 Aloha and welcome to Business in Hawaii with Reg Baker. We are broadcasting live from the downtown studios of Think Tech Hawaii in the Pioneer Plaza. We are a show that broadcasts live every Thursday from 2 to 2.30 and cover topics of interest to businesses in Hawaii. We try to highlight success stories of both individuals and businesses to dispel the thought that you can't make it in Hawaii. You can't make it in Hawaii. It may not be easy and there are challenges but it is possible and there are a lot of people who are making it work. In business to be successful it's not how much you make but how much you keep. And a big part of the expense of a business of course is going to be taxes. And so today we're going to be talking a little bit about the update on the tax situation here in Hawaii and we might if we have time touch a little bit on the federal level although there's a lot of questions there. And I've got the tax foundation which has Tom Yamachika as the president and probably one of the most knowledgeable people in the state on taxes in Hawaii and has been following this for quite a number of years. And he's got an update that might be a little scary at least it was for me. So Tom welcome to the show. It's good to have you back. Thanks for having me on the show. Now you've been with the tax foundation for quite some time haven't you. Since the beginning of 2014 2014 but you're on the board for a while before that or yes yes yes. So you've had an affiliation with them for a while. That's right. And I've been following taxes for a very long time for 10 or 15 years before. All right. So 10 or 15 years of watching the process that the sausage making routine at the legislature on how these bills are created and passed and they get to me a little bit even more confusing when you start talking about taxes. And I guess it's a very sensitive issue not only with me but with a lot of people because it's essentially taking money out of my pocket putting it into their pocket and they do me the benefit of spending my money for me. That's right. And so you know I think today more than maybe in years past it's important to have the tax foundation and you keeping an eye on this primarily because right now the Senate really doesn't have much of a balance out now. I mean with Sam Sloan being gone there's really no balance in the Senate to keep an eye on things and everybody knows how vocal Sam was about taxes. Certainly Sam occasionally made comments about you know various issues of importance including tax issues and he said a lot of things on the Senate floor a lot of things that the media picked up on and you know really raised the education level of an awareness level of a lot of people. Well and that's what we try to do too. And that's the key word is the awareness. People you know of course you know vote our elected officials in and vote new ones in and they just need to be aware of what's going on and whether they agree with it or not. Yeah too often many people including legislators they don't know the nuances of a particular measure and they just kind of follow other people. Well and that's that's how we end up with some interesting situations you know some of which need to be fixed later and they find that's not going to work but you know I've been trying to watch what's going on here locally and there seems to be an awful lot of activity going on over the other legislature and all these different measures and you know some of them are pretty significant you know there's you know and one of them and I might jump around a little bit but one of them that I think a lot of people is watching is the real tax and some of the different options that are coming into that I mean you know we already knew that rail was going to be very expensive and we were having a challenge funding it and then we keep increasing the budget over and over and over again and trying to figure out how that's going to get funded and now they're taking what they had sold as a temporary tax and they're planning on doing making it permanent. Yeah a matter of fact we're watching a legislative hearing that happened I think on Wednesday where the hearing was on a bill to simply get rid of the 10 percent that the state that the state is now skimming off and and we thought that was the only item that was on the agenda but you know the mayor comes in the city council folks come in and their theme was we need it perpetual we need it you know in perpetuity so it they want to extend just a little bit from 2027 to forever forever but that's what they're focusing on they're not focusing on the issue at hand which is the you know how much that how much the state's going to steal from it but and see that's that's I think kind of where it gets a little murky is that you know people want to make this a permanent tax and keep it forever and in order to do that they're willing to give up some of it share some of that you know call it what you want you know a skim or a bribe or whatever to the state to allow them to pass this and make it a permanent tax if they get enough of it then they'll do that but there's different proposals on on how much of a skim they're gonna take right right the particular one that was being heard of course was to get rid of the skim entirely that was actually being put forward by by budget and finance which they should know I mean they are involved with it right it's the speaker of the house came up with a proposal to to knock down the 10% to 5% there was a key senator who basically said well okay we can we can do this perpetual perpetually but you've got to make make our share a third of it rather than the 10% so different ideas different approaches are floating around definitely any any sense at this point I know it's very early but any sense that you're picking up on what might be that the course of least resistance to get this I think there's a lot of sentiment toward extending it to some degree I and I don't know if