January 31, 2017
1:15 PM
Conference Room 229

To: Committee on Public Safety, Intergovernmental & Military Affairs
Sen. Clarence K. Nishihara, Chair
Sen. Glenn Wakai, Vice Chair

From: Grassroot Institute of Hawaii
President Keli’i Akina, Ph.D.

RE: SB938 – RELATING TO REIMBURSEMENTS TO THE STATE FOR THE COSTS OF ASSESSMENT, COLLECTION, AND DISPOSITION OF THE COUNTY SURCHARGE ON STATE TAX.

Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer its comments on SB938, which would repeal the requirement that the Director of Finance deduct 10% of gross proceeds of the county surcharge on state tax for the purposes of administering that surcharge.

In the spirit of disclosure, we should mention that the Grassroot Institute has filed an amicus brief in support of the plaintiffs in the Tax Foundation of Hawaii’s lawsuit against the state in reference to this particular statute. In that brief, we discuss the fact that the issue is not only one of government accountability and transparency but also the state’s responsibility to the taxpayers.

Under the existing law, the Department of Taxation has been allowed to keep a full 10% of the rail surcharge for the costs of administering it, despite the fact that the law directs DOTAX to calculate how much is required for its management of the surcharge, then return the remainder to the rail project. While the Department does not claim that it requires the full 10% for its administrative efforts, no official attempt has been made to calculate the actual cost to the Department of collecting and administering the tax.

The Tax Foundation of Hawaii estimates that so far, DOTAX has kept more than $177 million, adding that in many years, the amount collected for administrating the surcharge was at or near the entire departmental budget for that year.

At best, this demonstrates a lack of accountability and transparency. At worst, it is tacit permission for a state agency to skim proceeds of a tax for its own purposes instead of the one which was presented to the voters and citizens of this state.

Given that the state rail project has already been beset by problems, this surcharge administration fee has become a violation of the public trust. Every dollar taken from the wallets of taxpayers that is not demonstrably needed by DOTAX to administer the surcharge should go directly to that project.

This situation makes it clear that a full audit of the rail project and the Department of Taxation are necessary to increase transparency and restore public trust in state management of the project.

Thank you for your consideration of our comments.

Grassroot Institute’s amicus brief can be viewed at: http://new.grassrootinstitute.org/wp-content/uploads/2016/10/Filed-Grassroot-Motion-to-file-Amicus-and-attached-brief.pdf