Tension and confusion about the state Tax Department’s new crackdown on "cash economy" businesses escalated yesterday when city parks officials barred some vendors from learning about the new rules — and Mayor Peter Carlisle took responsibility for the abrupt cancellation of the 36th annual Mayor’s Craft and Country Fair scheduled for Saturday.

He vowed to get it back on track.

"This was a mistake made by the City and County of Honolulu," Carlisle said. "We’re responsible for it, and now it’s our obligation to do everything we can to try to set this right."

City parks officials on Monday scrapped the popular, holiday senior-citizens craft fair that bears the name of the mayor’s office. The move came after a raucous scene at the Kailua Open Market on Oct. 28, when shoppers yelled at two Special Enforcement Unit agents from the state Tax Department and Honolulu police were called.

The tax agents cited two vendors and fined a shopper $2,000 for allegedly telling other vendors not to provide information to the agents.

"There had been a confrontation at a city-sponsored event at an open market in Kailua and some of the vendors were cited for not having records of receipts and also for not having general excise tax licenses," Carlisle said. "As a result of that, in consideration of the seniors, the craft fair was canceled by the Department of Parks and Recreation. … We’re now trying to do everything humanly possible to get the fair back on track."

The annual Mayor’s Craft and Country Fair is popular with shoppers and vendors, who spend months preparing for holiday sales but are now worried about being cited by the state Tax Department’s Special Enforcement Unit.

A 1989 state law specifically addresses annual senior-citizens fairs in making them tax-exempt because their vendors are considered once-a-year, "casual" sellers, said state Tax Director Stanley Shiraki.

Vendors who sell their items only once a year fall into the same category as people who hold one-time garage sales or sell a single used car, Shiraki said.

But vendors at the Mayor’s Craft and Country Fair who also sell at other craft fairs or markets must comply with excise tax, record-keeping and sales receipts requirements, Shiraki said.

The unit was created by the Legislature and signed into law last year by Gov. Linda Lingle.

In their first three months of field operations, five unit agents and a supervisor have issued 88 citations to "cash economy" businesses so far, primarily for not having general excise tax licenses, failing to keep records and failing to issue receipts, Shiraki said.

Asked about the Tax Department’s new crackdown, Carlisle said: "I think it’s a great idea. I think it’s something we need to support. I don’t think that people should be allowed to get away with not paying taxes when other people have to pay taxes."

Yesterday, the state Tax Department’s deputy director appeared at Makiki District Park, at the invitation of city parks officials, to address vendors at a 90-minute meeting.

But parks officials would admit only vendors from 25 city-run open markets and turned away more than a dozen other vendors who wanted to learn how to stay within the law.

"We’re trying to be in compliance, but we’re not allowed to come in," said a frustrated Mela Kealoha-Lindsey, who sells orchids and helps organize the Ward Centers specialty farmers market and Kawaihai specialty farmers market.

Markus Faigle is considering selling jewelry and could not understand why parks officials prevented him from hearing details first hand from the state Tax Department.

"I was hoping to learn what the rules actually are," Faigle said. "But they told me it’s not open to the public. They told me to go to a website."