people have figured out how long they can stomach I don't know if at least the money chairs will have an appetite to make it perpetual I mean you know the the mayor is being the drum the council is being the drum but but we we don't really know if you know if the if the money chairs can take that I mean the they they were the ones who really held a line last time in you know two years ago when when the mayor came to town and was asking for precisely the same thing the subject matter chairs were willing to give them like 20 years but it was the it was the money chairs who really you know kind of put the line and then put the skids on it well well thank goodness for that so it sounds like what I'm hearing is that there may be a way to get it extended for a fixed period of time and my guess is that the state will get some kind of a skim from that but we don't know how much yet all right well that's it's interesting and I guess you know a wild card in all of this is going to be whether or not the the feds continue with their funding of the project itself too right right the feds have given the state until I think April to come up with a revised financial plan and I I think the city is basically going to argue that one key component of the financial plan is whether and to to what extent the the surcharge is extended so they may just say well you know we have to figure that out first and then we can give you the plan well and if they don't give the plan then there is some risk involved that the feds may take a step back from it yeah I think the risk can't be underestimated we have a new administration in place they may not be as as supportive to hoy as the previous one was well and I believe the new sheriff in town President Trump has already released I think the top 50 infrastructure projects in the country and this one was not on that list yeah that would be I would be surprised if it were yeah and so that's that's a signal you know I think or at least identifies that there is a risk you know to them not putting a high priority on this so it's gonna be interesting times but there's other tax issues floating around too there's I guess more direct to individuals I've heard that there's they're trying to bring back some additional tax rates that they had let laps before now they're reinstituting them again yeah there are several proposals out there to play with the you know the top income tax rates under the rubric of okay well let's hope the rich right so our top tax rate now is eight and a quarter percent which is you know in in terms of the country we're about the higher than the middle of the pack we're not at the top we used to be at the top before California beat us but that's you know not a great trophy to be proud of that's not you want to brag about yeah but there are various proposals around some would bring back the 9 10 and 11 percent top rates that we used to have and and those would not be temporary you know one of the maybe points that some people miss is that maybe our rates may not be as high as some others but we get to the top fairly quickly is that still true today actually we get to like 6% very quickly and then from 6 to 8 somewhat quickly after that it takes a while to get to the 9 10 and 11 and what we're talking about is the income levels that will move you into a higher marginal tax bracket so for example and the first 20 or 25,000 might be a 6% but then you slowly creep up to the higher rates yeah well actually it's even worse than that I mean somebody who is living at the federal poverty line right and that's that's all they have that's 6% wow there are 6% already because you get to there at I think the first 10,000 I knew that those those those brackets were pretty low but I didn't I haven't looked at them in years and that's too bad I guess it hasn't kept up with inflation and no no no that the lower section of the the brackets haven't been revised since the 60s I believe wow well and for some reason they still can't make ends meet so they got to keep coming up with the new taxes so I guess these new rates that to bring him back we'll put some more money into it you know I guess the permanency of the the rail tax we've got some other taxes that they're talking to about it some of them I again back to a personal level it's gonna get more expensive to drive a car yeah one of the things that was happening last year was that the Department of Transportation had come in and they asked for tax increases on three things one being the fuel tax so you know the number of cents per gallon second being vehicle weight tax and third being vehicle registration the the latest version to cross the Senate would have given them approximately 30 bucks more in vehicle registration one cent a pound more in vehicle weight tax now you know most typical cars weigh two tons okay so four thousand pounds times even a penny is still 40 bucks so it's not I mean we've got a few hundred thousand vehicles right so that adds up to some pretty decent money pretty quick right and and they had come in asking for three cents in the in the gas tax okay current bill as for six well double a six cent increase in the gas tax again and this is only the state's share we know that some counties want Tuesday like like me are called well they're they're going to be coming over the proposal to increase the county portion of the gas tax and the weight tax and the vehicle registration so and if you've paid maybe 300 bucks to register to register your car I mean I did the next time you do that it may be substantially more than 300 Wow and and they're also and this may be a little bit old news but they also played around with some of the real estate taxes too you know that is catching some people by surprise I mean a lot of people are finding their real estate taxes shot way up you know I guess because of I guess whether they file the exemption or not or whether or not they've got it is an investment property or not or they didn't