GOVERNOR LINGLE SIGNS LEGISLATION TO PROVIDE $89.6 MILLION IN TAX RELIEF

For Immediate Release:  June 26, 2007

HONOLULU – Governor Linda Lingle signed three bills today to provide nearly $89.6 million in tax relief to Hawai‘i residents.  However, she said the Legislature fell short in helping to ease the high cost of living for low-income residents and working families, those who need the most assistance. 

The bills passed by the Legislature will result in significantly less tax relief than the $346 million Governor Lingle proposed, and do not provide permanent reductions to the tax burden imposed on Hawai‘i’s residents.

“The Legislature again this session missed the opportunity to help our residents who are struggling to make ends meet by providing immediate and long-term tax relief,” Governor Lingle said.  “While the measures passed this year are a step in the right direction, they do not address the long-overdue need to change our basic tax structure to protect taxpayers from tax increases caused by inflation and to increase the standard deduction and widen tax brackets to allow residents to keep more of their take-home pay.”

The measures signed by the Governor today will reinstate the exemption of ethanol-blended alcohol fuels from the general excise tax (GET), change the existing low-income tax credit to a refundable food/excise tax credit and provide a one-time tax credit for some taxpayers mandated by the Hawai‘i State Constitution.  This is the first time in state history that the mandated tax credit will not be enjoyed by all resident taxpayers.

HB1757 HD1 SD3 CD2 (Act 209) reinstates the GET tax exemption for alcohol fuels which should immediately lower the cost of a gallon of gasoline.  The exemption applies to biomass-derived fuels or fuels with a petroleum and biomass-derived mixture such as ethanol-blended fuels to power motorized vehicles.  The exemption originally took effect in April 2006, when new administrative rules went into effect requiring at least 85 percent of motor fuel sold in the state to contain at least 10 percent ethanol. 

Realizing the potential financial impact the expiration of the exemption would have on Hawai‘i motorists, the Lingle-Aiona Administration proposed extending the exemption last year, but the Legislature did not approve the Governor's proposal.  As a result, since the exemption expired on December 31, 2006, motorists have paid approximately 11 cents more for every gallon of gasoline sold through June 30, 2007, a total of 181 days. 

This bill, which takes effect on July 1 and sunsets on June 30, 2009, requires a gasoline producer, wholesaler or retailer to pass any savings realized from this exemption to the end customer.  Failure to do so subjects the company to a $100,000 fine. 

The Department of Taxation estimates the exemption will save Hawai‘i drivers approximately $32 million per year in taxes over the next two years.

This bill also increases the license tax paid by the distributors of liquid fuels by one cent per gallon.  For diesel oil and aviation fuel distributors, the tax will rise from one cent to two cents.  For gasoline and auto fuels, the increase will go from 16 cents to 17 cents per gallon. 

This bill also doubles the fines for certain violations of the vehicle weight and length laws and deletes existing language which doubles and triples fines for each repeat violation of the weight limit. 

SB148 SD2 HD1 CD2 (Act 210) provides a one-time tax refund or tax credit to taxpayers pursuant to the Hawai‘i Constitution, which requires a refund when the balance in the general fund exceeds 5 percent of general revenues for two successive fiscal years.  However, unlike previous constitutionally mandated tax refunds which applied to all Hawai‘i taxpayers, this measure will only benefit 60 percent of taxpayers.  Further, this measure does not provide a credit for each dependent claimed by a taxpayer.  Instead, it provides a one-time credit for each tax return. 

Whereas the Governor proposed a one-time tax refund of $100 per person for families (taxpayers and dependents) with household incomes up to $100,000, and $25 per person for families earning more than $100,000, SB148 would only apply for joint filers and heads of households earning less than $60,000 per year.  For single filers, the credit would not be given for anyone making $30,000 or more per year.  Under the Governor’s proposal, a family of four earning less than $100,000 would have received a $400 tax refund.  Under SB148, the minimum tax credit will be $25 and the maximum allowed per household will be $160.

The tax credit under SB148 applies to the 2007 tax year, meaning eligible taxpayers will have to wait until April 2008 when they file their 2007 tax returns to receive the tax credit.  The Department of Taxation estimates the tax credit will have a total revenue impact of $26 million. 

Next year, the Legislature will be required to give another one-time tax refund or credit to taxpayers because the balance in the general fund again exceeded 5 percent of general revenues for two successive fiscal years.

SB1882 SD2 HD1 CD1 (Act 211) expands the income levels for those who qualify for a low-income tax credit, and changes the name of the credit to a refundable “food/excise tax credit.”  SB1882 increases the income threshold from the current $20,000 cap to $50,000.  The value of the credit per exemption ranges from $25 to $85.  However, the tax credit does not take effect until the 2008 tax year begins, therefore eligible taxpayers will not see any benefits until they file their tax returns in April 2009.

This is in contrast to the Lingle-Aiona Administration’s proposal to eliminate the general excise tax on 11 basic food groups such as dairy products, eggs, cereal and infant formula, which would have immediately saved all Hawai‘i taxpayers, especially those struggling to feed their family, approximately $55 million over the next two years.

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For further information contact:

Kurt Kawafuchi
Director, Dept. of Taxation
Phone:  (808) 587-1510

Lenny Klompus
Senior Advisor-Communications
Phone:  (808) 586-7708

Russell Pang
Chief of Media Relations
Phone:  (808) 586-0043