Local lawmakers recently pushed a bill through the state Legislature to close a tax loophole — potentially saving Kaua‘i Island Utility Cooperative members millions of dollars, said Kaua‘i Rep. Jimmy Tokioka. Senate Bill 992, which Gov. Linda Lingle signed into
Local lawmakers recently pushed a bill through the state Legislature to close a tax loophole — potentially saving Kaua‘i Island Utility Cooperative members millions of dollars, said Kaua‘i Rep. Jimmy Tokioka.
Senate Bill 992, which Gov. Linda Lingle signed into law May 27, clarifies the fuel tax rate for naphtha at 1 cent per gallon, the same as diesel fuels used in power-generating facilities.
“Because the tax rate for naphtha used for electric power generation was not given, the law, interpreted by the Department of Taxation, would classify naphtha as a transportation fuel and tax it at a higher rate because of highway taxes,” Kaua‘i Rep. Mina Morita said.
The Hawai‘i transportation fuel tax rate is 31.8 cents per gallon, states the Web site www.HawaiiGasPrices.com.
KIUC burns about 16 million gallons of naphtha annually at its Hanama‘ulu power plant, KIUC President and CEO Randy Hee said.
Chevron, which sells KIUC all its naphtha fuel, has never charged the cooperative for the highway tax.
“We’re burning it in the power plant. There’s no wheels on it,” Hee said. “But sometime last year Chevron was reviewing tax laws and it became questionable whether we should pay taxes on naphtha. We agreed the law was fuzzy.”
Naphtha is a cleaner burning fuel, like the lighter fluid used in Zippo cigarette lighters, formed as a byproduct of distilling crude oil.
KIUC could avoid using naphtha by switching to diesel, Morita said, but “the cost for diesel is much higher.”
Naphtha fuel currently costs $85.47 per barrel compared to $101.05 per barrel for diesel, according to information on www.KIUC.coop.
That gap closed over the last year. In June 2006, naphtha was $75.03 per barrel compared to $112.18 per barrel of diesel, according to the same chart.
“Although we have seen some recent increases, it’s still the more economical fuel if measured by price per unit of heating,” Hee said.
KIUC serves 23,735 members across the whole island, he added, making the potential savings to these energy users very significant. KIUC operates 15 generators and two hydroelectric plants on Kaua‘i.
Clarifying the law may have saved KIUC members $14 million to $20 million in back taxes, according to estimates by Tokioka and Morita.
The law has a two-year sunset clause, Hee said, so the Legislature can review the economic impact.
Hee thanked Sen. Gary Hooser, Morita, Tokioka and other legislators involved in passing the bill.
“They and their staffs were very helpful and truly have Kaua‘i people and KIUC members in mind,” he said. “It’s good that we addressed this.”
The law could also help clarify the tax rate for Hamakua Energy Partners, a naphtha-fueled power plant on the Big Island that reportedly provides about one-third of the island’s power needs.
