Senate Bill 3125 started off as an Administration bill to repeal the tax cuts that were promised in the 2024 tax cut bill but that haven’t gone into effect yet.  We have written about the House and Senate positions on this before.  The conference version of the bill looks mostly like the Senate version.  The 2024 changes to the standard deduction are left intact.  The tax bracket changes from the 2024 law are left in place for taxpayers making $350,000 or less (for joint filers, $175,000 single).  For those making more, the tax brackets that apply this year will remain in effect.  And, while the House’s proposed 10%, 11%, and 12% brackets did not make the final cut, there is a new 13% tax bracket for taxpayers making $1 million or more (for joint filers, $500,000 single).  The Capital Goods Excise Tax Credit, the High Technology Business Investment Tax Credit, the Renewable Fuels Production Tax Credit, the Technology Infrastructure Renovation Tax Credit, and the Tax Credit for Research Activities were all given sunset dates in either 2028 or 2029.  The Renewable Energy Technologies Credit (for photovoltaic installations, for example) is going to be available with an income limit ($350,000 joint, $175,000 single) and a statewide cap of $40 million until it sunsets on Jan. 1, 2031.

Senate Bill 3028, which was giving us the jitters about a possible massive increase in the conveyance tax, as we wrote about a few weeks ago, died in conference so we won’t have to worry about it for the time being.  It, or something like it, might be introduced next year.

House Bill 2329, which conforms our state tax law to provisions of the One Big Beautiful Bill Act, is on its way to final passage.  Little in the bill has changed since its introduction, and we will give you more specifics in next week’s column.

House Bill 1713 started off as a bill to add an exemption to school impact fees for small developments.  We had written that there was something wrong with the school impact fee system because our Department of Education was collecting the fees but couldn’t use them, allowing tens of millions of dollars to pile up unused.  Earlier committee drafts of the bill would have scrapped the impact fees entirely.  But the final version kept the fee, added a few more exemptions including one for smaller developments, and made the 2025 temporary partial repeal of the fee a permanent partial repeal.  It seems like the Department of Education came in behind the scenes with a big watering can and succeeded in dousing the repeal bill.

And then there is Senate Bill 2921, the raid bill that was introduced to scoop excess balances from hundreds of special and revolving funds.  The Conference Draft of the bill is the first one in which there are actual numbers.  The bill targets 18 funds for a total haul of $47 million, with the two largest victims being the tax administration special fund ($23 million) and the beverage container deposit special fund ($12 million).  This raid bill is somewhat underwhelming, especially given lawmakers’ focus earlier in the session on a $430 million unencumbered balance in the University of Hawaii tuition and fees special fund, which was targeted in Senate Bill 2602 and which we wrote about here.  Senate Bill 2602 quietly died in conference.

Stay tuned for further news next week on the bills advancing toward the Land of Oz.

Tuesday, May 12, 2026
7:30am to 8:30am
The Pacific Club
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Honolulu, Hawaii 96813

Continental Breakfast will be served.

Cost for TFH Members: $40
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Zoom only option: $25

Click HERE to register and pay via Paypal (Paypal account isn’t needed) or scam the QR code below.

Contact Colleen at colleen@tfhawaii.org by or before May 11 if you would like to register and pay by check.

Here is one of the budget bill entries:

This one is for a program in the Department of Agriculture and Biosecurity, abbreviated AGR.  Each department has a three-letter abbreviation, and a list of all of them is at the beginning of the bill.  The specific program is Animal Disease Control, which is coded AGR132.

The two columns of numbers are for the two years in the fiscal biennium, namely fiscal years 2025 and 2026.  In an even-numbered year like this one, changes, denoted by text that is bracketed and stricken through for deletions and underscored text for added material, are usually in the second column only.  The changes are made to last year’s appropriations bill, so text and numbers that are neither underlined nor bracketed are from the 2025 appropriations act.

