 I'm Jay Fidel, the handsome young man, Tom Yamachiko. We're here today for Talking Tax with Tom. The title of our discussion this morning is More Tax Laws to the Governor. And what's interesting without getting even to the detail of that is, didn't we have a kind of a surplus this session, Tom? Why do we need tax laws? Well, some actually go in the right direction to give relief to taxpayers. We were talking last week about giving the rebate to taxpayers, you know, the $300 per exemption, and to lessen some of the GE taxes on nonprofit fundraising and also in the shipping industry. So some of these are going in the right direction. Maybe they'll be signed. Maybe they'll be signed. At least they got that far. Let's go down the list that you made. This was a list of questionable bills. Yeah, this week we're going over the bills that make you want to go, hmm, because some of these are very interesting. The first bill is sponsored by our Department of Accounting and General Services. This is set at Bill 3040. And what it does is it basically says they can buy a new purchasing system, you know, a big software upgrade, five, six million dollar beast, but it'll be paid by user fees and the user fees are going to be paid by whoever the state purchases goods or services from. So basically, you get taxed when you sell to the state. Yeah, that does sound like a tax. Isn't that a tax? To me, it sounds like a tax to them. It's, oh, it's just a user fee. Because we have a, you know, a special little contrivance that we're, you know, building and we're, you know, just making people pay for it. But problem number one is it doesn't exist yet. Number two is we're already, you know, we're already charging people tax for, you know, sales to and from the government and this is going to be something else on top of it. Well, the other thing that strikes me and you can comment is the key was, you know, it's hard to do business with the state and the state. There's a lot of bureaucracy. Some businesses will not do business with the state. It won't leave some office space or land. They won't sell them things. It's too much trouble to get paid. You have to go around the bush on every transaction. You run into these bureaucratic issues. Am I right? And this is now, this is a further impediment, isn't it? Not, not so much a further impediment is, you know, open up your wallet and we'll take some more money from you. That's nice. Yeah, isn't that nice for the privilege, for the privilege of getting paid by the government for services that you provided them. In a bureaucratic setting where you may not even want to do business with them anyway. If they're trying to incentivize you to do business with them, this is not one way to do it. The other thing is they don't need the money, as I mentioned, do they? I think that this, you know, money for the, this new computer system should come from general fund. It benefits all of government. I would add one to that and say it should have come from general fund a long time ago. It would have, yeah, I definitely don't disagree with that. I mean, Neil Abercrombie was talking about how he was going to remake the computer system in the state, because Sonny Bagualia, you know, the fellow they hired to evaluate the state of affairs in the computer system had found that it was behind the curve by decades. And Neil, Neil said, oh, we're going to fix that. He never did, unfortunately. And even till now, it's behind the curve. Of course it is. Okay. Ready to go to the next bill? Yeah. Okay. Oh, by the way, 3040, it's, you know, the probability of it's going to be signed is close to 100%. Because it was sponsored by the governor's department. So when it goes up to the governor to sign, he's going to do it. He's going to do it. The second bill, House Bill 2179 comes from the Department of Taxation and sponsored by them. And what it says is that it allows the department to convert tax liens into civil judgments if 365 days pass from the date of recording with no response or action by the taxpayer. Okay. So why do they want to do this? Because, you know, you and I, other people who have practiced in litigation before, know that the judgment comes first, the lien comes later. Right. You get the judgment first, and then you record against, you know, specific assets that the taxpayer may have. Yeah, right. Yeah. So this is backwards. So why is it backwards? Because there is a 15 year statute of limitations on collection action by the department of taxation. And the 15 years has started to bite because that legislation was signed into law 15 years ago, or almost 15 years ago. So they're trying to find an end run around it. And here, and here it is. Judgments have an independent 10 year life from when they're entered. And they can be extended for another 10 years. They have a 15 year collection statute of limitations that is basically being extended to 35 years. I'm sure the, you know, the sponsor of the original legislation to put a collection of statute of limitations in the department in the first place is probably ruling around and going nuts. Because that's the effect of this bill. Now. And, you know, it also has some practical problems. For example, if you petition the court. To enter a civil judgment. The court's going to want you to serve the taxpayer. And if we were talking about a taxpayer. Who has never responded or or acted. You know, with respect to the department for, you know, more than a year. You think the taxpayer is still around. That'd be highly unlikely. So how are you going to serve that? How are you going to serve the taxpayer to get this civil judgment? Maybe, maybe what they're going to want is something that