Admin identifies projects to benefit from proposed 7% sales tax
Renovations and upgrades to public schools, as well as funding for the off island medical referral program administered by LBJ Medical Center, are some of the handful of projects being identified to receive “special allocations” from all revenues ASG collects from the proposed 7% retail sales tax.
The Lolo Administration's proposed sales tax, which also includes a provision that repeals the 2% wage tax enacted about five years ago, was introduced this week in both the Senate and House. With the Fono going into a four-week mid session recess, at the close of business today, the measure will be taken up in committee hearings when lawmakers reconvene Aug. 21st.
According to the ASG Revenue Task Force data presented to lawmakers earlier this month, the sales tax (if enacted into law) is estimated to collect $15.2 million for the remaining months of FY 2018 (which begins Oct. 1, 2017). Thereafter, it’s estimated to bring in $23.5 million annually.
In his letter to the Fono leaders that accompanied language of the proposed bill, Gov. Lolo Matalasi Moliga claimed that it’s in the “best interest of the territory to move towards a more fair and equitable way of funding government services.”
He said taxing retail sales is more equitable as it taxes spending across all income levels, while the 2% wage tax impacts only wage earners and not those who earn by other means.
“Taxing retail sales is not a novel idea,” he said, noting that all but five states and one territory levy a sales tax, and the total sales tax paid by citizens in these US jurisdictions range from 4.35% to 9.45%
According to the administration, the 2% wage tax, being repealed through the sales tax, is a “highly regressive tax having a disproportionate impact on lower income wage earners.”
However, a sales tax — while also considered a regressive tax — is less than the wage tax, as it taxes expenditures on all retail sales generating revenue from spending across all income levels, the bill says.
According to the bill, the sales tax is applied on all retail goods sold or leased to the consumer, and retailers are responsible for the collection of sales tax.
Bona fide wholesalers are not responsible for collection of the tax when in fact wholesaling to a licensed retailer that holds a “Resale Certificate”, which is issued by the Commerce Department for each place of business where such activity may take place. The person desiring to conduct business as a retailer applies for the certificate from DOC.
The 13-page bill, which covers only the English version, details a wide range of information pertaining to the sales tax, which is imposed by all retailers on the gross receipts from the sale of all tangible personal property sold at retail in the territory. It also outlines the method of collection of the sale by retailers, display of tax separately from the price, and revocation of the Resale Certification for violation of any provision of the sales tax law.
According to the bill, every retailer who has collected tax from a purchaser must maintain sufficient records of each transaction so that accurate monthly returns can be filed with the Treasurer. The forms of the returns, set by Treasury, must be filed with the Treasurer on the 10th day of each month for the period ending on the last day of the previous month.
If the taxes imposed by this chapter — the retail sales tax — are filed and paid to the Treasurer by the 7th day of each month, a taxpayer may deduct and withhold from the taxes otherwise due from him or her 0.50 percent of those taxes as reimbursement for the cost of collecting the sales tax.
The sales tax outlined exemptions:
• sales of prescription drugs for human consumption dispensed by a doctor or to medical services and related fees;
• sales in open air public markets, wayside stands or roadside stands by the original and local producer of: fresh, unprocessed fruits, vegetables and nuts; eggs; live poultry; live pigs; and unprocessed fish sold the day they are caught. This exemption, does not apply to the sale of imported food;
• gross receipts from occasional sales of tangible personal property;
• groups that are organized and operate for charitable, religious, or educational purposes or hold a federal tax-exempt status when selling tangible personal items as part of infrequent and occasional fundraising activities where the profits are used for religious, education, or charitable purposes; and
• petroleum productions which are already subject to excise tax in accordance with current law.
Beginning Jan. 1, 2018, the bill says 6% of the total amount of sales tax collected is earmarked annually for repairs and renovations of all public school facilities and equipment.
The bill calls for an additional $500,000 appropriated from the sales tax for the ASG student financial aid, which already has an allocation earmarked in the annual budget.
Also 6% of the total sales tax is earmarked, beginning Jan. 1, 2018, for LBJ Medical Center operations. The LBJ off-island medical referral program is also slated to get 6% of the total sales tax and Treasury Department is required to send to the referral fund account monies collected on a monthly basis.
Due to the urgency, the bill becomes effective Jan. 1, 2018