SCR166 SD1.DOC

WHEREAS, section 243-3.5, Hawaii Revised Statutes, imposes a state environmental response tax of "5 cents on each barrel or fractional part of a barrel of petroleum product sold by a distributor to any retail dealer or end user, other than a refiner, of petroleum product"; and

WHEREAS, the federal government and other states have similar laws that impose a tax to address oil spills and other environmental issues; and

WHEREAS, Internal Revenue Service Publication 510 (2008), Excise Taxes: Part Two, Excise Taxes Other Than Fuel Taxes, states that no one is exempt from the federal environmental taxes; and

WHEREAS, our State's law is supposedly mirrored after the federal law; and

WHEREAS, chapter 128D, Hawaii Revised Statutes, that is referenced in section 243-3.5, Hawaii Revised Statutes, was enacted to support the State's responsibilities under the Federal Emergency Planning and Community Right-to-Know Act; and

WHEREAS, for the implementation of the tax, section 243-1, Hawaii Revised Statutes, defines pertinent terms as follows:

(1) "Barrel" means "forty-two United States gallons of crude oil or petroleum product";

(2) "Petroleum product" means "any liquid hydrocarbon at standard temperature and pressure that is the product of the fractionalization, distillation, or other refining or processing of crude oil";

(3) "End user" means "any person or government entity who acquires petroleum products for their own use and not for resale"; and

(4) "Retail dealer" means "a person who purchases liquid fuel from a licensed distributor, and sells the liquid fuel at retail. Only sales of liquid fuel for consumption or used by the purchaser, and not for resale, are sales at retail"; and

WHEREAS, the statutes clearly indicate that the environmental response tax is intended to be imposed on each forty-two-gallon barrel of "liquid hydrocarbon" that is the product of the "refining or processing" of "crude oil" and sold to a "retail dealer" or "end user"; and

WHEREAS, publicly available data, however, appear to display some discrepancies in the tax collections; and

WHEREAS, for example, data from the Department of Taxation for 2008 show that the environmental response tax generated $1,695,000 on a tax base of 33,909,000 barrels of petroleum products; and

WHEREAS, multiplying the 33,909,000 barrel tax base by forty-two gallons results in a product of 1,424,178,000 gallons; and

WHEREAS, the same data from the Department of Taxation, however, show that the liquid fuel license tax base was 997,200,000 gallons in 2008; and

WHEREAS, the difference is substantial, suggesting that either the environmental response tax was over-collected or the liquid fuel tax was under-collected; and

WHEREAS, data for 2005 also raise a question about the environmental response tax collection:

(1) According to the Department of Taxation, the environmental response tax base in 2005 was 36,200,000 barrels of petroleum products in forty-two gallon barrels;

(2) According to the Department of Business, Economic Development, and Tourism, 51,262,000 barrels of petroleum in fifty-five gallon barrels were imported into the State;

(3) Some of the imported petroleum was refined into non-liquid products or refined into liquid products and then exported, thereby excluding those barrels from the environmental response tax; and

(4) Nevertheless, the difference between the data is very large, and the reason for the difference requires examination; and

WHEREAS, thus, the Legislature finds that audits of the producers of liquid fuel for their compliance in reporting the environmental response tax and liquid fuel license tax should be conducted; now, therefore,

BE IT RESOLVED by the Senate of the Twenty-fifth Legislature of the State of Hawaii, Regular Session of 2009, the House of Representatives concurring, that the Department of Taxation is requested to audit those taxpayers that are required to voluntarily report information regarding the environmental response tax and the liquid fuel license tax to determine their compliance in reporting such information; and

BE IT FURTHER RESOLVED that the Department of Taxation is requested to submit the results of such audits to the Legislature at least twenty days before the convening of the Regular Session of 2010; and

BE IT FURTHER RESOLVED that a certified copy of this Concurrent Resolution be transmitted to the Director of Taxation.

Report Title:

Environmental Response Tax and Liquid Fuel License Tax Reporting; Audits

THE SENATE	S.C.R. NO.	166
TWENTY-FIFTH LEGISLATURE, 2009		S.D. 1
STATE OF HAWAII