 Hey, we're back, we're live on a given Wednesday with Tax, Tax, what are we calling this show? Talking Tax with Tom, Tom Yamachika of the Tax Foundation of Hawaii, he's the president of the Tax Foundation of Hawaii, I'm Jay Fiedel, this is Think Tech and we love this kind of discussion here on Community Matters. So we're in a great space right now, Tom, we're between the end of the session and the veto practice coming in, what, middle June or so I guess. That's right. And they finished, they had their little ceremony which was incomplete I think, they had some issues about who was going to come and not, and the issues about the conference committees too about who was going to come or not, it seems like there's a little bit of friction going on in the ledge this year, and it reflects itself in the substance of the result of their efforts also doesn't it, yeah. Yeah, yeah, there are a couple of new things that happened this year, one is that there are a lot of more instances where the House just didn't appoint conferees, and then so the Senate was like okay, we're here, where's our House counterparts, they're not there, they're not coming, okay, so are we going to move this bill and concede to what the House has done or are we going to say, you know, heck with this and we're going to kill the bill. So what happens when they don't come? When the Senate has those two choices, either agree to the House amendments and move the bill forward, or not agree, and the bill dies. That's not good practice is it? Yeah, it would be better. You're so modest. Yeah, really, I mean, not showing up at a meeting really seems unforgivable, that's my reaction, you know, you've got to participate in the process, that's when we pay them the bigger bucks for bigger now, yeah? Oh yeah. They gave themselves an increase, and I suppose that means they're more committed than ever to doing a good job for the public, right? We would hope so. One would hope, okay? Tax bills? Yes. What failed, what succeeded, and what's on the deck? Okay, so with regard to the stuff that passed, and it's on the Governor's desk now, there's a number of things to worry about. We already talked about some of the bills that have already become law. There is the estate tax increase. So if you have lots of money. That doesn't count unless you have, what, $10 million or something? Yeah, a $10 million taxable estate. Don't assume that it's all going to go to the kids because it won't. The government will take quite a bit. Theoretically, the state gets more money now. Right. The tax increase was at a rate after the $10 million. That's correct. Okay. Yeah, the top rate's now 20%, which is way up there in terms of the country. If you look around the country, yeah, not a lot of states have 20% on your taxable estate. Yeah, I think we're tied for the top with Washington state. Yeah. But what about the $10 million? Is that common also, or are we ahead or behind on that? I'm not sure. Okay, it doesn't make too much difference. It can't be more than a handful of people. Yeah. Tax them. Tax them. Okay. What else? Okay. We talked about the READ bill, the real estate investment trust bill. Surprisingly, it went all the way through this time, which is kind of the first time it's ever made at this far in the past five or six years. It's now at Governor Ege's desk, and there is talk that he is not in favor of the bill, but whether that means he'll veto it, that's a different question entirely. Yeah. He has three choices. He can sign it, he can veto it, or he can do nothing and let it pass. Yeah. And then it becomes law without a signature. Yeah. But he must be under pressure from the READs on this. I mean, I would imagine every READ in the state is going to be on him, they're interested in the issue. Yeah. I think he's going to face pressure from the other side as well, because there are grassroots proponents who think that the READs are enjoying a loophole, the benefit of a loophole, and they think it should be closed. You said you thought that maybe he was not in favor of the bill, but there's an inclination procedure, isn't there, where he announces inclinations of what he's likely to veto, what he's likely to sign, when does that happen? Yeah. It's toward the ending of June, it's called the Notice of Intent to Veto. So by that date, he has to come up with a list of bills that he could veto. Anything that's not on the list is going to become law. But things that are on the list, he can either change his mind or he can veto them. He definitely should circle back at that time and talk about that list, because I think there's really a big issue of whether he's going to let this become law or not. Yeah. There's a lot of stuff out there, not only the READ bill, but the Airbnb bill, so-called, generated a lot of high drama. Yeah. Back to the READ bill for a minute, Joe. How much money does the READ bill mean for the coffers here in the state of Hawaii? Well, that's in dispute. That's in big dispute. The tax department has it at generating like maybe $3 or $4 million the first year and $10 million every year they're after. The proponents of the bills say it's more like $60 million. So that really should be something we know about. Yeah. And the methodology for doing the revenue estimate isn't really clear. There was a study that D-Bit came out with that was supposedly in consultation with the Department of Taxation, and that's where the proponents got the $60 million. But now, EOTax is saying, well, the READs could have had some deductions that they otherwise weren't taking, so. Interesting. So it's a net thing, anyway. It's going to be the net profit from the READ in the state of Hawaii, what the READ is doing here. Right. Not everywhere in the world, just here, and it's only the net after expenses and deductions and what have you. Oh, of course, yes. Yeah. Okay. What