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Effort requiring tax payments for online sales seems futile

By Cynthia Oi

LAST UPDATED: 6:27 p.m. HST, Aug 5, 2011

With Hawaii income tax returns due next week, islanders have gathered all their receipts and bills of sale from Amazon, Crutchfield, Bluefly and L.L. Bean in preparation for filling out Form G-26.

They have checks and debit cards ready to pay the general excise taxes they owe from having bought books, turntable needles, Chan Luu jewelry and foot-boot waders online from these and other out-of-state retailers because that's what state law requires.

True or not?

Not to cast insults, but I'm willing to bet that the majority of local consumers are Internet tax scofflaws, quietly taking delivery of stuff via mail or UPS and evading their 4 percent — 4.5 percent on rail-bound Oahu — tax obligations. Few Form G-26s, the one detailing taxes due, will accompany N-11s and N-13s filed with the state's bean counters.

The state Legislature also thinks that's true, with the House proposing a bill to force online retailers either to collect the tax and forward the cash to Hawaii when someone from Kapaa buys catnip from a dealer in Milwaukee, or make a list of buyers, the dates of purchases and the amount spent.

That's too much information for the government to have, particularly since the data provide peeks into personal lives.

Senators, meanwhile, prefer the state join the Streamlined Sales Tax Project, which encourages online and mail-order retailers to collect local taxes. "Encourage" being the operative word; only 1,400 retailers have tied into the project, bringing into question the efficacy of the effort. Estimates of lost revenue to the state range from $30 million to $122 million a year, at a time when lawmakers are on the hunt for every nickel and dime to plug a budget deficit.

Retailers with stores in the islands complain that because they have to pay the excise tax, which they pass on to consumers, online and catalog businesses from elsewhere leave them at a price disadvantage. They say that's not fair.

However, none can deny that Internet sales offer consumers convenience and, more importantly, a wider choice of goods that brick-and-mortar retailers don't or won't carry on their shelves and racks.

For women and men with certain body types, finding clothing at department stores is near impossible, and pleas for size 4 women's shoes without pink-and-purple Barbie designs fall on deaf ears because such retailers sell to the masses. If no store from Hilo to Kona carries turntable needles, shouldn't an LP fan in Naalehu be able to buy one online?

If it is unfair for online dealers to sell without the applicable excise tax, it is also unfair that the way they calculate shipping costs to these fair islands can double the price of catnip to Kapaa. Which begs the question of whether equity should factor in when retailers live and die through competition.

What the issue gets down to is that without an ability to enforce the excise tax collection law, it really makes no sense. As with many laws, legislators fail to think through problems when buying into a solution.


Cynthia Oi can be reached at

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