says you can get the judgment without serving the taxpayer or you serve the taxpayer by publication. Which, which makes it even more and more questionable. Service by publication, by the way, is a means by which. You publish the taxpayers name in the paper. And. That gives the court enough jurisdiction to say, okay, well, the taxpayer should know about it now. So we'll, we'll go ahead and proceed against him anyway. I'm troubled on both sides of this. Number one is that I always wondered, Tom, why you, why there was a limit on it, why you had to renew. A judgment in the first place. Or for that matter of land. Why doesn't it just go on in perpetuity? Well, I mean, there, there are purposes for any statute of limitations. Most, you know, the ones that are cited most often are, you know, people forget about stuff. Records get old. Some, some, some tend to disappear. They can get destroyed by, you know, fire, flood or whatever. And, you know, and people forget about things. If it's, if it's, you know, old and older and older. Yeah, but you want, okay, I mean, I'll take the devil's advocate on this, although I, this is not my, my favorite position. But okay, there's, there's no question that the money is owed. No question. And the land tends to, you know, drive the debtor out of, out of the shadows and forcing him to come to you. If, for example, he can't sell property and other land, you know, affects his, his property or his business. He's going to have to come to you and make a deal, pay you off somehow. Yeah, but hasn't worked for the first 15 years. Well, I, yes, I guess that's true. And is that because the government isn't doing something it should have been doing over the 15 years? Well, you wonder about that. I mean, but, but the practical reality is in each of these poor collectors has a, has a case load of three or 4,000. So how can they possibly keep track of, you know, that many people and assets are lacked thereof? You know, some people move away. I think a lot of them do. Or some people are incapacitated for other reasons, like, you know, like they die. I recall it to be like fishing, you know. And in other words, you let you, you, you, you drop the land, like dropping the line. You drop the land out there in the water and after a while, this guy gets into a mousetrap where he buys property, not realizing that as soon as he takes title bingo, there's a lien on it and he can't, you know, sell it or mortgage it or anything until he clears the land. And so you may not, you know, have recovery in each case in which there is a lien on some taxpayer, but once in a while you score 100%, right? Yep, absolutely. So I mean, they're playing a game of odds on that one on the 15, 15 years. So 15 years is a long time. Even the government gives up after 10. I mean, the federal government. Yeah. They have a statute of limitations on collection of 10 years. Why, why are we longer? Because it used to be forever. And, and, and then taxpayers thought, well, we'll experiment with 15 years and see what happens. Okay. One last question. And that is all right. So it is backward, but I suppose they could take the land, which has not been reduced to a full, a full, a full rights, a full empowered judgment yet. It's only a land on property. And, and the powers of enforcement are limited because it's only a lien on property. So now the government wants to make it a full tilt judgment and use other, you know, other remedies to collect it. They don't have to. Well, theoretically they don't want to let it die. So they make it because after the taxes assessed. You have all kinds of collection tools already available. You can go levy somebody's bank account. You can, you can record a lien on property, even if you don't know what the property is. Okay. You can, you can destrain taxpayers property if you find property. Okay. You can do all of this with the assessment. You don't need the judgment. So what's the point. The point is to get around the statute of limitations and collection. Increase the 15 years through 35. I don't know. I mean, that's one of the things that makes me want to go. Hmm. About this bill. Because you know, the. When you, when you kind of look at it, it's really, you know, something is being gained. Okay. There is an element of dishonesty in this bill. It's not forthright. Okay. They're doing this because they want to gain the taxpayers. Yeah. Well, it's going to cost them some money because they're going to have to, you know, if there's just like the land stay in place, that's one thing doesn't cost them anything. I mean, if it was say 20 or 30 years instead of 15, but it's going to cost them some money to go and publish. In other words, you, you and I know that publishing a summons ain't cheap. Have to go into a newspaper of general circulation, publish it for X days, weeks, months, whatever it is. And you have to pay the bill. For that. And if you're fishing with the, you know, with a limited prospect of actual success. You've just spent money for no good reason. Yeah. So I think the next thing that they're going to do is they're going to do a bill that says a service includes publishing the name on the department's website, which is something they've already done. Okay. So that's the, that's the next thing they're going to do. Uh, is that two process? Uh, that's not been tested yet. I mean, you can, you know, drop it in the back of a. Some publication that nobody in the world reads and say, Oh, bingo. We got you. Uh, that doesn't sound like it comes anywhere close to actual or even, you know, reasonable constructive notice. Yeah, that's a problem we had with it. We testified to that effect, but, you know, to no