 Think Tech Hawaii. Civil engagement lives here. Welcome to Business in Hawaii. My name is Ray Tsuchiyama, and today I'm the guest host of the show that really highlights, promotes business in Hawaii, especially small business that really needs, really help in really meeting the challenges to become successful and to earn a profit, to really hire new employees and a backbone of the state economy. And today we have Reg Baker, who sits usually in my seat. And this is April, wow, almost the 15th, almost. And New Year's seems ages ago, and now we are nearly at the end of tax season. And Reg has been involved in the middle of this new tax reform change, the new laws that were passed in 2017. So any takeaways as we complete this tax season? Well, I am a true survivor of the tax season. This has gone down in history as probably one of the worst tax seasons that the industry has ever seen. Worst meaning what? For whom? Well, actually I think for almost everybody, the tax preparers themselves have had some particular challenges because not only do they have to process the volume of transactions for 2017 in just a few months, usually you get started in February and you're done by first week or so of April, so you've got about 80% of your business for the entire year compressed into just a few months. So they had to deal with that for 2017, but then on top of that was all the confusion created by the 2018 tax reform. Right. A lot of people didn't understand what started now, what started later, okay wait a minute, what's this mortgage interest in 2017, what's this alimony in 2017, does that impact me? And just a lot of questions, a lot of commotion. So those are questions from your clients, but what about the IRS? Did they deal with it in an efficient manner? No, they're understaffed, they've had their budget cut every year for the last 10 years, they're running probably at a staffing level about 70% of where they're supposed to be. They've got a real brain drain going on, a lot of people are bailing out, there's just not the knowledge there anymore that used to be. But then on top of the 2017 season, the tax, the IRS and tax preparers and tax payers are all wrestling with, the 2018 kicks in, first quarter payments, estimated tax payments for the first quarter, comes in April 20th. So everybody's got to be ready to do their 2018 estimates, and they haven't done the forms yet, they haven't done the instructions yet, they don't really know exactly how it's all going to work. So the IRS is struggling with this, the tax preparers are as well as the preparers, the payers. This was a result of the impact of the new regulations or laws passed last year by Congress, and that was to become tax reform or tax, and you said that there hadn't been any changes, dramatic changes to tax code for decades, I mean, a long time. You know Ray, when I was going to college, and that was a little while ago, they were talking about tax reform, we're talking about back in the early 80s. Wow. We're talking about tax reform back in the very early 80s, and we've been waiting for it ever since. That's Ronald Reagan, presidential term at that point, and this is Donald Trump. And look at how many presidents in time, years have passed. Now was that all overdue or all of a sudden, and in the end, for some people they thought the world would end with the new tax regulations, that the rich will pay nothing and the poor will pay tremendously more. What happened? Well, as what normally happens is that the journalists got it all wrong. They're not tax experts, they can't know everything. Because you're in the trenches and preparing the forms for many, many clients, and you work with CPAs, and you talk about themselves, right? Well, and we also are involved in helping some of the elected officials understanding what the implications are when they do these things. And so it's not as if the CPAs just sit there and don't do anything. They're actively engaged in the process as well, and they give some thought and advice to the people who are passing the laws. So there's a lot of knowledge out there that's going around. But what happens, and if you've ever watched a process, that bill, which is a few thousand pages thick, if you were watching the process as it was being negotiated and you flip through these pages, you'll see a lot of scribbling, red marks, xing things out and scribbling in the margins, and all of these individuals that were negotiating to pass this thing was making changes to it during that process. Nobody understood exactly how that was going to work. And so it's just going to take a while to go through that and see exactly what the implications are. But I can tell you, and I think D-Bed just came out with some reports on this, and I know that the IRS tracks this, but the top 10% of wage earners, the richest 10% in the entire country, they pay 95% of all taxes. So when people say that the rich don't pay, it's ludicrous. And so this is also a midterm election year, November. However, we were talking that it probably will not have an impact on new tax regulations. We were still wrestling with a package that was passed by Congress last year for Tax Year 2018. Am I correct? Yes. We've got the Tax Reform Act itself, which is a couple thousand pages, and then we've got the rules, the regulations, the interpretations, and then we have the forms and the instructions. If you've ever looked at some of the instructions, for example, depreciation is 150 pages of instructions on how to do depreciation. Anytime you change with the formulas, tweak the formulas, or put bonus depreciation in or do this or do that, all that's got to change. It's all got to be updated, and so that's what the IRS is working on right now. We're not even sure if they're going to be done with it by the time the end of the year rolls around. So we're going to be winging some of this stuff for the rest of the