House Bill 1900 would eliminate tax exemption for Hawai‘i nonprofits

UPDATE: Following the Feb. 28 hearing on House Bill 1900, the House Finance Committee voted to defer the bill.

IF PASSED as introduced, House Bill 1900, introduced in the Hawaii Legislature by Representative Pono Chong, would eliminate virtually all Hawai‘i tax exemptions and tax credits effective Dec. 31, 2008, including the General Excise Tax exemption for 501(c)(3) charitable organizations and excluding only those pertaining to individual income tax. The bill would subject the $3.8 billion in annual revenue of Hawai‘i’s nonprofits to Hawai‘i GET, resulting in an estimated $170 million in additional revenue to the state, but a loss for nonprofits of 4 percent or more.

At a House Finance Committee hearing on Feb. 28, representatives from the nonprofit, hotel, real estate, shipyard, film, high tech and other industries and a number of state agencies all testified against the measure, including the Hawai‘i Alliance of Nonprofit Organizations. Only the Hawai‘i State Teachers Association testified “in favor of the spirit of the bill,” arguing that additional state revenues are needed for public education.

The bill reflects a Tax Review Commission recommendation to eliminate the tax exemption for federally tax-exempt organizations to garner additional revenues for the state. The commission meets periodically to review state tax law and recommend changes.

HANO testimony opposing the bill pointed to a 2006 Hawai‘i Community Foundation study that found total revenues for Hawai‘i’s charities grew by only 5 percent in the five years from 2000 to 2005.

“On average, nonprofits here have less purchasing power today than five years ago. The proposed repeal would virtually wipe out that meager revenue growth and leave these organizations using 2008 dollars to pay 2008 prices from checkbooks frozen at 2000 levels,” John Flanagan, HANO president, told the House Finance Committee.