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Suspension of exemption triggers new Matson fee

By Gene Park

LAST UPDATED: 3:53 a.m. HST, Jun 16, 2011

General excise tax exemptions for many commercial activities will pause from July and through 2013, and local businesses are looking at how it will affect their bottom lines.

Gov. Neil Abercrombie Tuesday signed into law Senate Bill 754, which changed the tax code to increase revenue to help reduce the state's budget deficit.

Contractors are saying the new law will increase the cost of construction and housing and add cost to shipping.

On July 10, Matson will tack on a $52 fee per container on all cargo moving to and from Hawaii, according to a letter sent to its customers. The company calls it a general excise tax arbitrary charge.

Alexander & Baldwin officials have warned that lifting the exemption for the amounts received from the loading and unloading of ships could increase the cost of imports and exports.

"Our intent is to recover only the additional costs that result from the state's action," the letter states. "Unless the Legislature further extends the suspension, the exemptions would be reinstated in 2013 and Matson would remove the general excise tax arbitrary charge at that time. We also will review the amount of this charge annually to ensure that it recovers only the additional tax costs we incur."

The new charge will also be added to neighbor island cargo, which already has a $13 excise tax fee, for a total fee of $65.

When asked how Matson arrived at the $52 figure, spokesman Jeff Hull said the calculation was done "using internal analysis."

Lawmakers also voted to take away contractor deductions. The deductions allowed primary contractors to deduct amounts paid to subcontractors from gross receipts when figuring their general excise taxes.

"Subcontractors typically do 80 percent of a project," said Tim Lyons, president of the Subcontractors Association of Hawaii. "It's going to contribute to the overall cost of construction projects."

Lyons said some developers or owners may opt to pencil out or delay projects because of the added taxes.

"A million dollars is going to be $1.4 million," he said. "Is that going to be enough to deter them from doing the project? Maybe not, but with all the other costs, including Matson increasing fees, they might."

Another question is whether already submitted bid proposals for projects need to be adjusted, said Glenn Nohara, part of the General Contractors Association's legislative committee.

Airlines also lost exemptions on gross receipts from renting or leasing aircraft or aircraft engines, and on the amounts received for aircraft service and maintenance.

"The impact to Hawaiian is somewhere in the order of $20 million a year in additional tax burden," Hawaiian Airlines spokesman Keoni Wagner said, adding that the airline will have to find ways to manage it.

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