about the B&B thing? You mentioned that and certainly that has been the subject of high drama. Yeah. The first event in the high drama happened I think Friday before the legislature was about to adjourn. They took a vote on the bill and it failed in the Senate, 12 votes for, 12 votes against, and one senator didn't show up. He had a health issue or something, but he said he was going to vote no anyway. And then the Ways and Means Chair came back and said, okay, guys, we really need this bill for some revenue, and if you're not going to do it, then I'm going to pick some bills and we're going to recommit them. What does that mean? What that means is you may think it passed, but we're going to change our mind and unpass it and kill it. Oh, wow. So if you're a senator who wanted one of those bills to pass, it could be undone. There's nothing sacred here. Yeah. And all they needed was for one guy to change his mind, and one guy changed his mind. And they took a re-vote. I think it was on Tuesday, 13-4, 12 against. It passes. Oh my goodness. Okay. That's high drama. It is high drama. So the concern about that one is it sets up a procedure where platforms like the Airbnb, SlipKey, the Homeaway, VRBO, those kinds of things, the platforms are supposed to collect and pay over the GET and the transient accommodations tax because they're handling the money any. And the platform would be Airbnb, the organization that establishes the tenancy, sort of, that places the tenant, as opposed to the homeowner who allows the tenant to come into his home. So that should be more efficient. Yeah. What's the big objection? The objection has always been county zoning. A lot of these transification rentals are not legal in the area for which they're zoned. So this would effectively override the zoning, no? No, it doesn't. Whether you're doing business illegally or legally, you still owe tax. Ah. Do you guys remember how they got Al Capone? Right. They got no tax. Right. Maybe that's how they're going to get Trump, too, by the way. Maybe. But the tax law doesn't really care if the economic activity you're doing is legal or illegal. But as long as you do the economic activity, you owe the tax. Well, this is a serious problem for the, I guess, the homeowner now who was renting the home and violation of zoning laws, because Airbnb is presumably going to pay the tax and identify this home as in violation of the zoning laws. It's easy then for any government agency who wants to enforce the zoning laws to nail this homeowner, right? It's all there on the record. It's a slam dunk at that point, no? No. No, because the current version of the bill doesn't provide for information sharing with the counties. But what it doesn't do, it doesn't hide the ball like in the 2016 version. Okay. That would have allowed the platform or the homeowners to use the platform's number in their ads and so forth, thereby hiding their own number. Okay. Yeah. This version of the bill doesn't allow that to happen. So the homeowner's got to have a number and advertise with that number. And if the homeowner doesn't have a number, then we know there is scoff law. I'm laughing because this issue had to be in the mind of everyone involved about the interrelationship of the zoning and the tax. They go together. I mean, they're related. Use of the property this way. Well, it's actually not because the state imposes the tax. The county imposes the zoning. They're two different governments. It's the government. It's the sharing between governments. That's the problem. That's right. So anyway, that's very interesting. And I wonder if that'll change going forward to make it more transparent from one government to another government. The status of this is it passed. It passed. And we have any idea what the governor will do about it? I have no idea. There's going to be a lot of pressure on him. Yeah, from both sides. We would think. Yeah. So I guess the counties were differently unhappy. Yes. I guess Aaron B and B wants to see this. I don't know. I don't know if they were happy with this version of the bill either because they were still opposing it to the bitter end. But they were. The people who really wanted it to pass. Were the people who needed revenue. The homeowners. No. The politicians. They had problems. They had programs and services they wanted to provide. More money from the government. Yeah. Yeah. They said we need revenue raisers. I mean, that's what Senator De La Cruz used to try to beat people up and have them change their mind. One guy did and that's all that he needed. He just needed one guy to change his mind. Well, assuming it's signed, then Airbnb collects, that's very efficient. And we already know there's a lot of these vacation rentals going on in the state, whether we pay tax on them or not. Then this presumably would increase the amount of revenue to the state government, right? That's right. And then if the locals have a concern about property being used in this fashion, they got to get on their county government's case to enforce the law. About the zoning. Yeah. Yeah. And that leaves a single issue inside of a double issue. Right. So the tax is what? It's regular gross excise tax we're talking about. Not TAT or anything. TAT, yes. This is TAT. So this comes to more than TAT would be. Definitely. And is TAT going up this year? No, no, no. It's 10 and a quarter. Okay. So it's all right. So they'd be treated like hotels, which is essentially what they are anyway. Yeah. The transit accommodations, that's what you got to pay. And some people aren't doing it. Yeah. Well, this has the prospect of sorting things out. It also has the prospect of being vetoed. And the can kick down the proverbial road. Yep. Only to come up again next year. And maybe. That's Tom Yamachika. He's the president of the Tax Foundation of Hawaii. And we're