The Hawaii State Tax Watch Doggie came to me with an unusual question.
“Can the State tax itself?”
“I’m not sure,” I replied, “but why would anyone care?”
“You remember there’s a bill that the Legislature passed, SB 3201, that would make a big change in how nonprofits pay general excise tax?”
“Yes, I’m aware of that one.”
“Rumor is that the University of Hawaii is scared of it because someone has been telling them that the research grants they get would be exposed to GET.”
“That’s ridiculous. First of all, governments don’t pay taxes. Taxpayers pay taxes.”
“What says they can’t?”
“I don’t know if there’s something that says they can’t. But they don’t. Why tax a state agency? It’s putting money from the right pocket to the left pocket. Entirely pointless.”
“Oh, but there might be a point. Someone might want to move money from special funds, which can be only used for certain things, to the State’s general fund, which can be used for anything.”
“There are much easier ways to do that. They can just enact a law moving the money between the funds. They did that in 2021.”
“But what if they wanted to be devious about it?”
“There’s already a law like that. It charges each special fund a maintenance fee, and siphons that money back to the general fund.”
“But if the Tax Department wanted to be inefficient and devious and really wanted to get a piece of the UH research grants, could they do it?”
“There would be problems. The Department issued a Tax Information Release in 1989 saying that our Department of Education and its public schools are not taxable entities subject to the GET.”
“Hmmm, I see. It’s tough to say a public school is never taxable while a public university is. But if the Department doesn’t like that precedent it can always change it, right?”
“In theory, I suppose. But then they’d get criticized for upending precedent just like the U.S. Supreme Court is under fire now.”
“Plus, no state agency files tax returns now, and I think they’d be furious if the Tax Director says that they need to.”
“Especially for the back years. If you need to file a tax return and you don’t, there is no statute of limitations so they would have to file tax returns for periods before the agency workers were even born.”
For some reason, the Doggie found that funny. He was rolling on the floor, then breaking into a coughing fit.
“You okay, Doggie?”
“Just getting old, I guess. But if you’re wrong on this, so help me I’ll jump up on your face and bite you on the schnozz!”
Tom Yamachika is president of the Tax Foundation of Hawaii.
