“A lot of people go through life thinking that they don't have any control, that life is just happening to them. But that's not true.” - Jason Silva “Another way to lose control is to ignore something when you should address it.” - Jim Evans

1. STATE OF HAWAII
TO TAX OR NOT – THE ISSUE
WORDS OF WISDOM
Honolulu Mayoral Candidate Charles Djou vs. Honolulu Mayor Kirk
Caldwell. HAWAII FREE PRESS: The Difference is Djou Won’t Raise Taxes.
TO RAISE TAXES OR NOT RAISE TAXES
WHO IS RESPONSIBLE?
WORDS OF WISDOM
Honolulu Star Bulletin. Special Edition. Saturday, August 9, 1997. Broken
Trust. http://archives.starbulletin.com/specials/bishop/story2.html
Hawaii has a tradition of tolerance and quiet
acceptance of others. In the island way, it often is
considered disruptive -- even rude -- to speak out.
So silence is understandable.
But we recently were moved by Kamehameha
President Michael Chun's remarks to this year's
graduating class: "As I look at you now, I see a
maturity that allows you to recognize problems
when you see them, and a determination to be a part
of their solution. You are willing to speak up and
take risks. You are ready to stand by the people and
the institutions in which you believe. And for this, I
am forever proud of you."
By demanding accountability now, the community
can illustrate to all the keiki o ka aina the true
meaning of these inspiring words.

2. The Asian Business Lawyer, Volume 17, Spring 2016. Adrian Catalan, JD
Candidate (University of Hawaii at Mānoa, William S. Richardson School
of Law, 2017), Mergers and Acquisitions in Hawaii: Potential Obstacles for
Asia-based Investors.
Hawaii can only grow so much internally before it
hits inherent growth limits. It must diversify and
expand outwards on an international spectrum to
achieve the scale and scope necessary to sustainably
support a burgeoning economy. However, certain
well established industries and individuals in
government are “doing quite well in this
environment and have no incentive to change or
improve Hawaii’s ability to compete economically,”
Slom [Hawaii Senator Sam Slom] added. To this
end, he elaborates that, “too many elected officials,
policy advisers, and special interest advocates
choose to ignore the economic realities of how
government can and does affect entrepreneurship,
business, and investment.” Because of a reluctance
or resistance to further engage external sources of
financing, business ventures, and partnerships,
foreign investment does not enter Hawaii as nearly
as much as it could, reinforcing the status quo.
Without government and local leaders embracing
change in the system, the regulatory process
remains prohibitive, without an adequate and
receptive system for foreign business; Hawaii
continues to shun millions in overseas investments.
The foreign interest in Hawaii is already present, as
waves of Asian investors flock to the best place to
park their investments, but because the state has
not yet capitalized on the opportunity, local citizens
and businesses bear one the U.S.’s worst regressive
taxes. [Clarification Supplied]

3. For the past several years in a row, Hawaii has been
ranked in the bottom three states for the worst state
to conduct business. Besides the cost of living and
economy, the regulatory system (or lack thereof),
tax regime, and brain drain are arguably the most
problematic governing frameworks for businesses in
Hawaii. Hawaii’s imposing and burdensome tax
structure places it as thirty-first in the nation,
perpetuating its stagnant economic performance.
Hawaii’s overly complex, multi-tiered, and
punishing tax code makes it challenging to do
business and difficult to navigate the requirements
of state departments. The first obstacle for M&As is
to understand the General Excise Tax (GET), which
essentially is an “additional tax [of 4.5 percent on
Oahu and four percent on neighbor islands] on top
of federal and state income tax on the gross income
of most businesses.” However, a specific distinction
differentiates the Hawaii GET from other states’
taxes. Unlike retail sales tax that falls on the liability
of the customer and where the business acts as an
agent in the collection of the tax, the Hawaii GET
also taxes the business on the amount passed to the
customer. Normally the tax amount would get
passed down to the customer, however, Hawaii’s
price competitive environment may lower prices
such that the “profit margin for goods and services
may not be sufficient to cover the cost of the tax
paid out on the mark up.” Even if the M&A is able to
weather the additional expense of the GET, it will
likely still cut into potential maximized revenue as
an added cost of doing business. HRS § 237-2
defines business and engaging in business for the
purposes of the GET.