The numbers with decimals, such as 25.68*, are position ceilings.  This program is allowed 25.68 full-time equivalent positions, with the asterisk (*) denoting that they are permanent positions.  A pound sign (#) is used for temporary positions.

The line following the position count is the monetary appropriation, in this case $3,119,582 with the “A” following the number meaning that it is a general fund appropriation.  The 25.68 full-time equivalent position count is being funded by this general fund appropriation.

The next line is an appropriation for the same program but with a different means of financing, this time “B” funds or special funds.  (A table with the different codes for means of financing appears at the beginning of the bill.)

The next couple of lines show an appropriation of “P” funds, other federal funds, which fund temporary position(s) of one full-time equivalent.

Finally, we see a $7 million appropriation for “C” funds, general obligation bond funds, but only for fiscal year 2025.  But this appropriation is listed under AGS, the Department of Accounting and General Services, instead.  That’s because DAGS usually handles construction projects; further down in the bill you will see that it is for construction for improvements to the animal industry facility in Halawa.

If you think all of this is confusing, you’re absolutely right.  Fortunately, the Appleseed Center for Law and Economic Justice has put together a tool to make sense of it all.  The Appleseed Center also publishes the Hawaii Budget Primer which further explains the budgeting processes and the different kinds of appropriations that appear in the budget.

Understanding the budget is your right as a taxpayer.  It’s (mostly) your money, after all.

This week we are looking at some of the bills that fell by the wayside – although it is still possible for conference committees to resurrect them by adding them to other bills that are still alive.  We are concentrating on bills that had enough support to pass from one chamber to the other; the fact that most of these are House bills simply means that the Senate, this year, was less inclined to move ideas forward for further discussion.

There were bills that proposed new taxes.  The proposed new taxes on concert tickets to support culture and the arts (HB 2604) and on gasoline-powered vehicle sales to support rebates for certain people who buy zero-emission cars (HB 2030) are dead, as is the proposed constitutional amendment to allow the State to add a surcharge to real property taxes, supposedly to support education (HB 2147).  A proposed unrealized gains surcharge in the estate tax (HB 2148) did not receive a hearing in the Senate.

Some bills proposed to hoist tax rates.  A bill proposing to end the lower tax rates on capital gains (HB 1850) kicked the bucket, as did a proposal to increase the barrel tax on fossil fuel products to fund electric vehicle charging systems (HB 1620).  We wrote earlier about several bills that would force rental car companies to pay significantly more in Hawaii Use Tax when they bring in new cars for rental.  There were six of these bills, all based on the premise (a faulty premise, as we argued in the prior article) that rental car companies were benefiting from a tax loophole.  All six variants now sit on the cutting room floor.  And, last but not least, a bill proposed replacing the current liquor tax rates with different rates based on alcohol by volume (HB 1991), although it’s hard to say whether or to what extent rate hikes were proposed because the rates in the bill were blanked out.

Many bills proposed tax credits.  A bill proposing a credit for diaper purchases (HB 2214) was shelved, as was one suggesting a credit for automated external defibrillators in the workplace (HB 1535) and for a qualifying apprenticeship program (HB 1851).  A Senate bill proposed a credit for qualified insurers that offer one or more federally qualified health savings account eligible high deductible health plans (SB 2431).

Owner-occupants, after buying a home, might be stuck with the real property tax classification of the property seller because the sale occurs after the deadline to claim a home exemption from property tax.  A bill to force the counties to adjust the classification immediately (SB 3333) was killed in the House.  That bill may not be a solution anyway, because under our state constitution counties and not the State have exclusive jurisdiction over the real property tax.  (Tell your county council that this issue needs some attention!)

Of course, there is still a lot going on in the session.  Many tax bills are still in play, and we have been reporting about many of them.  We will share more information about the remaining bills in this space.