avail. Again, this is a head administration bill sponsored by the Department of Taxation. So the chance that the governor signing it are, you know, probably 100% are close to it. So what, you know, I know we have other bills to discuss, but let me ask you it. But can we get a kind of a handle on the character of this session on the character of where the legislature is vis-a-vis taxpayers from looking at bills like this? Well, these bills are the outliers. Okay. Usually you have a session with a lot worse stuff going on, like tax rates being increased or fees being increased or, you know, combinations of the above. But this year it's more about giving back to the taxpayers probably because there's an election going on this year. And each and every one of the people in the capital is, you know, is facing the reality of that fact, that they are facing the voters in this November and possibly before. Okay. I guess then the question is, if that's all true, we have a surplus, which we're doling out in swatches of hundreds of millions. And we have an election year. Nobody wants to offend anybody. Why are we having bills like this that are really questionable? Because I think they'll squeak by and nobody will notice. Do they know, the administration agencies, you know, the departments who suggested these bills, and the Attorney General and the governor, do they know that they're questionable? Of course they do. People, not only the tax foundation, but others have been testifying to that effect all, you know, all through the process. Well, squeak through. This is the squeak through theory. Thank you for that. Let's go on to the next one. House Bill 137 is a 2021 bill that got dusted off this session. It deals with the county liquor commission and its powers to investigate liquor licensees. So right now the law says that if a liquor and a commission investigator finds out the liquor tax hasn't been paid, you know, if, if there's like cash transactions or stuff like that, then the investigator has, you know, the power and the duty to rat them out. To the department of taxation. This bill would break that cooperation. And say basically, the department of taxation would need to use its own investigative resources period to root out liquor tax scoff laws. So that means we're going to have some department of taxation investigators being sent to local bars and probably buying drinks at taxpayer expense to figure out whether they're paying the proper taxes. Who would propose such a bill? It's a backward step. The whole liquor commission did. And why is there some political reason? It sounds like there is. It sounds like this is a political bill. And that the, you know, the those who would call for a bill like this do not have the public interest in mind. That's, that's what I think. I mean, it was, you know, it was, you know, it was pushed very heavily by the, the city liquor control administrator. One of the, you know, supervising staff. You know, one of the supervising investigators wrote testimony against the bill, which means that they don't think, you know, something's entirely correct with what's, what's with what's being proposed. Number one, the department needs all the help it can get in terms of enforcing the law. And if, you know, law enforcement officer a finds something wrong. Why do, why do they have to silo themselves? Why can't they, you know, bring whatever, you know, is, is found. To the particular agency for, for a follow-up. Yeah, there's something hanging out in public here. This is really strange because I, let me, let me tell you how I understand it. You can tell me if I'm right. This hampers the effects of the, the, the enforcement possibilities by the department of taxation. It allows those enforcement possibilities to stay in this silo with the liquor commission. If the liquor commission is somehow compromised on a given case, then the department of taxation never finds out about it. And the tax is essentially written off, forgiven. Or it's never found out about it. Yeah. Never found out about it. So if the liquor commission goes soft, the taxpayers, I mean you and me have a negative result because it's hidden. It can be hidden this way. And so this all relies on the, you know, the enforcement capabilities of the liquor commission, which are questionable. Yeah. Now during the testimony on this bill, there was a lot of discussion about, well, you know, liquor commission investigators are requiring applicants to give tax return information. And we don't think that's right. And, and, and I, and I look at the bill and go, this bill has nothing to do with that. Nothing. He doesn't say that. He doesn't say that at all. Did anybody catch him on that? Well, I, among others, you know, said it at, at, at, at, you know, various legislative hearings. Wow. So who, so it sounds like you guys were opposing the bill. Who, who was, who was supporting the bill? Like I said, the primary proponent was liquor commission administrator. This is very fishy bill. So you think it makes me want to go. Yeah. Interesting. Well, it'll squeak through. Why? Because it's the liquor commission speaking to the governor. Is that what'll happen here? Maybe. Well, you think it says less of a chance to squeak through as the, what, 3040 or 21 79. Yeah. I mean, I think so. I mean, you know, 3040 and 21 79 of the governor's own agencies, right? I mean, this is not. This is a city agency. So, you know, it's, it's. You know, a fellow government, but you know, that only goes so far. A larger, larger sense though, it seems to me that you want government agencies to cooperate with each other. I mean, this is. Of course you do. Yeah. Come up with Merrick Garland asking