year. If midterm elections come in and we've got new people in play and power, and they want to start changing the tax code, maybe put it back where it was, there's just between the time that they win and take office, there's not going to be enough time to get it done. There'll be an office in January, so we don't see any new laws pass. But again, we have spring of next year, 2019. That Congress, by March, April, may do something. They might. You never know. So you're also telling me that if you had a question, one of your clients had on depreciation, could that person, and you forwarded the question to the IRS, would they have the answer for the most part? Well, I wouldn't forward the question onto the IRS. If the taxpayer wanted to ask the question to the IRS, and many do, they are certainly, they have helplines, they have online capabilities, there's a lot of information available out there that they can do the research and find out answers on their own. But if they do make contact, and usually they may have to wait anywhere from an hour or two or three to finally reach a person, their accuracy level and getting the answer right is fairly low. So you've got to be sure that, you know, trust would confirm. So this is really a phase, what is this in between time about getting, really becoming knowledgeable about the tax code, and that there wasn't much time to really learn and digest and analyze it for many people. So many people are just proceeding along, but they're in a gray area. Am I correct? Well, you know, it's interesting answers. I think there's a lot of taxpayers out there that work in the gray area all the time when it comes to taxes. It's a very complicated body of knowledge. You know, every time they do a massive tax reform or a tax act like this, people joke about it being a full employment act for attorneys and CPAs, you know, and there's a lot of truth to that because it's a very complicated area. But going back to your historical focus that, you know, since the time you were in college and last year there wasn't much changes, but did the changes come and it was a good time or it had to come? Let me say this. We have not had true tax reform in 25 years. But we have had a lot of change in the tax code every year. You know, dollar amounts change. You can do 6% of medical expense, 7.5%, 10% and nothing significant, but there are changes every year. And that just tends, just when somebody figures out what they're doing and how it's working, they got to relearn it because it's changed again. So unless you work with it all the time, you're not going to really grasp it and be comfortable with it. Some people just look at taxes once a year. That's right. And that's dangerous because tax rates can go anywhere from, you know, 20% to 50%. And I don't know of any interest rates anywhere that go that high anymore. You know, so if you can save $1,000 in taxes, you could have saved yourself $300 or $400. Well, I don't know what to do. What you're telling me is that, you know, for some people, of course for many people, this is an arcane area. And again, people like yourself try to make it much more simple. But it is really hard, even for yourself, that studies that reviews it every year. My advice, Ray, is find a tax preparer, doesn't have to necessarily be a CPA, but find a tax preparer you're comfortable with and then sit down and just develop a relationship with that person for a few years and have them work with you on doing a tax return. And have them sit down and explain it to you and what's going on and why, and here's some things to look for. There are tax organizers out there that most tax preparers can provide that helps organize things and put in, if you could just put 10 hours or 20 hours a year into thinking about taxes, you could save yourself a lot of money. It's better to prepare. We're even preparing now for next year, you're absolutely right. Let's move on to another topic, which is... Because I'm tired of taxes. We're looking at a survivor. The SBA, the Small Business Administration Awards, and it's part of the Hawaii business affiliation here, what's happening with the advocates in Hawaii? The Small Business Administration has always been a huge advocate for small business, not only in Hawaii, but throughout the country. Jane Sawyer heads up the SBA here locally for the Hawaii district, which by the way is the largest district in the entire country. It covers not only Hawaii, but also American Samoa and Guam, and it's a very big geographical area, population-wise maybe not so big, but geographically it's huge. And we're dominated by small businesses. Now the SBA's definition of a small business is 500 employees or less or 5 million in sales, so that's 97, 98% of all the businesses in that territory. She's done a super job over there. She sets records in working with the banks locally, providing capital to small businesses. They have training all the time to emerging leaders, training, helping you go through and develop a business plan, implement, execute, manage the company. And a lot of the SBA awardees every year are actually graduates from these programs because they've done so well that they've become some of the top businesses, small businesses in Hawaii. And we'll go back to the banquet and reception after this break. I'm Jay Feidel, ThinkTech. ThinkTech loves energy. I'm the host of Mina, Marco, and Me, which is Mina Morita, former chair of the PUC, former legislator, and Energy Dynamics, a consulting organization in energy. Marco Mangostorf is the CEO of Provision Solar in Hilo. Every two weeks, we talk about energy, everything about energy. Come around and watch us. We're on at noon on Mondays, every two weeks on ThinkTech. Aloha. Hi, I'm Ethan Allen, host on ThinkTech Hawaii of Pacific Partnerships in Education. Every other Tuesday afternoon at 3 p.m. I hope you'll join us as we explore the value, the