The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Senate Committee on Ways and Means on Feb. 12, 2025.
_____________
Feb. 12, 2025, 10 a.m.
Hawaii State Capitol
Conference Room 211 and Videoconference
To: Senate Committee on Ways and Means
Sen. Donovan Dela Cruz, Chair
Sen. Sharon Moriwaki, Vice-Chair
From: Grassroot Institute of Hawaii
Ted Kefalas, Director of Strategic Campaigns
RE: SB1278 — RELATING TO THE GENERAL EXCISE TAX
Aloha Chair Dela Cruz, Vice-Chair Moriwaki and other members of the Committee,
The Grassroot Institute of Hawaii supports SB1278, which would exempt from the state general excise tax any grants received by Hawaii businesses under the COVID-19-era Restaurant Revitalization Fund and require the state Department of Taxation to issue refunds to businesses that have already paid the excise tax on RRF grants.
This bill would rectify an oversight by the state Department of Taxation and provide justice to the restaurants and eateries who were affected.
For some history: The Department of Taxation published a tax information release form in October 2020 stating that federal assistance programs such as the Paycheck Protection Program and Economic Injury Disaster Loans would not be subject to Hawaii’s GET.
“Grants or other payments that replace or supplement income are normally subject to GET,” DOTAX wrote. “However, in light of the severity of the economic impact of the COVID-19 pandemic, GET will not be imposed on payments received under PUA [Pandemic Unemployment Assistance], loan amounts forgiven under PPP, and EIDL Grants.”[1]
It made sense to waive the general rule that all business income is subject to the GET, but DOTAX failed to update this waiver after Congress established the Restaurant Revitalization Fund in March 2021.
The RRF program provided grants of up to $5 million per business location — not to exceed $10 million for any one company — to replace income lost because of COVID-19.[2] In Hawaii, some 1,147 bars, restaurants and eateries received $416 million in grants, equating to roughly $362,900 per business.[3]
But because DOTAX never updated its tax release, these businesses in some cases had to pay thousands of dollars in GET on grants intended to help them stay afloat.
Bill Comerford, who before the lockdowns owned four Honolulu bars, is just one of the many people who were shocked that they had to pay tax on these grants.
“They’re taxing me … for receiving $3.1 million [in federal Restaurant Relief Funds], …, which would be about $160,000,” Comerford said in 2024. “That’s not chump change at all.”[4]
Russel Ryan, chief financial officer of the Highway Inn, said he was “astonished” when he learned the restaurant owed taxes on the RRF monies.
“And of course, you know, we’re a small company, but we have budgets. … We were never, ever, never, ever made aware in order to budget for this particular tax,” he said.[5]
For entrepreneurs like Comerford and Ryan, this bill would right a three-year-old wrong.
Please advance SB1278.
Thank you for the opportunity to testify.
Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
_____________
[1] “Tax Information Release No. 2020-06 (Revised),” Hawaii Department of Taxation, Oct. 20, 2020, p. 3.
[2] “Restaurant Revitalization Funding Program,” U.S. Small Business Administration, April 28, 2021, p. 6.
[3] “Restaurant Revitalization Fund (RRF) FOIA,” U.S. Small Business Administration, last updated Oct. 21, 2024.
[4] “‘Surprise’ state tax last straw for veteran Hawaii bar owner?” Grassroot Institute of Hawaii, April 11, 2024.
[5] “Will state Tax Department stick to its guns on restaurant tax?” Grassroot Institute of Hawaii, Jan. 20, 2024.