4. Non-exempt businesses must apply for a GE Tax
License via Form BB-1, and pay monthly, quarterly,
or semi-annually based on the business’ GE Tax
amount while filing G-45 and G-49 forms for
periodic and annual tax returns.
With multiple tax brackets, a top marginal income
tax, and failure to index corporate taxes for
inflation, Hawaii perpetuates an unwieldy state
system that foreign investors often have little idea
on how to negotiate. Critics of Hawaii’s tax system
note that while the state ranked tenth overall for
corporate tax in the U.S., it placed thirty seventh for
individual income tax, demonstrating a disparity
between more lenient policies for the big and
wealthy while subsequently punishing small
businesses. However, in the recent Hawaii case over
occupancy taxes where online booking agencies had
to pay the state in back taxes, this type of taxing on
business travel is counterintuitive and in the future
may hurt tourism. Another blunder was the now
defunct Act 221 where in order to promote high-
technology business investment, the state gave out
$1 billion dollars of tax credits without not invoke
investor confidence in a governmental system that is
unable to effectively or efficiently regulate its own
local businesses.
While the intricacies of in-depth tax reform are
beyond the scope of this paper, improving the
quality of the state departments and streamlining
resources for foreign investment into a separate tax
office would go a long way towards transparency
and ease of doing business.

5. Hawaii could consider implementing Pigovian taxes
where activities that cause negative externalities are
taxed according to the difference between the
private cost and the social cost. This type of tax
scheme would “punish” those activities or
operations that have spillover costs and the revenue
allocated towards making Hawaii a more business
friendly environment.
Source: The Asian Business Lawyer. Archives, Vol. 17 (Spring 2016).
Mergers and Acquisitions in Hawai'i: Potential Obstacles for Asia-based
Investors. http://asianbusinesslawyer.korea.ac.kr/xe/main?ckattempt=1
_____
The State Constitution, Article V, Section 1, vests
executive power of the State in the Governor.
The Governor is the Chief Executive of the State of
Hawaii and is responsible for the faithful execution
of the laws of the State and the effective
performance of the executive branch of the state
government. The Governor establishes the broad
goals of the State and determines the priorities for
achieving those goals. The Governor provides
community, executive, and political leadership for
the people of the State, plans for the development of
the State and its resources, and provides for the
general well-being of the people. The Governor
directs the development of the executive budget and
the generation of recommendations for revenue-
producing measures and programs, which are
submitted to the Legislature for each fiscal
biennium, and administers the execution of the
legislatively approved budget.

6. STATE GOVERNMENT
ELECTORATE
↓
GOVERNOR - LIEUTENANT GOVERNOR
ǀ
ACCOUNTING AND GENERAL SERVICES
ǀ
AGRICULTURE
ǀ
ATTORNEY GENERAL
ǀ
BUDGET AND FINANCE
ǀ
BUSINESS, ECONOMIC DEVELOPMENT AND TOURISM
ǀ
COMMERCE AND CONSUMER AFFAIRS
ǀ
DEFENSE
ǀ
HAWAIIAN HOME LANDS
ǀ
HEALTH
ǀ
HUMAN RESOURCES DEVELOPMENT
ǀ
HUMAN SERVICES
ǀ
LABOR AND INDUSTRIAL RELATIONS
ǀ
LAND AND NATURAL RESOURCESǀ
ǀ
PUBLIC SAFETY
ǀ
TAXATION
ǀ
TRANSPORTATION
Source: GUIDE TO GOVERNMENT IN HAWAII (Fourteenth Edition) Revised by
CLAIRE MARUMOTO, Research Librarian. September 2013. Legislative Reference
Bureau, State Capitol, Honolulu, Hawaii. http://lrbhawaii.org [Emphasis Supplied]