for the transcripts of the select committee on the insurrection, you know, they're being some resistance on that for reasons I think that will disappear. But the bottom line is you want government agencies to be efficient. You want them to collaborate. Yeah. What's the downside? Here's the question. What is the downside of collaborating? You got me. I mean, I think that if we're, you know, if we're paying folks to go investigate this stuff, I mean, the investigation results should be available to everybody. Right. Otherwise, otherwise you're having a duplication of effort, aren't you? You have two people investigating ostensibly, theoretically investigating the exact same issue. So I paid a commission at right and the tax office at taxpayer expense. What's wrong with that picture? What's wrong with that picture? Well, good for you for going in and speaking on it, but I would really hate to see this pass over your objection. Well, you shall see. We have a couple more months to wait and then we'll find out. Yeah. Okay. And last, and last but not least, there's Senate bill 2379, which allows the department of taxation special enforcement section to examine any sector of the state's economy, initiate civil investigations, and use enforcement and education to deter taxpayer noncompliance. Okay. They can do that anyway. The part of the department of taxation is part of their mission. Why are we, are we, you know, doing this bill? Answer. Because the special enforcement section can tap into the tax administration special fund. Okay. So it gives them an additional way to use the slush fund money. Director of taxation just do that with the stroke of a pen. Apparently it's a little bit more difficult than that. But I think it's a little bit more difficult than that. I think that's why he wants this bill. He. The department supporting bill. Departments. It's not an officially sponsored bill. But the department is supporting it. So you consider it questionable. Because they may not even actually need it. Or they, it's not telling us why. It's a budgetary artifice. This, this bill is a budgetary artifice. It's, it's. I think only salient purpose. Is to get. The tax administration special fund. More. You know, more use and in use and mobilized. By this special enforcement section, which is already legislatively authorized to use the special fund. Okay. Aside from the. The funding issue and the. You know, a sensible purpose of this bill. What about that? I mean, you've been watching this for years. I mean. Does, does the tax, does the tax office actually engage. In this kind of investigation. Is it helpful? Is it useful? Is it worth the money? Well, it. They, they engage in this. Of course it's useful. You know, to bring tax golf laws to the light of day. But. But really what's happening. Is, Hey, other departments have special funds. Why can't we. Okay. We have this tax administration special fund. It used to be, you know. Just, just a few, you know, just a few hundred thousand dollars. It pays a few. For, for, for, for. Attorneys to, to investigate QH TV applications and review them. And that, that was fine. No, no, no. Now it's $10 million juggernaut. Okay. Last year. Last year alone, the legislature rated that special fund for, of the requirements of such fund. You oppose this bill. We don't support or oppose anything, we just provide comments. And your comments were they, to put it in the context of a questionable bill? I suppose you could say that, yeah. Well, let's talk about special funds, you know. If you asked a man on the street, what is this with special funds? He really wouldn't know why the state of Hawaii government has special funds, little pockets, little silos of money, hither and yon, not controlled by any one source, controlled by a multiple number of sources. It's like when you have- It's controlled with the department, with the department, it's controlled by the department to which they're attached. Okay. It's not controlled by the way it's supposed to work is the legislature has purse strings and they're there for a reason. And the reason is so that the legislators, representatives of the people can go review the activities of each and every executive department and evaluate the merit of what they've done and say, okay, you've done a good job, here's some more money or yeah, this program isn't doing what it's supposed to, let's cut it off. That's what they're supposed to do, but special funds are a huge hindrance on that objective because it allows a program no matter how inefficient to proceed anyway because the legislatures aren't controlling it. Yeah, so they're not doing what they should be, what we expect them to do and we're leaving this discretion in the hands of the departments themselves, the leader of the department. It's like putting the hen house in charge of the fox, right? Yeah, but there's another thing too is that you leave the money in there. I mean, this is Linda Lingle complained about this, not that she was right or wrong, I'm not saying that but she did complain about it. And what she said was if you have all these special funds around you're leaving hundreds of millions of dollars dormant, not available. So if it's stuck in one fund it can't be used by the other fund. And so we have a huge inefficiency across the landscape of the government. Yeah, that's absolutely true. So you have one department that's long for crazy reasons, you have another department that's short for crazy reasons and there's no easy way to equalize it. That's right. The way you equalize it is by rating the funds which is what happened last year. How do you do that? You pass a law? Oh, okay. But that doesn't sound very