register it and I'm hearing that some people's real estate taxes have gone up by 20 30 40% okay so you're talking about real property taxes yes well if that's the case you'd be interested in what the what the what is being planned for education oh well we're gonna have to take a short break but I want to hold that thought and we want to talk about some of the education taxes when we come back but this is business in Hawaii with Reg Baker I'm here with the tax foundation and Tom Yamachika and we're we're hopefully not scaring too many people too much but we are talking about some significant tax increases it could be happening here in the near future we'll be right back aloha my name is Richard Emory and I hose condo and cider we talk about issues facing the condo Association throughout Hawaii and talk about solutions when you think about it about one-third of our population lives in some form of common interest real estate we broadcast every Thursday at 3 p.m. please to end tune in and thank you aloha you're watching think tech Hawaii meeting people we may not have otherwise met and helping us understand and appreciate the good things about Hawaii great content for Hawaii from think tech hi I'm Tim Apachella I'm the host for moving Hawaii forward and the show is dedicated to transportation and traffic issues in Oahu we are all frustrated by sitting in our cars in bumper-to-bumper traffic and this show is dedicated to talking to with folks that not only we can define the problem but we hopefully can come to the table with some solutions so I invite you to join me every Tuesday at 12 noon and let's move Hawaii forward welcome back this is business in Hawaii with Reg Baker I'm here with the tax foundation and Tom Yamachika we're talking about some of the different tax bills that are floating around in the legislature this year and we were just about ready to get into some education taxes that are there but just to clarify I guess you know my comment about the real property taxes had to do with I guess that's a little bit old news that's a couple years ago or so but it was an additional tax on some dollar amount yeah so so the way it works and it's specific to the city in County of Honolulu but if you have a piece of real estate that's that's zoned residential and has no home exemption on it so it's it's maybe a rental property or a second home or something like that it gets taxed at a higher rate so the normal residential rate is 350 per thousand dollars of assessed valuation so a million dollar home would be $3,500 assessed if you live in it and it's six dollars so it would be a six thousand dollar tax bill 70 70 percent higher if you don't qualify for the home exemption okay and that's that was what catching some people by surprise was that they maybe they just weren't following it they weren't as aware of it as maybe they should have and then when it kicked in and they sent the bill they go whoa what's this exactly and then for some reason they end up calling their CPA and not a lot we can do about it yeah if it's if it's happened it's happened yeah exactly all right so we've covered a little bit about transportation taxes we've talked about income taxes we've talked about property taxes and then along along the lines of the proper taxes let me tell you what what's happening in education that's what we're now we can talk about education right okay so you remember how the education interests last session came in with a proposal to raise the GT to 5% this year they're taking kind of a different a different tactic they're they're saying okay instead of doing that what we are going to ask for is a surcharge on real property so so they call it like investment real property but it but their criteria for it is basically the same as residential a except without the the threshold valuation amount so any property that's residential for which there's no home exemption would be subject to the surcharge okay and the surcharge is graduated to the to the value of the property but at a million dollars if it's a little less than a million dollars the surcharge is 550 okay so so you start off with 350 which is your normal rate at the surcharge of 550 wow and and your bill goes from 3500 to 9 grand well now Tom traditionally from my experience property taxes was usually used to fund education at least that's the way I've seen it work on the mainland right that's how it works in the mainland okay it's a little different here though right here we have centralized DOE which means that the schools are funded from the state okay they're administered by the state they're funded by the state so we have state tax funding so that 350 will still go to the state but then the additional 550 or five would end up going specifically to these schools yeah well the 350 goes to the city oh I'm sorry I'm sorry the city okay and the 550 would go to the state to fund the schools okay okay but the but the I guess the good thing about it is that would require a constitutional amendment so this can't be done unless the voters approve it so you have to put it on the ballot which would be like you know not this year but next year and the voter would have to vote on it and if that's what they want to do then you know that's what they want to do but but it can't be done without a constitutional amendment it makes the process a little bit more complicated a little bit more drawn out it'll take a little bit longer for it to get done yeah but but right now the property tax is it's the county's property I mean it's it's it's it's what they want to do with it and and they're having you know some big disputes right now about how much additional money they're going to get from the transient accommodations tax they've been fighting that fight for a number of years well who are the supporters for that additional five dollars for the property tax for the schools I mean I got from my readings I got the sense that it was a union backed initiative to help