s cost for completing repairs and maintenance to a public school
- The net total of income tax paid to another state or country
- A portion of the cost for remodeling your hotel.
Kawafuchi’s department is updating its online tax filing system to include more tax credits than previous years. The Hawaii taxation department is also providing face-to-face tax guidance to those living in the state’s rural areas and processing residents’ tax forms for free, according to the Honolulu Star-Bulletin.
Many tax credits have built-in limits. The Honolulu Star-Bulletin reports fewer than half of Hawaii’s tax credits allow taxpayers to collect refunds if their credits were greater than their taxes owed. Movie and television companies filming in Hawaii can write off 4 percent of their production costs and 7.25 percent of their accommodation costs. In order to encourage high-tech business investment in Hawaii, the state allows companies to claim 100 percent of qualifying costs, with a $2 million cap.
With the help of this tax credit, Hawaii’s high-tech sector grew almost 10 percent from 2001 to 2004. It still employs fewer than 15,000, or 2.5 percent of the state’s workforce, according to KPUA Radio News in Hilo. Hawaii has allowed $110 million in tax credits, so far, and companies could see another $60 million in tax credits in the future.
Hawaii currently has the lowest general excise tax in the United States, at 4 percent. Actually Hawaii does not have a sales tax but taxes the gross receipts of a business instead. The Hawaii-Reporter reports that their Economic Revitalization Task Force of 1998 was discussing ways to jumpstart their state economy. The group proposed to offset the revenues that would be lost in reducing income tax rates and broadening income tax brackets, by raising the general excise tax rate.
Nearly all transactions are taxed, so there are more transactions subject to tax than if the state had a sales tax. There are few broad exemptions as in other states for food and drugs, resulting in a lower tax rate. The Hawaii-Reporter reports that the state’s tax surplus has legislators trying to exempt food and medical services purchases, care homes, and nonprofit’s fundraising income.
Real property taxes are a hot topic in Hawaii with its soaring real estate valuations. Lawmakers are seeking to alleviate this potential burden on homeowners by considering the raising the amount of the home exemption. The big question is what amount should the home exemption be raised to, so as not to erode the tax base. In the end, exemptions may create more problems than they solve in Hawaii, according to Lowell L. Kalapa, the president of the Tax Foundation of Hawaii, writing in the Hawaii-Reporter.