Developments during this COVID crisis have sparked tax ridicule in some of the most unexpected ways.
The state has set up a Rent and Housing Support program to help people affected by the pandemic with their rent or mortgage payments.
Affected individuals earning less than 100% area median income (from $ 83,300 on the Big Island to $ 125,900 on Oahu for a family of four) may apply. If their application is approved, the state pays their landlord or lender directly.
There is a small catch, however. Some landlords refuse the money. Which makes one wonder what will happen to the tenant when the state eviction moratorium expires at the end of the year.
Why are they refusing the money? In an article by Honolulu Star Advertiser, Gavin Thornton, executive director of the Hawaii Appleseed Center for Law and Economic Justice and a member of the House Select Committee on Economic and Financial Preparedness for COVID-19, said:
(S) Some of the landlords are unwilling to join the program and don't want to opt out to receive the payments – allegedly because they don't have their GE (General Excise) license.
They don't pay their taxes on this rental income. This is potentially an issue that could prevent tenants who would otherwise be eligible for the program from not getting the funds they really need. We sincerely hope that ultimately these tenants will somehow have access to these resources.
How much is rejected? According to the article, eight million dollars. With a rent back amount per application between $ 4,400 and $ 6,000, we're talking about maybe 1,500 to 1,700 landlords in this position.
I have absolutely no sympathy for the landlords who apparently want to continue flying under the radar. The general consumption tax was applied to rents from the beginning. It is clearly included in the Territorial Tax Department's documentation, which was created in 1935. Even my father used to pay general excise tax on rental income – at a time when I was too young to go to kindergarten and wasn't able to tell him so. He found out what the law was and followed it. Why didn't these people do the same?
My advice to these landlords is to come clean now. There will be pain that you deserve. But there will be more pain if you wait. After the Treasury Department finds out there is a swamp here, it won't be long before they come back with the dredging equipment.
The same news goes for those who are getting money from short term vacation rentals. You have to pay taxes like the rest of us. By the way, the state is already aware of this swamp and has mobilized the excavators. They pumped rental platforms and property management companies to get information on who their customers are and how much they are getting paid. The state can and has subpoenaed the information so that companies have no choice but to provide this information.
To recap, if you are in the swamp, please come clean. It is not fair for the rest of us who obey the law and pay taxes to be forced to offset the taxes you owe that you didn't pay. Then please accept the money the state is willing to pay you, which should help alleviate the financial troubles that arise when you make up for the years you haven't paid, and blame the renter do not ask for help and you expose the rest of the process.
Tom Yamachika is President of the Hawaii Tax Foundation.