Imagine life in Hawaii without our locally owned family businesses. There’d be no poke from Foodland, no chili from Zippy’s, and no Coco Puffs at Liliha Bakery. Some areas of our state already have the anonymous feeling of a strip mall on the continent, full of the same chain stores you can find anywhere. One of the reasons Hawaii’s iconic businesses are disappearing: Our state’s laws make it unusually difficult for families to keep their businesses.
For us, this is personal. Our families started businesses that we hope to pass on to the next generation. That’s why we are supporting three bills that would eliminate barriers to maintaining family ownership of local companies: House Bills 2652 and 2653, and Senate Bill 3289.
Local businesses aren’t just about nostalgia. Kamaaina rely on dozens of Hawaii-based companies to supply goods and services tailored to the unique needs of life in our state. That includes hardware stores owned by people who know what it’s like to stock up for a hurricane before it makes landfall. And insurance companies run by people who have lived through a tsunami warning.
Local businesses also provide career advancement opportunities for young people who don’t want to leave Hawaii. They also support community nonprofits that depend on sponsorships and donations from businesses owners who care about the issues our state faces and take pride in their family tradition of giving.
Despite the many benefits of locally-owned companies, Hawaii doesn’t make it easy. Our state is one of only 12 states that requires families to pay an estate tax. That means when the owner of a family business dies, their heirs need to come up with a large sum of cash to pay the estate taxes if they want to hold onto their businesses. And Hawaii has the highest estate tax rate in the nation — up to 20%.
Small business owners typically reinvest their income back into their business — creating jobs and buying new equipment. They often don’t have large sums of money available to pay estate taxes. This creates wrenching decisions — forcing family members to consider giving up their business just to meet their tax obligations.
By stripping family businesses of cash or forcing them to sell assets, Hawaii’s estate tax makes it even harder for family-owned businesses to compete with large public companies. Big national chains don’t face the same tax obligations. We believe in paying our fair share of taxes. We just ask that we not be subjected to a crippling tax that our competitors don’t need to pay.
Hawaii’s estate tax also creates perverse incentives. We have family members who are planning to move out of Hawaii to avoid this tax. Not only does Hawaii lose their estate tax revenues, the state also loses their income taxes, excise taxes and property taxes. Economists have calculated that when a retiree moves out of state five years prior to their death to avoid high estate taxes, the state’s revenue losses may be as much as 1.73 times as large as the tax revenues that might have been collected from that person’s estate. Even though Hawaii’s estate tax can be devastating to individual families and businesses, it raises a minuscule share of the state’s tax revenues: less than one-half of 1% of the total. That’s one reason why 38 states have repealed their estate taxes.
Everyone likes to think of themselves as a supporter of local businesses. We urge Hawaii legislators to provide estate tax relief to family businesses and help ensure that our state’s homegrown companies can continue to thrive.
Mark Fukunaga is executive chairman of Servco; his first role at the company, founded by his grandfather, was washing cars. Jason Higa is CEO of Zippy’s, founded by his father and uncle; he began work there as a dishwasher. Jenai Wall is CEO of Foodland and the Sullivan Family of Companies, founded by her parents; her first job in the family business was selling doughnuts.