The last committee to consider the bill with public input was the Senate Ways and Means Committee.  In accord with that committee’s normal practice, the committee did not hold a hearing on the bill because a previous Senate committee had already heard it.  Instead, WAM held a decision-making meeting where written testimony could be submitted but oral testimony was not taken.

We submitted testimony on this bill.  We made the same arguments we made in this space before, and even attached a copy of our previous Weekly Commentary that ended with:  “Someone needs to rewrite this bill or put it out of its misery.”

We also did something unusual.  We rewrote the bill.  We wrote a draft that got rid of the parts of the bill requiring second tax returns and public disclosure.  We replaced them with provisions that would allow DBEDT to conduct a study of tax expenditures with the information that is already on tax returns, like how the federal government allows the Department of Commerce to access IRS tax return data.  We put the redraft in our testimony.

WAM adopted our redraft.

The committee report doesn’t say much about our contribution.  The committee report states simply, “Accordingly, your Committee has amended this measure by:  (1)  Deleting language requiring:  (A)  Taxpayers to file tax expenditure disclosure forms as a condition for claiming certain income tax credits and general excise tax and use tax exemptions; and (B)  The Department of Business, Economic Development, and Tourism to use information from the tax expenditure disclosure forms in their evaluation of the effectiveness of tax expenditures; and (2)  Instead, authorizing Department of Business, Economic Development, and Tourism staff who are conducting an evaluation of tax expenditures to examine income tax, general excise tax, and use tax returns.”

In the decision-making meeting, however, Chair Dela Cruz said:  “Recommendation is to pass with amendments, to take the Tax Foundation’s amendments in testimony.”

No discussion.  Vote taken.  Done.  It all happened in about 10 seconds.

We gave them an off-ramp.  They took it. We, for one, are very grateful that a potential train wreck for Hawaii taxpayers has been avoided.

We are also thankful for those of you who made their opinions known to our lawmakers and supported our efforts at the Foundation.

The job is not over, however.  Conference Committee meetings now begin.  We are hopeful that any conference draft will be similar to WAM’s.

The tax dates back to 1967, in the first decade after statehood.  (Act 10, Hawaii Session Laws 1966.)  At the time the State, not the counties, was administering the real property tax.  Because property deeds tended not to disclose the actual sales prices (they said things like “For $1 and other good and valuable consideration” when they mentioned what the real property was being sold for), real property assessors needed data on which to make market value assessments.  So, it was decided to impose a rather small tax — it was half a mill, or 0.05 cents, per dollar of consideration.  If the property was sold for $1 million, for example, the tax would have been $500.

Over time, the conveyance tax was hiked several times, leading to the structure we have today.  Today we have tax brackets, but not with marginal tax rates like we have in income tax.  For example, a property sold for less than $1 million is taxed at 20 cents per $100 and a property sold for $1 to $2 million is taxed at 30 cents per $100.  When the sales price is $1 million, the tax is $3,000; if it’s a shade less, then the tax is a little less than $2,000.  The jumps in tax due get larger and larger with the higher tax brackets.

In this legislative session, there are two bills moving that would change the conveyance tax structure to a marginal rate, where hitting a new tax bracket would only expose the price in excess of the bracket amount to the higher tax rate.  These bills are House Bill 2049 and Senate Bill 3028.  The description of both bills contains similar language:  “Restructures the conveyance tax to a marginal rate system for the sale of properties with residential use, adjusts the tax for multifamily properties to reflect value on a per-unit basis, and applies a cost-of-living adjustment to conveyance tax rates.”

The last part of the description is already scary:  “Applies a cost-of-living adjustment to conveyance tax rates.”  Yes, we have inflation going on, and yes, that means a dollar we have today isn’t worth as much as a dollar we had last year.  I can understand increasing amounts, like fee amounts or bracket amounts, for inflation.  But rates?  There is no similar reason why rates need to be increased with inflation.  Taxing an amount higher because of inflation yields a higher tax even if the rate is the same.  So, what they are saying is that there will be tax rate hikes.  Yikes!