accomplishments and the challenges of education here in the Pacific Islands. Good afternoon. This is Ray Tuchiyama, business in Hawaii with Reg Baker. And I'm the guest host here. And we're diving in to the SBA Awards, a small business administration, a great advocate for small businesses in Hawaii. And what is this awards ceremony and what it is all about? Well, this year, it's going to be at the Hawaii Prince in Waikiki. Traditionally, it's been at the Dole Cannery. But we're going to move it upscale a little bit. But there's about 10 or 15 awardees every year that the SBA nominates. There's a judging process that takes place, which is very rigorous. These awards, and I can't emphasize this enough, these awards are based totally on merit. There are no requirements for advertising, no requirements for tables or ticket sales or tables for vendors. This is totally based on merit, based on the application itself, the sales numbers, the number of employees. That's the promo piece for it at the Prince in Waikiki. It's on Friday the 4th. It's usually a very well-attended event. There'll be anywhere about 300 to 400 people there. And if anybody wants to get a ticket, who should they come in? They can go to Hawaii Business Magazine website. They can go to the SBA.gov slash Hawaii website. They can get more information on that. You can have a table there. They've got ticket sales. They've got table sales. It's usually a very good event. It's a great networking event. You meet other CEOs and other advocates for business. And you get to see who the top small businesses are in Hawaii and what the products are they sell. And you can even hear about some of their stories, which is always educational. Well, you've been doing so many of the inspirational stories of their success. And it's a lot of hard work, a lot of smarts and really a focus on how to really bring a great product that meets customer needs. And you're a fantastic advocate. You've won the award twice in your career. I have. I was the financial advocate for the state of Hawaii about 20 years ago and then just last year. So it was kind of nice. It was a 20-year break in there. But I guess I was younger then and now I'm the senior guy. No, no, it's still highlighted for your great work on behalf of Business in Hawaii. But we go on to other advocacy causes. You've been involved with a small business board and you go to meetings and get together. What is that all about? Well, the SBA has a national board of directors that oversees regulatory fairness for the entire country. And it's broken up into nine regions. I'm chair of region nine, which is Western United States. And what we do is we just evaluate all the different federal regulations. And right now, the current administration, Trump's administration, has got 300 regulations that they've identified that they want to get evaluated and either change or get rid of. And they're chipping away at that. They're slowly making some progress there. That's among thousands. So let's face it. But you're involved with the West Coast then and also Hawaii. Well, yeah, it includes Hawaii. So there's a lot of companies out there plus Hawaii that want to really look at these regulations. Well, and we are open. They submit a one-page form to us. Any of these companies that are encountering a certain rule of regulations that are impacting their business in a negative way, they fill out this real simple. It takes maybe 10 minutes. So you just fill out this real simple one-page form, send it into us. We put it into the pipeline and we'll kick it over to the agency that oversees it. And they'll normally take some action on it. Well, this is a bottom-up approach, which is terrific that you see people in the trenches trying to make their business grow. But they may be affected by some regulation of law that really is an obstacle to hiring people or making a better product and getting it out to market. You know, and there's a really good example of this. You've probably heard of the term medical device. Right. Well, medical devices, particularly as the population gets older, it becomes more and more important. And these medical devices can be as simple as a hospital bed that's put in the home for a person who's not mobile that would have to stay there. And then there may be pieces of equipment that's hooked up to them. But medical devices has become a very important part of our capuna. The whole older generation needs this. There's a few companies out there that actually provide medical devices and it's paid for by Medicare or Medicaid. Now, just bear with me a second. What happens in federal contracting is that when these individuals come in and need this medical device, and some of these hospital beds could cost $10,000 to $15,000, these medical device companies have to buy the bed at their own expense. They have to purchase it out of their own money. Then they have to send somebody out to set it up to train the people how to use it, what buttons to push, and all this kind of stuff. And this could take two or three months for this to happen before the claim even gets submitted to Medicare for payment. Now, they have examiners that if the doctor forgot to maybe check a box on the prescription for this bed, they would reject the payment. And it could take several months of going back and forth through the audit process to get paid. Now, multiply this by 50 or 100 times for these medical device companies. Medical device companies have one of the biggest failure rates in the country because they can't get paid. They go bankrupt because it is. This was brought to the attention of the Medicare or Medicaid offices. And they were able to address it and fix it. And you know what the problem was? The examiners, the ones that were going in there looking for these little omissions that hold up the payment, they were paid a commission on all the ones that they got