Ka Wai Ola - Office of Hawaiian Affairs, Volume 6, Number 1, 1 January 1989 — Taxes and You [ARTICLE+ILLUSTRATION]

Taxes and You

By Lowell L. Kalapa, Director Tax Foundation of Hawaii

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Taxes Add To Our Cost of Lioing

Taxes are a pain, at least from the taxpayer's point of view and what usually comes to mind are ineome taxes due sometime during April. Let's face it, ineome tax is not the only tax we pay, but it is one of the more obvious. The next tax we take most notice of is the general

excise tax, commonly referred to as Hawans "sales" tax. Yet there are many other taxes whieh we pay, although we don't see them because they are passed along to us in the cost of the goods or services we buy. In an earlier eolumn, we discussed the state's special taxes on tobacco and aleoholie products as well as the fuel tax we pay on the gasoline we purchase to run our cars. There are still other taxes whieh are passed on to us as consumers though we don't usually know about them. A commonly misunderstood notion about taxes (no matter what elected officials say) is that only people pay taxes. A recent example was a statement made by one of the mayors that he will propose to freeze real property tax assessments for homeowners in his county; however, he will allow assessments to grow for all other types of property. The implication of this action would eventually shift the property tax burden from residential properties to businesses. In fact, the mayor notedthat "businesses ean pass the cost on to their customers" — you and I. The counties pleaded with the legislature for a

number of years to have the right to impose a "tourist" tax so that they could raise money from our state's visitors. When the legislature refused, the counties discovered they already had this power and hiked the property tax rate on hotel and resort property. Thus, in a roundabout way, our visitors are paying an increased share of the counties' operating costs. Another less obvious tax passed on to consumers is the public service company tax. This is a tax that is imposed on regulated utilities in lieu of the general excise tax. These utilities include the electric, gas and te!ephone companies as well as the commercial transportation industry — tour buses, freight trucks, and certain cruise operations. Although we see the 4 percent general excise tax on purchasers we make at the grocery store, we don't see the public service company tax in our electric or telephone bills. What is even more ironic is that the rate on electric, gas, and telephone utilities is even higher than four percent. The tax on energy and communications companies ranges from 5.8 percent to 8.2 percent depending on the ineome received by these utilities. Also imbedded in the cost of electric and gas bills is a franchise tax of 2.5 percent of gross ineome. Since the public utilities commission allows the utilities to recover these tax costs, the rates include the amount of the tax. So consumers are paying more than 8percent at the very least on their electric and gas bills. Similarly, while we don't see any taxes on the charges that the banks assess on our checking accounts or on the loans we make, there is still a tax imbedded in those charges. The banks, savings and loans, and other financial institutions pay a franchise tax of 11.7 percent of their defined

ineome in plaee of the general excise and net ineome tax. This rate is higher than the combined maximum rates of the two taxes. Finally, we as consumers of products and services often do not realize, in addition to the 4 percent general excise tax we pay at the checkout, every time goods are turned over for resale, a tax at the rate of 0.5 percent is levied. Thus, when the box of cereal is brought into the state, the value of the cereal as it is delivered on the dock is subject to a 0.5 percent rate. After sitting in a warehouse, the cereal is sold to a store at whieh time another 0.5 percent tax is imposed. When it is finally sold to you, the consumer, the tax is imposed at the 4 percent rate. The more times the goods are sold and resold, the more taxes that will have to be included in the cost of the final price of the product. What we should all realize is that one of the major reasons the cost of livingis so high in Hawai'i is the cost of state and loeal taxes. Because we do not see many of these taxes at the time we pay for a product or service, we tend to be lulled into the false belief that the tax situation isn't so bad in Hawai'i. If we begin to count all the taxes that we don't see but end up paying in the cost of everything we buy, it would be surprising to find that the cost of all the taxes imposed on a product or service would be as mueh as, if not more than, the original cost of the product or service. So the next time you hear an elected official tell you that he is going to take care of the eonsumer/taxpayer by shifting the cost to businesses or other "things," remember that if it sounds too good to be true, it probably is, especially in the case of taxes.