Senate tax bill hearing ends abruptly, sales tax bill incomplete
The Lolo Administration is planning to set up a new sales tax unit at the Treasury Department to specifically deal with enforcement and collection, if the proposed 7% sales tax measure is enacted into law, according to testimony by Deputy Treasurer of the Revenue Division, Keith Gebauer during separate Senate and House hearings.
However, problems with the language of the sales tax bill already introduced in the Fono, resulted in the Senate Budget and Appropriations Committee ending its hearing yesterday, based on testimony from Attorney General Talauega Eleasalo Ale, who is also the chairman of the ASG Revenue Task Force, that there are several provisions missing from the bill.
Several senators were not pleased at all that the Administration’s bill was incomplete, and committee chairman Sen. Magalei Logovi’i plans to call another hearing in the near future.
Meanwhile, G.H.C. Reid & Company has suggested starting the sales tax at a lower percentage, because 7% is too high. Three G.H.C. Reid officials were present during yesterday’s Senate hearing that ended abruptly.
During a House Ways and Means Committee hearing on Tuesday, Gebauer was asked about the method the government will use to collect the sales tax, and he responded that a new unit will be set up for this purpose.
They “will have the resources, they will have the staffing. We are finalizing the exact technology that we’re going to use,” he said.
With the proposed sales tax, the Administration is also moving to gradually repeal the 5% miscellaneous excise tax — under a separate measure, which among other things changes how the government would impose an excise tax on imported beer.
Rep. Samuel Meleisea said one of his concerns is the move to gradually repeal the 5% miscellaneous excise tax. “There is a general fear, that we’re going to have a hard time collecting the sales tax, as opposed to the excise tax which we collect... at the port,” he said.
“Is this one of the concerns you considered, at the task force, when the bill was proposed to phase out the excise tax?” he asked, to which Gabauer responded, “absolutely.”
According to the bill, the miscellaneous excise tax will be phased out, starting Jan. 1, 2019 and by 2022, this tax will no longer exist.
Gebauer said the task force developed a multi-year plan in phasing out the excise tax, while the sales tax is implemented to ensure that there is revenue coming in, when another revenue source is being completed repealed.
If enacted into law, the sales tax would become effective Jan. 1, 2018. ASG estimates that the sales tax (if enacted into law) will 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.
Gebauer stressed to the House committee that revenue collections on the sales tax, are “estimates. They are based off historical data, they’re based off analysis, they’re based off our best estimates. But we don’t know it, until we go through it.”
“As we transition into the sales tax, we start to remove the excise tax, and this is the reason for the multi-year plan,” he said, referring to the gradual repeal of the excise tax. “We’re not going in ‘cold turkey’, not having any of the funds to keep the government services and operations functioning.”
Gebauer gave similar explanation — on the multi-year plan — transitioning to the sales tax as the excise tax is gradually repealed, when some senators pointed out that come Jan. 1, 2018, if the sales tax is approved — the public will actually be paying 12% in taxes in the year 2018, i.e. the 7% sales tax and the 5% miscellaneous excise tax.
Magalei questioned how the government plans to collect this sales tax, adding that the previous sales tax — during the Lutali Administration — was unsuccessful, due to among other things, the collection from stores.
ASG Treasurer Uelinitone Tonumaipe’a, who is also vice chair of the Revenue Task Force, said a sales tax unit will be set up, with a computer system, to help stores keep track of the sales tax. Additionally, a sales tax certificate will be issued to these stores.
While there are available computer systems in the US to track sales tax, they are expensive. The government is looking for a cheaper system to accommodate the small local population, he said, adding that they are working with off island consultants for a system for American Samoa.
Gebauer added that ASG is targeting to have the system in place prior to Jan. 1, 2018 and once the sales tax bill is passed, Treasury will start the implementation phase to be on line by the effective date of the law.
Both Gebauer and Tonumaipe’a revealed that an off island company gave their team a computer system demonstration on Wednesday, on how the retailer would submit the information and how the Tax Office staff would track data for collection.
However, Magalei wants a firm answer from Treasury as to where they stand at this point. “Have you passed the planning stage?” he asked, to which Gebauer said yes but reiterated that they are still working on getting the right computer system for the sales tax.
According to the sales tax bill, there are special allocations for certain ASG entities. For example, beginning Jan. 1, 2018, 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. 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 is required to send to the referral fund account monies collected on a monthly basis.
These special allocations prompted several questions from Magalei to the task force for an explanation, but resulted in Talauega revealing that he doesn’t believe the bill (he was looking at it during the hearing) is the same draft that he had reviewed.
Talauega agreed with questions raised by Magalei pertaining to missing items in the language of the bill, and said it appears that the one now before the Senate is a draft proposal made last year.
He pointed out that the sales tax “applies only to [retail] goods but not services” but he sees “services” included in the bill for the sales tax. He also identified other language in the bill that needed to be changed.
Given that the task force has corrections to make to the bill, Magalei said the committee would hold another hearing at a later date.
Sen. Tuaolo Manaia Fruean told the task force to come back prepared the next time, and bring the correct bill.
In a letter to several lawmakers regarding the government’s proposed revenue measures, G.H.C Reid said it's a “good initiative” to have a sales tax. However, the company said, “7% is too high — much higher than Hawai’i” and with a high sales tax, the company said “buying power of consumers will drop, and volume of goods will drop. We need a manageable percentage to start with, for example 2%.”
Additionally, the sales tax needs:
• to be in lieu of the import duties; not in addition to it;
• to be applied to ONLINE orders so that it isn’t to anyone’s advantage to buy online versus buying local;
• applied to goods brought in for personal use from off-island, especially large ticket items like pallets of beverages and vehicles.
G.H.C Reid also called for a detailed plan of how the sales tax will be implemented, monitored, and enforced, saying it needs to be developed before it can be passed.