A second reason for dread is that both bills don’t tell us what the politicos have in mind.  The rates and the brackets in both bills are blank.  Yes, these are “Blankety Blank” bills that we have often mentioned and just as often reviled.  With the bills in their current state, it’s impossible to tell if they want to raise rates 10%, 100%, or even 1000%.  Previous versions of the bills that did have numbers in them, however, called for substantial tax hikes.  The House bill as originally introduced contains a maximum tax rate of 6%, more than four times the current maximum tax rate of 1.25%.  The Senate bill as originally introduced contains a maximum tax rate of 4.1%.  The only other version of the bill that contains numbers is House Draft 3 of the House bill, which contains a maximum tax rate of 9.5%.  Even more scary!

If either of these bills are to pass, it doesn’t seem like numbers are going to be put in them until Conference Committee, which as we know neither requires nor accepts public input.  So, we wait nervously for the door of the crypt to open and then we can finally see the monster that comes out.

One of them, House Bill 2604, would have slapped a new $1 per ticket tax on concert tickets on top of the general excise tax that ticket sellers already pay.  The incremental revenue from the bill, in theory, would have given a shot in the arm to the State Foundation on Culture and the Arts.  Although that bill crossed over from the House, it did not survive a joint hearing in the Senate.

The other bill, House Bill 2030, revolved around a Robin Hood concept, namely robbing from one class of taxpayers to reward another class.  The bill’s reward was a rebate for taxpayers purchasing or leasing an electric or alternative fuel vehicle.  A new zero-emission vehicle would get a rebate of $5,000, a new plug-in hybrid would get $3,000, and used clean energy vehicles would earn $2,000.  Except that if a taxpayer made more than 300% of area median income, the taxpayer would not be eligible for the rebate, and if a taxpayer made more than 200% of area median income the taxpayer would not be eligible unless the Department of Transportation extended the rebate upward if funds were available.  (For comparison, the area median income for a family of four for urban Honolulu is $152,000.)  The bill also directs HDOT to offer an additional rebate of $2,000, over and above the $5,000, $3,000, or $2000, to low- and moderate-income households.

The scary part of the bill is how these rebates are funded.  The bill would impose a new tax on the sale of new or used gas-powered vehicles, including hybrids with batteries.  The bill creates three tiers of tax based on miles per gallon.  However, the beginning and ending MPG limits are blanked out in the bill, as are the tax rates.  So, we don’t know if the bill seeks to impose an additional tax of 1%, 10%, or 100%.

This, by the way, is what we call a Blankety Blank bill, as we have written about before on many an occasion.  In an article from 2019, our own Hawaii State Tax Watch Doggie coined the term.  How is it even possible to pass something like this, with blanks obscuring the truly important information in the bill?  Are legislators voting on a small tax hike, a medium one, or one of Brobdingnagian proportions?  Even the legislators themselves can’t know.  They can just trust that acceptable numbers will be inserted at the appropriate time – during conference committee negotiations, most probably, where public input is neither requested nor allowed.

This session, the Senate Transportation Committee saved all of us the trouble of worrying about this bill’s fate.  It deferred the bill.  The committee chair noted that the Ways and Means Committee, which is next in line to consider the bill, refused to hear the Senate companion bill that her committee passed out earlier this session.  That committee “is not in the mood, at least for now, to do this,” she said in announcing the deferral.

That, of course, is no guarantee that the bill is dead.  It might get resurrected this session if it, in Frankenstein fashion, is grafted onto another live bill.   Or it could be reintroduced next session.  Is it what we as the people of Hawaii want?  Is it what you want?  Then let your legislator know!

One bill still moving in the Legislature, House Bill 2429 House Draft 2, would change all of that.