constructive to me. Why can't it be in the general fund all of it? I guess you've already answered. Yeah, I mean, that's what Governor Ben's philosophy was, you know, Ben Cayetano. He says, you know, we're all in this together. Let's all rise and fall together. Yeah. Well, do you see any prospect of a reform on that? Well, there hasn't been one for the past 20, 30 years. So it's not going to end anytime soon, but you know, we can chip away at it. And that's kind of one of the things that I'm worried about because as you know, Sylvia Luke, Chair of the House Finance Committee has been relentlessly chipping away at special funds, but she ain't going to be there anymore. After this next election, there'll be a new finance chair. And this bill that we're talking about, what is it, 2379, it actually in its own way confirms the special fund system, doesn't it? Sure does. Yeah. Yeah, it's basically, you know, Department of Taxation saying, well, you know, you buggers all have one, so I want one too, which is not an unreasonable way of thinking. And it's something that I would expect from Isaac Troy being a former legislator. You know, he wants to get, you know, what he can for his department and I don't blame him for that at all. Yeah, but it doesn't sound healthy to me. Yeah, but for overall government health, it's not good. Yeah. Well, okay, so here we are. The bills are, the conference committees are done, the bills are passed or not, waiting veto practice. What's the calendar look like and what's our next discussion going to be about, Tom? Well, the next important day on the calendar is I believe June 27th, which was at the 29th, June 29th, the date of notice of intent to veto. So the governor has to let us know by that date, if there's gonna be any bills that are on his list, if there is any bill that is not on the list is going to become long. And if it is on the list, can he change his mind? Yes, he can. But if it isn't on the list, he can't. It'll become long. Yeah. He cannot. That's right. He's done. So if you're a cagey fellow, then you put things on the veto list, which you may or may not veto. That's right. And that is supposed to begin a discussion with the legislative heads on, how firm they are on getting a certain measure passed. If there's ABC and D on the potential veto list, and supposedly, Scott's like you or Ron Kojic, you can call the governor up the next day and say, look, if you veto bill number C, then I guarantee you there's gonna be an override session. Mm-hmm. What about the possibility of changes in the course of the veto practice? Is it possible to get a change? It's also possible. Bills can be amended after a veto by the governor to meet the governor's objections. If they are so amended, they just need to pass one reading in each of the House and the Senate, then it goes back to the governor with the corrections. You know, there's this thing called the biennium. My guess would be, not knowing more about it, my guess would be that the biennium ends, the end of the two-year period ends this year. That's correct. So what does that mean in terms of the legacy of bills that haven't been treated? They're not automatically carried over. You start completely fresh in 2023. That's correct. You start the slate over in 2023. There's, of course, nothing that prohibits people from using copy and paste and putting stuff from an old bill into a new one. And that's what happens all the time. But the biennium was adopted for fiscal purposes also in our constitution. And it has budgeting and, you know, as a practical matter, it's the end of the representative's term. All representatives have to go stand for re-election every two years. Yeah, re-election thing, as you mentioned, tends to affect the legislation in that last year, for sure. Yes. So last question is this. You know, all that we've discussed over the last several weeks, you know, during the session, and of course, some of the bills here, looking back on, you know, whether they're questionable or not, how do you rate this session? How do you rate the tenor and time of this session? Would you say it was inspired or otherwise? Well, I think it was it'd be a little bit less activity than other sessions. There was a lot less bad stuff to get worried and excited about. There were sessions where, you know, I had no nights and weekends because we're constantly reacting to stuff. This was not one of them. But, and so, you know, good. We need something like that every once in a while. Otherwise, you know, otherwise people like me could kick the bucket really easily. We don't want that. Tom, you know, we'll have a new governor soon. And who knows who that might be? I mean, there are guesses going which way. But query, how much effect does the governor have on the sessions now to follow? Is it a remarkable, are remarkable changes possible in terms of the legislation that comes out of the legislature because of the governor or leadership or otherwise? Well, it's always an interesting dynamic. You have the executive was headed, executive branch was headed by the governor and you have the legislative leaders. I think a lot is going to depend on how well they do or do not get along. And if there are any common goals for advancing how the welfare of the state. So at the end of the day, the quality of the legislative process and outcome depends on how well they're getting along. I think that's correct. I think it's human nature. I think it's human nature. It's the reality. Yeah. Thank you, Tom. Tom Yamachiga, president of Tax Foundation of Hawaii are helping us understand what goes on in tax and in legislation on tax. Thank you so much. Thank you for having me on the show. Aloha.