Honolulu Star Advertiser against DOTAX’s Rules Limiting Renewable and Solar Energy Tax Credits

The opinion article can be read here.  An excerpt is copied below:


The state credit is supposed to be capped at $5,000 in a single year, but some have gamed the system by installing multiple circuit breakers and inverters, advising consumers that each constitutes a separate system to reap multiple tax credits back.

The proliferation of photovoltaics to harness solar energy in Hawaii has become the proverbial double-edged sword: PV businesses have flourished and energy consumers are becoming increasingly “green,” but legal vagueness over tax benefits has opened the industry to shadiness, costing the state the nearly $174 million in lost tax revenues. This was already a problem at the start of the year, when lawmakers were urged to tighten PV-installation laws to restrict tax generosity — but they failed to act.

Solar power has become a booming, key component in Hawaii’s admirable push toward natural and renewable resources. The idea now is not to kill the goals, or progress being made, on Hawaii’s clean energy initiative. It should be to encourage consumers and businesses alike to do the right thing, but minus a greediness that comes at such palpable expense to the state’s economy.

There is widespread agreement that many are gaming the system. It is up to state lawmakers to quickly acknowledge this, clarify its definition and intent for a $5,000 credit cap for a PV system, and start phasing down solar tax credits.


No GET Increase, says Tax Review Commission chairman

Interesting interview of Tax Review Commission chairman, Randy Iwase.  In it, he explains why he and the commission he heads is against a rise in the GET.

Q: Most of the focus was on the GET proposal, right?

A: Yeah, because guys get all excited when you hear talk about GET. I’ve been around politics for a long time: You mention GET, and people wake up. Unfortunately, they ought to wake up for other things.

Q: But you would agree that the GET tends to compound on everything, so there’s a reason why people get upset about it?

A: The pyramiding? You know, the pyramiding issue is one issue. I think it’s more general. People don’t like tax increases, period. You could talk about income tax increases and get the same reaction.

Now, that’s why the first recommendation we make is Simpson-Bowles. What we understood was, if you address this picture solely from the revenue side, we’re talking about just a GET increase to 5.666 percent.

Q: That includes the Oahu transit surcharge?

A: No. On Oahu, it would be 6.166 percent. … So that’s tough. It’s a rough issue. So we said you gotta deal with it from both the revenue and an expenditure side; we cannot do it. We recommend a Simpson-Bowles-type commission, so that you can, first, have a commission that can look at both. Second, my hope is, as was the hope for the federal fiscal commission, that it would be funded.

We were not funded adequately. … And the tax department — and this was another thing we had in the report — the staff was depleted. … So we were handicapped that way.

Second, unlike the Legislature, which has to run around every session with a myriad of issues, and they become consumed by the present — you can’t look forward out into the horizon, because you’re consumed with what’s gotta be done today. This commission can drill down on that specific issue: We’ve got this shortfall — what do we do?

Finally, my hope is that such a commission includes all of the stakeholders, because they ought to come to the table. Business, labor, nonprofits. … Representing their various constituencies, they will see and come to understand what we have, that this is a very serious problem. It’s not a tax problem only, it’s an economic problem.

Update: Hawaii Judge Rules OTCs Not Liable for Hotel Taxes

No doubt this was the largest and most high profile tax case to come out of Hawaii in many years.  The OTCs are potentially on the hook for taxes of $500 million or more!

The Hawaii tax appeal court ruled that online travel companies are not liable for transient accommodation taxes on their online hotel bookings.  The court noted that online travel companies are similar in nature to travel agents that do not pay the transient accommodation tax on their sales.  The result is that the court made a determination that the transient accommodations tax does NOT pyramid (i.e. multiple layers of tax on the same transaction) in the same way the GET does.

The parties will have another hearing in December 2012 to determine whether OTCs are liable for Hawaii GET on their Hawaii hotel bookings.  I’d bet that they are liable at least on their profit margin and fees generated.  This would be a GET scheme similar to how a travel agent is taxed on their commissions from the hotels and any fees charged to the customer.  No doubt this could produce a tax bill in the tens of millions of dollars or more.

Click here for news coverage.

Update: Gov. Lingle’s Former Tax Director Says Lingle Quashed Probe Into OTC Tax Liability

Another update on the unfolding dispute between online travel companies (OTCs) and the State of Hawaii on up to $500 million in unpaid taxes relating to their hotel room bookings in Hawaii.

In a deposition, former Hawaii Director of Taxation, Kurt Kawafuchi, said that former Governor Lingle quashed a probe into the unpaid tax liabilities of online travel companies such as Expedia and Travelocity.

In response, Lingle’s former chief of staff defends the former governor by claiming that it was “100%” the decision of the former Tax Director, Kurt  Kawafuchi.  Maybe so.  But its hard to believe that  Governor Linlge was not at least consulted on a $500 million tax decision.  Whether this hurts Lingle’s US Senate campaign remains to be seen, but it can’t be good for her.

Click here to see the news coverage.

Update: D.C. Court Rules that OTCs Must Pay Hotel Tax

I wrote earlier that the Hawaii attorney general is seeking upwards of $500 million from online travel companies (OTCs) such as Expedia and Travelocity  for unpaid transient accommodations and general excise taxes.

While the vast majority of courts nationwide have held that OTCs do not owe hotel taxes on their retail markup, the DC Superior Court has granted partial summary judgment that OTCs are liable for DC’s gross sales tax on their hotel room retail markups.  For DC, this could mean an additional $6 million annual revenue plus another $200 million in back taxes, penalties, and interest.

The court reasoned that OTCs are considered taxable “vendors” under the DC gross sales tax law.  No doubt the Hawaii attorney general will cite to this case in his briefs to the tax appeal court.  However, its persuasive value may be limited as Hawaii taxes hotel “operators” and not necessarily hotel “vendors.”

Click here to see the DC Superior Court order.