That bill has what seems to be a noble purpose of collecting good and accurate data to evaluate the dozens of income tax credits and general excise tax exemptions that we now have.  “Regular evaluation strengthens accountability, supports sound budget decisions, ensures equitable competition, and ultimately maximizes benefits for taxpayers,” the bill preamble reads.  So far, so good.

To gather this data, the bill says that people who are claiming credits and exemptions hereafter need to file an information statement with DBEDT.  That statement would contain the taxpayer’s name, GE license number if it is a GET exemption, the name of the credit or exemption being claimed, the amount of credit or exemption being claimed, and the total cost to the State for the taxable year.  This statement would be filed on or before the date on which the taxpayer’s annual return is filed, and filing the statement would be a condition of claiming the credit or exemption, meaning that if you don’t file this statement in addition to your tax return, the credit or or exemption that you are trying to claim will be disallowed.

And, by the way, the statement filed with DBEDT is not confidential.  It is open to public inspection.

Whoa.

So, according to this bill, it isn’t enough to file just one tax return any more.  You need to file two of them.  And one of them will be open to the public.

This bill is going to affect lots more people than, perhaps, its proponents intended.  Suppose you are an employee making $50,000.  You might not know this, but you are taking advantage of a GET exemption (HRS section 237-24(6)) for salaries and wages.  That’s why you don’t have to file a GET return.  So, under this bill you need to file a public statement declaring your salary, and if you don’t your $50,000 becomes subject to GET.  $2,250 please.  Plus penalties and interest, of course.

Never mind that the State Auditor is already tasked with evaluating these same credits and exemptions on a rolling basis.

And what’s the theory behind requiring a taxpayer to disclose not only the credit or exemption amount but also the cost to the State?  Isn’t that easy enough to calculate just from the credit or exemption amount (credit amount = cost to the State, exemption amount x tax rate = cost to the State)?

It seems that the information the State needs to analyze the revenue impact of credits and exemptions is already filed with the tax returns.  Why, then, don’t we simply open the information pipeline from DOTAX to DBEDT to allow them to pull statistics to do their data analyses?  This is what the Feds do.  Internal Revenue Code 6103(j) says that certain agencies such as the Department of Commerce may access statistical tax return information to do their analyses and studies.

Somebody needs to rewrite this bill or put it out of its misery.

The House and the Senate passed modified versions (HB 2306 HD1, SB 3125 SD1) of the governor‘s “stop, not pause“ bill on the scheduled income tax cuts. We wrote about that last week.

Both the House and the Senate advanced bills to create credits or tax incentives for many different things, including sustainable aviation fuel (HB 1694 HD2, HB 1695 HD2), diapers (HB 2214 HD2), family caregiving (HB 1972 HD2), and automated external defibrillators (HB 1535 HD2).  There is also a bill to limit the credit for solar or wind energy by making higher income taxpayers ineligible for it (HB 2241 HD1, SB 3183 SD2).

One House bill would also end the lower tax rates on capital gains except for folks selling an owner-occupied home(HB 1850 HD2).

Although bills that would have legalized and taxed gambling and non-medical marijuana are dead, bills to create new taxes are still alive. One adds a $1 surcharge on theater and concert tickets (HB 2604 HD2) and another adds a surtax on selling gas-powered cars (HB 2030 HD2). The latter is a bit scarier because the tax rates in the bill have been blanked out.

Also, do you remember back in 2018 when the Legislature proposed a constitutional amendment to slap a state tax on certain types of real property (although they took great pains to avoid using the word “tax”)? The Hawaii Supreme Court struck that one down in 2018, but a new and presumably improved version of the bill is still alive (HB 2147 HD2), so this question may be on your 2026 general election ballot.

Both the House and the Senate have passed proposals (HB 2049 HD3, SB 3028 SD2) to overhaul the conveyance tax, which is charged when real estate is bought, sold, or leased.  The proposals would make it a marginal rate system just like the income tax. However, the House version would raise rates considerably and the Senate version has blank rates.

