Friday, September 04, 2015


Audit report: virtually unlimited tax credits for businesses cost the rest of us dearly

Tax expenditures are tax credits, deductions, and exemptions that reduce state revenue and cost state treasuries money in much the same way as direct spending.

Hawai‘i did, and still does not, have a statewide total tax credit cap on the amount or value of investment tax credits that can be generated annually or on a program basis.—
Office of the Auditor

by Larry Geller

In an audit report just posted, the legislative auditor blasts the state Department of Taxation for falling behind in its audits of, well, practically everything. It also sheds light on poor legislation that has left Hawaii individual taxpayers out-of-pocket for huge and ongoing high-tech and research tax credits that exceed the enticements that other states are willing to make.

Note below that the tax office now is responsible for reimbursing $2 billion in tax credits (that’s billion, as in “an awfully large amount of money”).

[Disappeared News has long held that Hawaii is not getting a return on its “high tech” investments, which include tax loss due to excessive credits, since firms sooner or later realize that they really need to relocate elsewhere for maximum profit.] [… and of course, we taxpayers foot the bill for the incentives out of our wallets and purses.]

In Report No. 12-05, released in July 2012, we reported that DoTAX performed only a high-level review of tax credit applications, not verifying self reported numbers. Our 2015 follow-up found that oversight responsibilities of the high technology tax credit, along with other high-dollar and high-volume tax credits, such as the renewable energy tax credit, are overshadowing DoTAX’s core oversight functions. According to DoTAX’s tax compliance administrator, department auditors now spend their time responding to taxpayer complaints and inquiries about refunds for high-dollar, high-volume tax credits, such as the high-technology business investment tax credit and renewable energy technologies tax credit. As a result, DoTAX staff are neither auditing tax credit applications nor tax filings as a whole. The compliance administrator told us that DoTAX’s 20 auditors currently have a backlog of hundreds of tax returns targeted for audit; however, the department lacks the resources to carry them out.

In addition, in 2012, we reported that the State had issued and was responsible for reimbursing nearly $1 billion in tax credits; however, approximately three years later, we found that this obligation has nearly doubled, to almost $2 billion. Although the State stopped issuing them in 2010, high-technology tax credits do not have a sunset date; therefore, tax credit recipients can carry over unused credits indefinitely. These obligations impact taxpayers and government services statewide.

[auditor’s report, Credits Continue to Tax the State, 9/4/2015]

Check out the report at the link. It’s only six pages, and it gets worse than this.

The audit notes repeatedly that the DOTAX does not have the resources to do its job. Where have we heard this before? The Department of Health does not have the resources to adequately protect our food supply, including performing restaurant and vendor inspections as often as is needed. The proliferation of illegal vacation rentals and illegal “ohana” dwellings is due to inability to inspect.

From all the evidence available, this is ok with most people, in or out of government. Call it part of the state culture, I guess. Couple this with general ineptitude in utilizing computers and in contracting for computer services, and in many ways Hawaii is distinguishing itself as the state that simply can’t cope.



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