New bills would impact Hawaii nonprofits

By John Flanagan
Hawaii Alliance of Nonprofit Organizations

Four bills have been newly introduced in the Hawaii Legislature that would have widespread affects on Hawaii nonprofit organizations. The bills fall into two general areas: tax relief and nonprofit accountability.

General Excise Tax exemption on fundraising

Two bills introduced in the Senate and one in the House would exempt fundraising by charitable organizations from state excise tax in a variety of ways. Currently, all gross revenues from fundraisers are taxable, whether they are deductible for individuals filing income tax returns or not. The tax rate is 4.5 percent on Oahu and 4 percent on the other islands.

• Senate Bill 873, introduced by Senators Donna Kim, Norman Sakamoto, Fred Hemmings, Sam Slom, Gary Hooser and Les Ihara, would exempt fundraiser proceeds that exceed the fair market value of the products or services donated or provided.
• House Bill 847 would also exempt from G.E.T. the proceeds from fundraisers that are also exempted from federal income tax. It was introduced by Representatives Michael Magoay, Faye Hanohano, John Mizuno, Alex Sonson, Jerry Chang, Pono Chong, Sharon Har, Bob Herkes, Jon Riki Karamatsu, Joey Manahan, Karl Rhoads, Ryan Yamane and Kyle Yamashita.
• Senate Bill 1207, introduced by Senator Sam Slom would exempt fundraising revenues from general excise tax entirely.

Extending Sarbanes-Oxley-like provisions to nonprofits

Senate Bill 73, introduced by Senators Rosalyn Baker, Shan Tsutsui, Les Ihara, Jill Tokuda, David Ige, Ron Menor and Carol Fukunaga, would amend the Hawaii Nonprofit Corporations Act to require nonprofits with annual revenues exceeding $1 million to implement federal Sarbanes-Oxley-like provisions including requiring independent audit committees and generally accepted accounting principles.

It would also establish whistle-blower protections, hold officers who sign financial statements and reports responsible for understanding them and ensuring their accuracy and completeness, require filing of annual audits with the state and mandate the attorney general to sue nonprofits that do not file complete and accurate reports and audits.

Asked for his impression of SB 73, Hugh Jones, Deputy Attorney General, said the AG's office "might support external audits for 501(c)(3)s at some level of annual income but I would need to talk to our AG and others first." He added: "The whistleblower protections seem duplicative and I'm not sure an audit committee is a one-size-fits-all thing." The federal Sarbanes-Oxley Act extends whistle-blower provisions to nonprofits already.