One House bill (HB 1590 HD3) would require services booking vacation rentals to collect and pay over the GET and TAT on behalf of individual property owners and operators.  The Department of Taxation proposed the same thing in one of its bills, but that bill did not survive.

Another bill (HB 1713 HD1) would repeal school impact fees, which, as we have said before, are gathering dust within the Department of Education because of restrictions on their use.  Last year, a bill to do this was watered down at the last minute.

And, last, but at least, there are bills that will “raid,“ or transfer into the general fund, balances from oodles of special funds. One Senate bill (SB 2921 SD1) would raid more than 160 different funds, although the amount to be taken from each is not yet specified, and another bill (SB 2602 SD1) focuses specifically on the University of Hawaii Tuition and Fees Special Fund, which at the end of last fiscal year had an unencumbered balance of about $430 million. We would certainly like to see any excess monies being put to good use before the legislature raids taxpayers’ pockets yet again.

Stay tuned for more reports from us as the Legislature continues its work.

The House and Senate money committees heard that bill independently.  Both committees opted to make substantial modifications to it before moving it forward.  What will likely follow will be a bit of negotiating, most of which will occur behind closed doors, which will result in adoption of the House version, the Senate version, the Administration version, or some hybrid of the three.  Whichever version is adopted will, of course, define our State income taxes for the next several years.

So let’s take a closer look at the contenders.

House Bill 2306 House Draft 1 scuttles the scheduled bracket changes for 2027 and 2029, as was done in the Administration version.  In addition, effective 2027, the bill proposes to keep the 2025 brackets but raise the tax rate on the top three brackets from 9%, 10%, and 11% to 10%, 11%, and 12% respectively.  The changes kick in for single taxpayers making $225,000 in taxable income or joint filers making $450,000.  However, the bill proposes to keep the scheduled changes to the standard deduction amount and not cancel them as was done in the Administration bill.

The House Finance Committee explained:  “Your Committee finds that the tax relief scheduled to take effect pursuant to Act 46, Session Laws of Hawaii 2024, particularly the income tax bracket amendments, would provide significant benefits to a broad base of taxpayers but create substantial, recurring reductions in general revenues during a time of mounting fiscal pressures.  By repealing portions of the scheduled income tax relief at this time, this measure protects the State’s long-term fiscal stability.  Your Committee further finds that this measure proposes instead tailored tax relief to low- and moderate-income families by enhancing and extending previous enhancements to the Household and Dependent Care Services Tax Credit and extending enhancements to the Earned Income Tax Credit and Food/Excise Tax Credit.”

On the other side of the ring is Senate Bill 2518 Senate Draft 1.  That version keeps some of the planned cuts for 2027 and 2029, but for single filers making $175,000 and joint filers making $350,000, it imposes the brackets as we have them now:  an 8.25% bracket starting at $350,000 (joint), a 9% bracket starting at $450,000, a 10% bracket starting at $550,000, and an 11% bracket starting at $650,000.  This bill also proposes to keep the scheduled changes to the standard deduction amount and not cancel them.

In addition, this draft would get rid of many of the business-related tax credits that now exist in the income tax law:  the Renewable Energy Technologies Income Tax Credit, Capital Goods Excise Tax Credit, High Technology Business Investment Tax Credit, Renewable Fuels Production Tax Credit, Technology Infrastructure Renovation Tax Credit, Ship Repair Industry Tax Credit, and Tax Credit for Research Activities.

The common thread here is that both money committees appear to be preserving the benefit of the scheduled tax cuts for the working families but don’t have much sympathy for the wealthy.  Where “working families” stop and “the wealthy” starts is, of course, a matter of debate.  The House seems to start it for a couple making $450,000, while the Senate would start it at $350,000.  This great taxing debate is now playing out at the Legislature.  If you have an opinion on the matter, better talk to your legislators now.  Once the measure becomes law, it’s too late.