Tax reform in Hawaii is still in its early stages, but one of the most talked about pieces of legislation is one that would make it easier for businesses to file their taxes.
The bill, Senate Bill 6, has been in the works since last year and has been described as a massive overhaul of the state’s corporate tax code.
It would also allow businesses to bring back some of the deductions that are currently limited to their owners, such as charitable donations, interest and a portion of their payroll taxes.
It’s expected to have a major impact on Hawaii’s economy, according to the Hawaii Center for Public Policy.
“It’s a great day for Hawaii,” said Chris Riedel, chief economist for the state.
“We have a really great economy that is being sustained by this business tax relief and it’s an incredible thing for the economy.”
Businesses already have the ability to deduct interest on their payrolls, and there are a number of deductions that businesses can bring back under the bill.
These include state and local property taxes, payroll and sales taxes, business-related insurance and employee-related property taxes.
Riedels point out that some of these deductions are already in place and many businesses have already decided to bring them back.
But Riedes points out that many of the biggest corporations in Hawaii do not pay payroll taxes, and this legislation would essentially eliminate those deductions for those who are not paying.
“So the bottom line is that this is really going to change the incentives for businesses in Hawaii to invest here,” Rieds said.
“It’s really going change the way that business owners are going to invest in Hawaii.”
According to the Center for Hawaii Economy, about 70 percent of Hawaii’s businesses are registered with the state, and the rate of tax for those businesses is significantly higher than the rest of the country.
“The biggest concern for business owners in Hawaii, of course, is that if this goes into effect, they would be unable to bring their payroll tax deductions back, and they are very concerned about that,” Ries said.
Hawaii is also a big market for international corporations, and as a result, there are many international companies that operate here.
According to the University of Hawaii at Manoa, in 2015, Hawaii ranked as the second-largest U.S. state for international business.
That number has increased significantly since then, with many businesses located in the state using the tax credit that is available to international companies.
“In the last few years, Hawaii has been an attractive destination for multinational corporations to locate, because of the competitive nature of the tax regime, and that’s really what this legislation is about,” said Richard Tapp, the director of the Center on International Business and Tax Policy at the University at Manua.
“This is a very important piece of legislation that will help small and medium-sized businesses and multinationals that are here in Hawaii,” Tapp said.
The Hawaii Department of Revenue is working with the Legislative Council on the bill to get it passed into law, and Riedls hopes that it will be ready for Governor David Ige to sign it into law in the coming weeks.