rejected. Oh, no. So they were motivated to find these things. And once they changed the compensation model of these examiners, bang, everything now works smoothly that people are getting and what they need, that the medical device companies are surviving. It was a significant change. And that all came about because of this one page form that was submitted and went through the system. And sometimes it's so small, but it's part of the bureaucratic nightmare that we sometimes have. Unintended consequences. And again, we're a society that wants to provide better care for our senior population. That's growing all the time. In fact, in a few years, there may be one in four, age 65 and older in Hawaii and should be a priority. And so it's part of your small business regulatory review board that you also have been working on. Now, Hawaii also has one. The SBA one is at the federal level. Governor Eage has appointed me. And I just got confirmed last week from the Senate. I'm on the Hawaii Small Business Regulatory Form Board here locally. So I get to look at both state level and federal level rules and regulations and hopefully have some impact on making things a little bit better for the regulatory environment for small businesses. So what you're doing is that you're looking at regulations and laws and making recommendations to the governor. Take a little look at this. So why don't we focus on what exactly is happening here? And really, what's the priority to get things smoother for small businesses? Is that the outcome that you're hoping for? To give them a better chance of surviving. One of the, if somebody were to ask me, what is the biggest rule regulation now that I think could have the biggest impact, I would probably say the Jones Act. Oh, right, right, right, the ships. Yeah, the Jones Act. And I know Kalehi Akeena over the grassroots is a big one on this. Matter of fact, Kalehi and I ended up going to Washington last year and provided testimony trying to get an exemption for Hawaii from the Jones Act. Wasn't there an exemption recently for Puerto Rico after the hurricane? And that's because Puerto Rico needed anything from everybody. I mean, they were dire straits. And so there are precedent for having exceptions. And the Jones Act is that ships have to be US registered. Am I correct to bring things to the United States? Yes, or any port between any US port. Oh, yeah. And so what happens a lot of times in Kalehi Akeena is probably better versed in being able to explain all the nuances. But we have a lot of ships that are filled, would say, for example, Toyota's or Nissan's or Hyundai's or other product that we might be buying from China or Asia or Korea. And they have to come right by us. They ship right by us. They go all the way to Long Beach or go to Seattle or wherever, unload, reload, then they can come to Hawaii. Well, I'm going to tell you a story. When we moved from Tokyo to Hawaii, I was told that shipping rates would be cheaper if I shipped it to LA. And I said, why? Because it's a shorter distance from Tokyo to Honolulu. No, they have to carry it first to LA. They have to re-put the container on another ship and then bring it to Honolulu. I said, that's bizarre. And then there's nothing that we unfortunately manufacture, so the ship goes back empty to LA. Yep. They call that dead-hitting. They dead-head back. That's right. And they have to pay for the fuel and sailors on the ship to go there. One of the big reasons why the cost of living is so high here in Hawaii is because of the Jones Act. And we should get an exemption for that. But people will claim that it's got national security issues. We need to have a strong shipbuilding capability. And there's no arguing with that. But I don't think that just having ships from Japan stop here to drop things off is going to destroy the US shipbuilding. No, no, no. I mean, this would, on the contrary, our congressional team should be lobbying for more of this because Hawaii should be a bridge to export and import to Asia. And this is kind of a very clear indication of one obstacle to business, doing business in Hawaii. It's a huge one. And just not only business, but look at the entire community. And the entire community is impacted by these higher costs. Last thing, you've been involved in the East Oahu Chamber of Commerce launching that. What is that story? Well, that's been interesting to watch this grow and evolve over the years. This is the Hawaii Kai Chamber of Commerce for many, many years. It's been there for a very long time. But the Hawaii Kai Chamber, there's just not enough business activity there to support and have an active chamber. So it was struggling. And so we've decided to change the geographical or the territory of the chamber and rename it East Oahu. So now it represents all of East Oahu that goes from Kapa Hulu, Kahala, Waimanalo, or whereabouts. No, it stops at the sea life part. Oh, OK, OK. Yeah, beyond that, it's country. Well, now we get into the Kahalua Chamber side. And they don't want us over there. OK, I got it. But East Oahu Chamber, well, on the Haina, New Valley. And if you think about it, these are all the top high net worth zip codes in the entire state. Yeah, high net worth individuals and business people live out there, right? So we're capturing all of that. We're going to start a small business council that's going to focus on small business. And we're going to provide some networking opportunity, a lot of training. We're going to try to start rebuilding and getting a thriving type of small business advocacy going for the East Oahu Chamber. Well, we're going to end on that note. And you're looking great. You're a survivor of tax season. And maybe we can have another show next year at this time to see what happened for tax year 2000. Well, hopefully everybody will recognize me. Because every tax season makes me a whole lot older. Thank you so much.