Bill Would Ease Hawaii Tax Burden

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HONOLULU -- Hawaii's ASTA chapter is lobbying for a reduction in the tax that agencies pay on airline commissions.

Hawaii is the only state where agents pay a significant tax on airline commissions, and the chapter's move is aimed at providing relief from possible higher taxes.

Bills in the state House and Senate would reduce the state's general excise tax (GET) on airline commissions from 4% to 0.5%.

The state administration wants to increase the wide-ranging excise tax levied on almost all goods and services from 4% to as much as 5.35% as part of a major tax restructuring designed to kick-start the economy from a seven-year slump.

But the plan also proposed that business sectors hit particularly hard or unfairly by a GET increase would get the excise tax reduced to 0.5%.

The restructuring also would provide the biggest cuts in income and corporate taxes in the state's history, aimed at attracting investment. Agencies pay the 4% GET on gross commissions, and the bills introduced would reduce only the portion paid on airline commissions.

Following a hearing, the House Finance Committee said it would report favorably on the house version, H.B. 2749. No action has been taken on the Senate version as yet.

Danny Casey, chairman of the ASTA chapter's legislative committee, testified before the finance committee. Airlines, as a result of the commission caps and commission reductions, Casey said, "had removed more than $7 million per year from the Hawaii economy."

"This is money that once helped travel agencies produce jobs and tax revenues, but now just helps the airlines pad their profit statements. It is this airline industry that is benefiting from a landing-fee waiver granted by our state," he said, referring to the state's two-year suspension of airline landing fees imposed last September to boost tourism.

Casey also said the number of Hawaii's Airlines Reporting Corp.-accredited locations had declined from 289 to 242 in the past three years.

He told Travel Weekly the chapter thinks it has a better chance of getting a tax bill passed than in previous years.

In the past two sessions, the chapter supported more ambitious bills abolishing the GET on airline commissions. Both times they failed to clear the first hurdle as they were killed by the House Finance Committee. This time, in theory at least, the chapter's move to reduce taxes has the support of the state administration.

The tax restructuring was recommended by the Governor's Economic Revitalization Task Force, a 26-member body that met last fall, and whose plan was accepted in total by Gov. Ben Cayetano.

GET is paid by businesses on gross income or sales and is subject to "pyramiding" -- paying tax on tax. Some business sectors, such as manufacturers, distributors, and the insurance industry, pay just 0.5% GET. Most sectors pay 4%, and many, such as retailers, hotels, and tourist attractions and activities, pass the tax on to consumers.

However, travel agencies, like real estate brokers, historically have absorbed the tax and are prohibited by federal law from passing the tax on to consumers who buy airline tickets.

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