RESOLUTION

WHEREAS, new ideas and actions are needed to propel Hawaii into the twenty-first century; and

WHEREAS, in order to achieve this objective, the State must reassess state government and find new and innovative ways to stimulate the economy and assist the taxpaying public; and

WHEREAS, the general excise tax, a long established and regressive form of taxing businesses, is ripe for change; and

WHEREAS, the general excise tax ignores the economic health of businesses in Hawaii and is assessed and collected even if a business experiences a loss; and

WHEREAS, the general excise tax has been criticized for its pyramiding effect, which adds "hidden taxes" to the final cost of goods and services; and

WHEREAS, even though these "hidden taxes" on goods and services have been lowered recently, they continue to add to the cost of doing business in the State; and

WHEREAS, another state tax that is ripe for change is the state income tax; and

WHEREAS, the income tax, although used in most taxing jurisdictions, is a tax that is regressive and applied inequitably in certain situations; and

WHEREAS, a sales tax, unlike an income tax -- that is paid only by Hawaii residents, is also paid by tourists and business visitors to the State; and

WHEREAS, nearly seven million tourists visited Hawaii in 2004, spending $10,300,000,000; and

WHEREAS, if food purchased from a grocery store, medicine, and medical equipment are excluded from a sales tax, Hawaii residents could choose to buy only those goods and services they need, thereby limiting their tax burden; and

WHEREAS, the general excise tax does not offer that flexibility; and

WHEREAS, businesses in Hawaii would be better served if a sales tax were substituted for the general excise and income taxes; and

WHEREAS, a sales tax would not pose the pyramiding problems of the general excise tax and is well-understood and used in an overwhelming majority of taxing jurisdictions in the United States; and

WHEREAS, a sales tax is a more direct, profit-related tax, with a larger tax base, that is more equitably distributed and is assessed only on those who actually consume the good or service being taxed; now, therefore,

BE IT RESOLVED by the House of Representatives of the Twenty-third Legislature of the State of Hawaii, Regular Session of 2005, the Senate concurring, that the Department of Taxation is requested to conduct a study to determine a retail sales tax rate that will generate revenues sufficient to replace the revenues produced by the state income and general excise taxes; and

BE IT FURTHER RESOLVED that the Department of Taxation is requested to include in its calculations exemptions in the sales tax for food purchased in grocery stores, prescription drugs, and other medical necessities; provided that:

BE IT FURTHER RESOLVED that the Department of Taxation determine a retail sales tax rate for tourists, business visitors and non-resident military who would pay a sales tax that is commensurate with the loss of revenue anticipated by the repeal of the income tax and general excise tax; and

BE IT FURTHER RESOLVED that residents would pay a four per cent sales tax rate that is independent from any sales tax imposed on tourists, business visitors and non-resident military; and

BE IT FURTHER RESOLVED that the Department of Taxation is requested to report its findings, including any necessary proposed legislation, to the Legislature no later than twenty days before the convening of the Regular Session of 2006; and

BE IT FURTHER RESOLVED that certified copies of this Concurrent Resolution be transmitted to the Governor and the Director of Taxation.

Report Title:

Retail Sales Tax; GET; Income Tax; Fuel Tax