Ka Wai Ola - Office of Hawaiian Affairs, Volume 5, Number 6, 1 June 1988 — Taxes and You [ARTICLE]

Taxes and You

By Lowell L. Kalapa, Director Tax Foundation of Hawaii

taxes

Changes Affecting All

There is no doubt that the actions taken by the 1988 Legislature will have a substantial impact on all of us. For those concerned with the native Hawaiian rights issues, the 1988 sēssion will be a landmark in modern history. For taxes, the session brought about

many small but very important cnanges īn the tax law. While the changes to the tax laws may not be as dramatic as those concerning native Hawaiian rights, they will have an impact on all of us. For individual taxpayers, the burden will be a little less on those in lower and middle ineome brackets because the legislature decided to agree with the state administration and increase the general excise tax credit whieh is claimed on the net ineome tax form. Not only did the amounts of the credit increase, but those with adjusted gross incomes of less than $30,000 but more than $20,000 will be able to elaim the credit. Taxpayers who fell in this category were not able to elaim the credit under the old law. In eomplianee with the state constitution, the legislature also approved the token $1 tax rebate credit. Under the Constitution, whenever there is a surplus in the state treasury exceeding a certain threshold, a rebate must be made. This has been going on since the early 1800s. On the down side of some of the ineome tax changes, the penalties for not paying your taxes on time or when you file your return were made a bit stiffer. Under the proposal, if you do not pay your taxes with your return the penalties will increase from 10 percent of the delinquent amount to 20 percent. The grace period in whieh you are allowed to pay your taxes was shortened from 90 days to 60 days. The penalty will go from 10 percent to 20 percent if payment is made within this period. Another club that was given to the tax department this year is to allow the department to withhold any refund of state ineome taxes you may have coming if you owe delinquent federal ineome taxes. Under current law, the tax department is already authorized to withhold a state ineome tax return if the taxpayer owes the state some money for another reason, or for delinquent child support, or for delinquent repayments of student loans. This proposal will add the debt owed for federal ineome taxes to that list. For those of you out there who qualify for certain tax exemptions because of a disability, you will be happy to leam that this year's legislature cut

down on the red tape to secure that annual rite. Under the proposal approved by the Legislature this year, you will no longer have to go to the Department of Health as well as to the Department of Taxation to get that exemption. Under the proposal, if it is approved, applicants for the exemption will merely have to fill out a form approved by the Department of Taxation and have their own physician certify the disability. This will save disabled taxpayers from running all over town just to get this exemption from general excise, ineome and property taxes. On the business side of taxes, the Legislature approved a measure that will exempt from the general excise tax, transactions occurring between related companies whieh involve the provision of administrative services and ineome that may arise from interest eamed on funds loaned between these related companies. For example, a bookkeeper employed by a grocery store also does the books of the next door gas station whieh happens to be owned by the grocery store. Technically, under the old law, the Department of Taxation could allocate those services to the gas station and imply that the gas station actually owed the grocery store for those services. The value of the bookkeeper's services would be eonsidered gross ineome to the grocery store and be subject to the 4 percent general excise tax. The measure presently before the governor recognizes that where services are provided between related companies, the taxpayer is a single unit and should not be taxed on administrative servīces or interest provided between related companies. For those readers who may be in the contracting business doing research work for the federal government, the Legislature after all these years recognized that the type of research being eonducted is different from that whieh was done 20 years ago. Under the current law, the exemption of scientific work done for the federal government is limited to some very archaic types of activities. As a result, the Legislature decided to update the list of activities whieh should qualify for the exemption. This change will help taxpayers recognize whieh types of research qualify for the exemption from the general excise tax. Finally, as we noted in an earlier eolumn, the exemption from the general excise tax for goods exported from the state was clarified so that not only will producers of agricultural and aquacultural products qualify, but sales made through an agricultural cooperative will also qualify. These are but a few of the 24 tax measures whieh were approved by the 1988 Legislature. Next we will look at what impact legislative action will have on the financial outlook of our state.

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