Senate questions Treasury report on 2% wage tax revenue
Treasury Department says there is a “likelihood” that amounts reported in the last two years for the 2% wage tax have been “overstated by $1 million” according to a footnote in the most updated summary report on wage taxes. The Senate Budget and Appropriation Committee had requested the updated report, which shows more than $7 million collected in wage taxes.
However, the Senate has questioned the authority given to the Treasury to withhold just over $1 million from the 2% wage tax to pay LBJ Medical Center’s share of the insurance premium.
The Senate requested a financial report during a committee hearing early last month where ASG Treasurer Dr. Falema’o ‘Phil’ M. Pili had come to testify on other issues. Senators wanted a report before calling another hearing to find out the status of the 2% wage tax and how much ASG has collected since the tax was enacted.
Senators also wanted to know how much the government has given to the hospital from this wage tax, after LBJ officials told senators in late January that the Treasury Department had only paid $500,000 to LBJ in calendar years 2012 and 2013.
Enacted in 2011, the wage tax is meant to pay the government’s no-interest $3 million loan from the Workmen’s Compensation Account for LBJ. After the loan is paid off, the law states that 50% of all monies are to go directly to LBJ for “operations” and the other 50% for the “off island medical referral program”.
In his Feb. 17 cover letter, which included a three-page summary on the wage tax, the Treasurer informed committee chairman Sen. Laolagi F.S. Vaeao that authenticating the numbers pertaining to the amount of money collected in 2013 on the wage tax “will be solidified” at the end of this calendar year, when the current tax filing season is completed.
For calendar year 2012, the summary report states that $3.58 million was collected and for calendar year 2013 (Jan - Dec.) it was just over $3.77 million — with $2.09 million from the private sector and $1.67 million from ASG. Total collected for the two calendar years came to just over $7.35 million, the report says.
“There is a likelihood that the amounts reported in 2012 and 2013 were ‘overstated by $1 million’ due to the absence of a system to separate the 2% reported on the forms 369 and 370 from the total wage withholdings reported by various business entities”, according to the footnote in the report. (Forms 369 and 370 are tax forms filed by businesses)
“This problem is also compounded by the uncollected portion of the filed 2% [wage tax] reports but not yet paid,” the footnote further states, adding that the estimate reported but not yet paid — as of this report date — is over $1 million for both years (2012 and 2013.)
According to the report, the $3 million loan has been paid off, but the report did not provide a date. However, the first payment given directly to LBJ began in March last year and the last payment was Feb. 14 this year, with a total of just over $1.48 million paid so far to the hospital.
It’s also noted in the summary report that $1.03 million from wage tax revenue is obligated, or withheld, by ASG for LBJ’s share of the insurance premium. Additionally, $1.83 million is the balance owed to LBJ and yet to be paid.
When the report was distributed yesterday morning during the Senate meeting, Senate President Gaoteote Tofau Palaie, along with several other senators were not pleased that Treasury had claimed the $1.03 million for the insurance premium.
Gaoteote says the law is clear on how the wage tax is to be distributed once the $3 million loan is paid off — and nowhere in the law does it say that any money is to be withheld by the Executive Branch for any other purpose.
“Who gave the Treasurer the authority to withhold for insurance premium payments money allocated by law to go directly to the hospital?” he asked, and called on Laolagi for a committee hearing to get testimony from the ASG Treasurer.
Laolagi plans to call a hearing once there is confirmation that the Treasurer is back on island — the Treasurer was among the cabinet directors who traveled with the governor last month, and were scheduled to return on last night’s Hawaiian Air flight.