Gas tax returns Jan. 1

The Maui News
Thursday, December 21, 2006

By HARRY EAGAR, Staff Writer

KAHULUI – When the 4 percent general excise tax on motor fuel was suspended in April, it "kind of got lost in the shuffle" because overall petroleum prices were changing so much, said Paul Hanada, owner of Aloha and Ilima Shell.

But when the exemption expires at midnight on New Year's Eve, motorists will immediately notice that the GET is back – at current retail prices, the tax will add 8 to 14 cents to the price of a gallon of regular.

For years, the state had a law exempting gasoline blended with renewable ethanol from the GET. It didn't matter, because no gasohol was being sold. That changed on April 1 when a new law went into effect requiring that at least 85 percent of motor fuel sold in the state contain at least 10 percent ethanol.

Gov. Linda Lingle asked the Legislature to make the excise tax exemption for gasohol permanent during the last session, but lawmakers did not accept that part of her energy package.

State Sen. J. Kalani English, chairman of the energy committee in the 2006 Legislature, said he supported continuing the exemption and expects legislators will review the issue again in the session that opens Jan. 17.

He said the debate over the exemption focused on its purpose, which had been to encourage production and use of an ethanol blend and not just to provide a break to consumers on the price of gas.

"The question is, do we need a general excise tax exemption on any type of product to promote it," he said. "With gasohol, we have a mix now with the 10 percent mandate for fuel sold in the islands, and production facilities are being developed. Is the exemption still required to make it work for the people producing it?"

At the same time, English said there is a valid argument that incentives are still needed for development of alternative fuels.

"There may be some merit to saying it should be extended more because we know the production facilities are a little behind. It's worth looking at and I think we will revisit it," he said.

State Tax Director Kurt Kawafuchi said Wednesday that the exemption during the nine months of 2006 is expected to cut $32 million from state general fund revenues, roughly 6 percent of the estimated $5 billion in general fund revenues for 2007.

That was the estimate based on 85 percent of sales being exempt. If all fuel sold at retail were gasohol, the exemption would have cut gas bills for motorists by about $36 million this year – which is what it will cost them in 2007, assuming gas prices remain stable.

The Legislature could renew the exemption. Kawafuchi's staff was working on its legislative package Wednesday that is expected to include a renewed bid to exempt renewable motor fuels.

While the purpose back in 1980 was to encourage development of renewable fuels – in Hawaii's case, alcohol distilled from molasses – ethanol acquired a new purpose – to help oxygenate gasoline to reduce harmful emissions. While that reduces mileage, it makes the air cleaner.

Alex McBarnet of Maui Oil Co. said ethanol "will be with us forever" because of its usefulness in controlling emissions, apart from whatever role it has in reducing Hawaii's dependence on imported fuels.

The 4 percent general excise tax is actually higher to most consumers. Because the state demands 4 percent of the retailer's gross sales, including the amount collected as state tax, retailers are allowed to add what the state is charging leading to an actual tax charge of 4.166 percent.

Hanada notes that of all retail products, gasoline or gasohol is the only one where the retailer gets to deduct the other taxes before applying the 4.166 percent.

That's because there are so many other taxes already imposed on motor fuel, although the fuel tax is specifically designated for transportation services rather than the governments' general funds.

The feds take 18.4 cents per gallon in gasoline tax, the state takes 16 cents, Maui County takes 16 cents, with the revenues going to the federal, state and county transportation special funds. The 4.166 percent general excise tax goes to the state general fund.

When the GET is again added, the total tax per gallon will be around 60 cents, depending on the price of gas. On Maui, where a gallon of regular is running about $3, the general excise tax will add 10 cents to the price per gallon; on Lanai and Molokai, where a gallon is closer to $4, the added tax will run 12 to 14 cents.

On Oahu, the City and County of Honolulu gas tax is also higher at 16.5 cents. Beginning Jan. 1, Oahu gas retailers also will be charging a 4.5 percent excise tax – with the half percent general excise tax surcharge authorized by the last Legislature to fund a public transit system.

While he supports exempting gasohol from the excise tax, English said taxes are not the only factor in the high cost of gas.

"The price of gas is also going up because oil is a scarce commodity and when there is a scarce supply and high demand, the prices will go up," he said. "That is a reason to support development of alternatives."

City Editor Edwin Tanji contributed to this story.

Harry Eagar can be reached at heagar@mauinews.com.

Copyright © 2005 The Maui News.

Original article URL: http://mauinews.com/story.aspx?id=26129

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