talking tax with Tom here. We'll take a short break and come back. We'll find out about some other bills that you may know about or maybe not. Aloha. I'm Lauren Pair, a host here at Think Tech Hawaii, a digital media company serving the people of Hawaii. We provide a video platform for citizen journalists to raise public awareness in Hawaii. We are a Hawaii nonprofit that depends on the generosity of its supporters to keep on going. We'd be grateful if you'd go to thinktechhawaii.com and make a donation to support us now. Thanks so much. Aloha. I'm Wendy Lo, and I'm coming to you every other Tuesday at 2 o'clock live from Think Tech Hawaii. And on our show, we talk about taking your health back. And what does that mean? It means mind, body and soul. Anything you can do that makes your body healthier and happier is what we're going to be talking about. Whether it's spiritual health, mental health, fascia health, beautiful smile health. Whatever it means, let's take healthy back. Aloha. You got to know about tax. Tax affects us all. You know, you think you can get along without knowing about tax. Mistake. That's why I should look at this show. Talking tax with Tom, finding out what's going on in the square building about tax. We are not just doing it once this time, but we do it all the time, every few weeks. And that way you can actually look back and see how these things have evolved over the session. So you can talk about the electric vehicle tax. Yes. What's that one? So the Department of Transportation, the one that fixes our highways and byways and bridges and stuff like that, they are getting concerned because a large part of what they take in comes from the fuel tax. And with the advent or with the continual progress of market penetration, I should say, of electric vehicles, hybrid vehicles, alternative fuel vehicles. The fuel tax ain't going up as much as they want it to. So. This will be much stalker in the future. Yes. And there are more electric vehicles on the road. Right now, it's not all that dramatic user term. But later on, it might become much more significant. So you might have heard that the Department of Transportation is going out to the public to test the waters on what they call a road usage charge. What that would do is it would tax drivers based on how much they use the road as opposed to how much fuel is in their tank. Okay. And that is getting, I guess, some mixed reviews when it goes out in the community. Some people, some people hate it very much. And probably nothing very much in between. It would be an increase for a lot of people. We don't know that. We don't know. I mean, if you have a gas guzzler now and you're paying a lot of fuel tax, that would go away. So you may be better off under a road usage charge. It would be an increase for people who have electric vehicles. Definitely. Yeah. But if anybody ever really likes a tax of any kind, much less an increase. Yeah. So if you went out to the public and say, do you love this tax? Do you love this increase? You're never going to get a really good answer. Yes, Tom, we love this tax. We love that you don't get that. It would be kind of hard. But I've seen stranger things. But anyway, and an interim measure. Okay. The registration charge for electric vehicles and alternative fuel vehicles is going to go up because the legislature has approved and has sent to Governor Bill saying, we're going to put a $50 surcharge. This is per year on electric and alternative fuel vehicle. That means hydrogen, I guess. Yeah. Hydrogen, biomass. I don't know what else. Yeah. Yeah. Sure. Biodiesel. Yeah. That would be another one. Yeah. So what is it now? Is it the same as a conventional vehicle? Right. So right now, all vehicles pay one charge. I think it's $45. But starting I think next year, the alternative fuel vehicles and the electric vehicles will pay $45 plus $50. So it's a $50 increase. What's the, oh, I see. This is to make up for the fact that they're not paying the fuel tax. That's correct. Why do I feel funny about that? Well, you probably feel funny for the same reasons that the environmental groups do. They're saying, well, come on, guys. We're trying to encourage use of alternative fuel vehicles, get off the fossil fuels. We have these clean energy goals for the state of Hawaii. All of this is counter to our clean energy goals. So why should you be disincenting the use of alternative fuel vehicles or electric vehicles? And go a step further on that, you know? We used to have a tax credit when you bought an electric car. I don't know if that extends to a biodiesel car or hydrogen car, I'm not sure. But you used to have a substantial state tax credit. It expired without renewal. And now, I don't know where the federal is, but the federal may be expiring too. But in any event, you don't have the state tax credit to incentivize you to buy an electric car. There's all kinds of changes rolling back the benefits of owning an electric car, including this $50 surcharge. I think they're changing the rules on the number of stalls and parking for an X number of hours at the airport and the kind of thing. So all in all, the benefits that were originally conceived who stimulate the purchase of electric cars in our state are disappearing, I'm sorry to say. And what's more interesting yet is that we only have like 7,000 cars out of a million cars that are electric cars. So we haven't even gotten to first base yet. We're already pulling the incentives out. What does the legislature think will happen? This is going to de-incentivize electric cars. No, I think they think people will buy the cars anyway. I mean, typically when you enact a tax credit it's supposed to stimulate some intended behavior, and then once it starts kind of getting on a roll, then you can pull the credit out because people need to get it anyway. Theoretically. Yeah. I mean, why do you need to incentivize something that people are going to do anyway? Well, but that hasn't shown to be the case. It has not shown to be the case. They're not doing it anyway. 