• Dear Mr. Lehoven:
Dear Mr. Lehoven:
This letter is in regard to your fine letter that was printed in The Garden Island’s editorial page on January 31. As a retailer in Hawai‘i with nearly 40 years of experience, I appreciate your comments on the 4 percent excise tax and its impact on your business and your customers.
You are correct in saying the excise tax is not a sales tax but a tax on a business’ gross revenues. That is, if you sell an item for $1.00, you owe $.04 to the State and you keep $.96. If you wish to keep the full $1.00 to obtain your necessary margin, then you must add more. Thus the 4.16 percent calculator used resulting in $1.00 for you and $.04 for the State. As you have said, you just pass the tax on to the customer. However, we should go a little further with this.
If you do not own your business property, you are paying rent. Your landlord adds 4 percent (or 4.16 percent) to your rent, which is a taxable item. Your overhead has now been increased by that amount. The same tax will apply to products you buy in order to stay in business, such as adding machines, paper, computers, automobile fuel, etc. The taxes that are added to all of these items increase your cost of doing business. In addition, if you are in the business of reselling products, you are also paying an additional 1/2 percent in either wholesale tax or “imports for resale” tax. The Hawai‘i wholesaler that is selling you product could sell it to you cheaper if he did not have to pay 4 percent add-on to all the goods and services that he requires in order to stay in business. Since you must insure that you have enough margin calculated in your goods or services to meet all expenses and still be able to take home a pay check, you will need to adjust your prices. All these tax expenses are being passed down the chain to you, and eventually to your customer, and possibly on to his customer. These are the taxes (costs) your customers do not see.
Hawai‘i is the only state that uses this type of tax. Most states (and some counties within those states) use a sales tax, which is a tax on the consumption of goods. By taxing a business’ gross revenue, the Hawai‘i’s excise tax touches nearly everything including goods, services (including medical services), rents, food, medicine and other necessities. Gas is also subject to the excise tax, which is tacked on top of the federal and state liquid fuel tax. Do you see the pyramid effect? This is why experts say our 4 percent excise tax is the equivalent to a 12 percent sales tax! By the way, Hawai‘i’s lawmakers, for the most part, love this tax. It is their “cash cow.” Never mind that it discriminates against our poorer citizens. They pay the highest tax as a percentage of income.
I encourage you to join in the effort to fight the legislature’s proposed increase of the excise tax to 4.5 percent to pay for a mass transit system. For more information on Hawai‘i taxes, I suggest logging on to the Tax Foundation of Hawaii web site (www.tfhawaii.org), which is a wonderful organization independent of government agencies and headed by Lowell Kalapa.
A.C. “Sandy” Brodie
Princeville
