2018-04-11 Letter to Valerie Poindexter and Members of the County Council re_ Proposed General Excise Tax (GET) Surcharge

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Barry Kim A layor (Cottitfu of Pa tuari \VII Okabe Managing Director Barbara J. KOSSOIN Deri/(1' lanagi Dirocror Offirr af file 4ingur 25 Aupuni Street, Suite 2603 • Hilo, Hawaii 96720 • (808) 961-8211 • Fax (808) 961-6553 KONA: 74-5044 Ane Keohokalole Hwy., Bldg C • Kailua-Kona, Hawaii 96740 (808) 323-4444 • Fax (808) 323-4440 April 11, 2018 GET Surcharge — An Opportunity to Generate Revenue to Better Serve the Community The State Legislature is considering extending the opportunity for counties to adopt a new tax revenue source that would generate an estimated $50 million a year, based on the State's most recent projections, through a 1/2 percent General Excise Tax (GET) surcharge (HB 2587). The bill extends the deadline for County Council adoption to June 30, 2018. This is an extraordinary opportunity for our County to expand our tax base and tremendously reduce the need to raise property taxes in the future. • Limited County Revenue Sources. The State holds the power to determine how counties can generate revenue to run county operations. Of the State's 17 tax sources, the counties control the rates of only three: property tax, vehicle weight tax, and fuel tax. Our County relies heavily on property taxes—this source currently generates approximately 74.5% of the general fund revenues. 41 Significance of the GET Surcharge Revenues. The estimated annual revenues of $50 million from the GET surcharge would significantly reduce our reliance on property taxes, thereby reducing the need to raise property taxes in the future. If we had to raise property taxes to generate a comparable amount of $50 million, that increase would equate to a 16.5% increase. Instead, we have an additional $50 million with no increase in property taxes. 41 Basic Facts on Hawai'i's GET. The GET is a tax on gross income of businesses. Most businesses that sell goods or provide services must pay the GET. This covers everything from store purchases to construction fees. Businesses pass on this tax to consumers. The GET is the State's largest source of income. With the surcharge, the GET will increase from 4% to 4.5%. The State will collect the 4.5% tax, keep 4%, and return 0.5% of the GET revenues generated from this County. It is estimated that 99% of the County's portion will go to the County, and 1% will go to the State for administrative costs. • Beneficial Uses of the 1/2% Surcharge Revenues. • Transportation. One version of the bill mandates that 60% of the revenues be used for transportation projects which could include: • Mass Transit County of Flawai`i is an Equal Opportunity Provider and Employer.