May 2007 | Small Business News
Streamlined Sales Tax Will Benefit Hawaii and its Residents
Rebuttal by State Senator Carol Fukunaga
In the April issue of Small Business News, Grover Norquist, president of the Americans for Tax Reform and one of our country’s most notorious anti-tax crusaders, argued against the passage of Senate Bill 1840, which would amend Hawaii’s laws relating to the general excise tax, and allow the state to join the Streamlined Sales Tax Governing Board. By conforming state law to the provisions of the Streamlined Sales and Use Tax Agreement, Hawai‘i would have an opportunity to join a growing number of states across the nation that now have a means to collect taxes due on sales in other jurisdictions.
Our main challenge arises from the growth of sales over the Internet. As ecommerce expands to account for an ever-larger percentage of retail transactions, our state collects general excise taxes on fewer sales to our residents. The United States Supreme Court has interpreted the Constitution in a way that prohibits us from compelling out-of-state companies to collect our GE tax, unless they have a physical presence within the state. Legally, the tax is due, but uncollectible. As a result, if you buy a DVD from Amazon.com, you pay no sales tax. If you buy the same item from a local store, you do.
This can leads to some unexpected results. For example, if you purchased the same DVD from Borders.com, you would pay GE tax on the sale, because Borders has a physical presence in Hawai‘i. The item is the same, and the online transactions at Amazon and Borders feel identical, but the tax is collected in one case and not the other. This anomaly allows some Hawai‘i residents to avoid paying the GE tax on retail sales by carefully selecting their online sellers. For those residents who do not have access to the internet or sufficient credit to obtain a credit card, no such options exist. It would be irresponsible for the legislature to allow such a two-tiered system to exist when there is an option available that would resolve the discrepancy.
Tax-free out-of-state sales also put our local “bricks and mortar” retailers at a disadvantage. They collect and pay the tax as required by law. These taxes help support our community, while the sales help our local economy. By contrast, online retailers receive the benefit of the sale, but return nothing to our community.
The Streamlined Sales and Use Tax Agreement helps address these concerns. Voluntary participation on the part of states and businesses permits states to collect the taxes due on sales to their states’ residents. A tax administration system that computes the appropriate tax, handles payments to state authorities, and helps address audit risks assists participating states and businesses comply with varying tax laws of different jurisdictions. This voluntary system, and the reduced burden provided by the Streamlined System, is not only legal but also growing in popularity. Today, fifteen states are full members, and six states associate members, of the Streamlined Sales Tax Governing Board, which works closely with states as they work toward compliance with the Streamlined Sales and Use Tax Agreement, and eventually collect taxes due on sales in their jurisdictions.
One key to the effective operation of the streamlined system is the simplification of local tax laws. Senate Bill 1840 makes changes that are necessary to Hawaii’s gaining membership in the Streamlined Sales Tax Governing Board. The changes will neither increase nor decrease the amount of taxes due; they will simply help the state collect those taxes in a fair and legal manner.
Hawai‘i cannot afford to turn its back on the potential tax revenues represented by multi-jurisdictional business transactions. Participating states are already realizing tens of millions of dollars in additional tax revenues through companies that have elected to be a part of this new, streamlined system. Senate Bill 1840 is a productive move in the right direction, and it deserves the public’s support.
Senator Fukunaga (D-11) is chair of the Economic Development & Taxation Committee. She can be reached at (808) 586-6890 or by email at senfukunaga@capitol.hawaii.gov.
Editor’s Note: SB 1840 failed to pass this year.
See "Hawaii Should Not Pass Stealth Internet Tax" by Grover Norquist
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