provide funding to the teachers my suspicion would end with that would be that it's HSTA yeah yeah and so this is going to be what would seem to be a very large increase in revenues that's going to go into the Department of Education it would be I think half a billion dollars half a billion dollars and I'm already hearing you know some pushback on what they're currently getting and that there's a number of dollars being wasted and not being very efficiently used and so this is just going to give them another half a billion dollars that may not just it may not fix anything you know I I think we're we're throwing dollars it's something that may have more of a a need to be fixed rather than throw dollars at it no that's that's kind of an operational question all right so let me let me get back to you know there's another area that we talked about you know just prior to the show about the Affordable Care Act and something that was being discussed and possibly worked on here and can you explain that to us sure right now the Affordable Care Act sometimes known as Obamacare has what's called an individual mandate which which basically means that you every individual is required to buy insurance for his or herself and their dependence okay and if you don't if you have no coverage and no and no excuse then no exception applies right then you get hit with a penalty and the penalty is about six hundred bucks right right and it's probated for each month that you're not covered okay well there are people who apparently believe that with the Republicans and President Trump now in power a lot of what is now Obamacare is going to go away right okay I mean they've they've said they've talked about it yeah yeah and and and and these people here apparently have the belief that well if if Obamacare on the mainland is going to go away we're going to have it we're going to have it here okay so the proposal is for there to be a an income tax penalty if you don't have appropriate insurance coverage for yourself and your dependence in Hawaii in hope okay but the the interesting thing is none of the exemptions are in the bill now so even under Obamacare if you're out of the country or if you're in prison or if you or if you really can't afford it there's exemptions there there are exemptions yeah right there are no exemptions in Hawaii or at least not under this version okay so the current version that's being talked about right now is it everybody who files a tax return that's right has to have insurance in Hawaii for the whole year for the whole year even if they're not a resident of Hawaii that's right so for people who have to file a Hawaii return that maybe live in California or Nevada or somewhere else but because they've got rental properties over here and they have to file a state tax return for that income even though they've got coverage already they have to get coverage a second time under the current bill the way it's written they'd have to be covered again in or the or they'd have to have a policy that meets the requirements meets the Hawaii specific requirements and that's you know and and just for the the benefit of the audience uh I was with HMA for a number of years and I was involved in a lot of the um what they call the prevalent plan discussions uh and the prepaid healthcare act in Hawaii uh has a prevalent plan bar that is set very high and all of the insurance insurance and all of the insurance plans that are done through the prepaid healthcare act has to hit that minimum plan and that minimum plan uh prevalent plan level is normally at the gold or platinum level and which means it's it's got a lot of coverage it's it's good a good solid plan which is great for Hawaii and it's great for our health needs here but on the mainland they don't have those types of requirements so if they had say a bronze or a silver silver level that wouldn't count they'd still have to get some sort of additional coverage to meet the minimum plan levels here in Hawaii that's the way it's currently written I I would hope that some logic would prevail and that they would address that type or have some sort of an exemption for that otherwise they could get pretty complicated once it comes tax time yeah yeah I mean a lot of the bill right now in in my humble opinion doesn't make any sense but there's a lot of bills like that aren't there I'm sorry that was another operational issue all right um well what else is anything else that's going on over there that uh is just kind of surprising when it comes to taxes or there's a lot of stuff over there um there there are there are things um that uh you kind of look at them and you and you kind of shake your head uh there's for example there's um uh there's there's a bill that would exempt helicopters from the the general excise tax well they're already exempt I mean because of federal law there's a there's a federal law that applies to airlines and it says basically that you can't apply a gross receipts tax to proceeds for passenger or cargo transportation by air period uh the the state didn't believe they litigated the issue they lost okay in in the in the ralantines us supreme court eight to zero uh which is that's a loop that's a loss that's a loss you know I must apologize we have run out of time we gotta wrap things up but you know Tom I I always enjoy having you here you you add a lot of interesting facts and figures to the tax situation uh makes me a little nervous and apprehensive but I'm hoping that common sense prevails and what we'll end up with is something that may cost us a little bit but maybe not as much as they really want so we'll have to have you come back after the session's over and then kind of give us an update on what actually happened and thank you for telling us it was great to be here all right thanks Tom this is business in Hawaii with reg baker we broadcast live every thursday at two o'clock from two to two thirty hope to see you next week until then aloha