7,000 cars out of a million cars. And furthermore, I'd like to say that you watch television at all times. I think we had this conversation. Have you noticed that in the past couple of months, maybe since the beginning of the year, there have been an enormous number of car ads on television? Yes, I'm trying to sell cars so much, so hard, so fast, so vigorously, because car sales are down. That's why they're putting all the ads on. But among the ads, there are zero ads for electric cars. What does this tell us? Well, I don't know about you, but I'm seeing a lot more alternative fuel vehicles and electric vehicles and hybrids on the road these days. The Teslas, the Leafs, the Priuses, all these vehicles. Just a couple of years ago, it was very rare to see even one of them. Now they're all over the place. I should move to your neighborhood. I don't know. I don't know if it's a function of neighborhood or whatever, but that's what's happening. So what's the status? Up to the governor. So pass the legislature up to the governor. Expectations? We don't know. We'll circle back on that. House Bill 333. This is an interesting one. It establishes the state highway enforcement program. So if you're guilty of parking a violation on a state highway, and I think they have a problem in Kauai with people parking in state highways. When you park along the road, along the side of the road? Yeah, along the side of the road. In addition to the current penalties, you have to pay an additional 200 bucks. That's for parking. It's a parking ticket, so to speak. A state parking ticket. A state parking ticket. Part of that, well, half of that's going to go to the Department of Transportation so they can fix the roads and bridges, like I mentioned. And then half of it's going to go to the county. Wow, that sounds like cruel and unusual punishment. Confiscatory what? It's just very interesting that it's only targeted against state highways. So you have also county highways and no comparable penalty. You park at the H1. That's not a state highway. Really? It's federal. Ah, okay. Then the state rule doesn't apply. So it only applies to state highways. So you expect a nasty surprise if you're parking in a state highway. It gets complicated because who enforces this? This would be the same county police department that enforces this. Yeah, but they get halves. Okay, well there's a motivation feature there. Definitely. So did that pass? That passed. It's on the way to the governor's office now. You know what they say, taxes never go down. Yep. I talked to you about the rental vehicles or charge tax. Go ahead. Yeah, so when you rent a car under a law that passed last year, you pay $3 a day if you're a local with a Hawaii driver's license. And you pay $5 a day if you're not. You don't have a Hawaii driver's license. That's right. Why do I feel that creepy feeling of unconstitutional in my mind? It is unconstitutional. So this year they changed it so that everybody's not going to pay the $5. There's a solution. Yeah, it solves the discrimination. You were complaining about the other guys, now you can have the same treatment. That's right. Exactly. And that's on the way to the governor too? Yeah, it's effective upon approval. So as soon as he signs it into law, then it's $5 for everybody. They never go up. I mean, never go down. They never go down. Okay. Did we talk about partnership withholding? No, let's talk about that now. Okay. So if you are an S corporation and you have out-of-state shareholders, you as the partnership or the S corporation are supposed to withhold income tax on whatever is distributed to your shareholders. And this bill applies the same rules to actually a little bit harsher rule to partners in a partnership or beneficiaries of a trust. We get distributions from the trust. Okay. And all to collect the state income tax. Estimated tax. Estimated tax. Yeah, it's a withholding mechanism. So if you're a beneficiary or a partner in a partnership, you get a K-1 with Hawaii income. So you're supposed to file Hawaii return. I guess some people don't. So in that case... There's no option about it. You must. Yeah, the partnership must. And since it's a partner who's going to receive the income, the partner has to pay tax on that distribution. Am I right? Yes. Mid-year. No, no, no. I did the regular time. Yeah. Okay. Yeah. All right. And the rate is the same as the... What is the rate? The individual rate. Same as the individual rate. Yeah. Is this intended to encourage business in the state of Hawaii? I don't know. It's designed to encourage us getting the fair share of income that we're supposed to get anyway, but maybe people aren't complying with the law. So it's an enforcement thing. Yeah. At the end of the day, the tax is the same as it would be without... It's just like wage withholding. You get money taken out out of your paycheck every week, or every couple of weeks. And at the end, it's supposed to be... You compare that against the amount on your return. If there's a difference, you get refund of the difference. If it's not enough withhold, then you pay the balance. Is this the same concept? The only difference, I suppose, in that effect is that you wind up with more paperwork to do and more periodic obligations to handle. Yeah. But they... But they ought to say people were supposed to file those tax returns anyway, because that's the law. But I guess maybe they didn't. So now we all get to pay. That's right. Thank you, Tom. Tom Yamachika, talking tax with Tom here. He's president of the Tax Foundation of Hawaii. Talking tax with Tom here on Community Matters. Thank you so much. Thank you, Jay. Next time soon.