Senators Cite Importance of Maintaining Federal Backstop in Housing Finance Overhaul

NAHB Press Release

WASHINGTON, Sept. 17 -- Sens. Jon Tester (D-Mont.), Bob Corker (R-Tenn.) and Johnny Isakson (R-Ga.) today stressed that ongoing efforts to reform the U.S. tax code and overhaul the housing finance system should take into account the important role that housing plays in the economy.

The senators joined housing industry experts at a forum that examined the future of U.S. housing, "Building a Better Future: America's Housing at a Crossroads," at the Newseum in Washington. The symposium was produced by CQ Roll Call and sponsored by the National Association of Home Builders (NAHB).

Sens. Tester and Corker are among 10 bipartisan cosponsors of the Housing Finance Reform and Taxpayer Protection Act (S. 1217), legislation to reform the nation's housing finance system that includes a federal backstop while limiting taxpayer exposure.

"We worked hard to make sure the 30-year, fixed-rate mortgage remains a viable option," said Tester. "This is something consumers want and expect. I don't think we could have a viable 30-year note in a purely private market."

"We had 10 senators that weighed in and made a difference," said Corker. "I think we have struck a very good balance. The 10 percent capital piece is a very, very important element. Another component that was very important was having a federal backstop."

As the legislative process moves forward, Corker added that he expects to see improvements to S. 1217 and that a housing finance proposal pending in the House will also undergo changes.

"My guess is by the time something passes out of the House it might be a little bit different from where it is and move a little more toward where the Senate bill is," said Corker. "My guess is the House and Senate can pass bills with different characteristics and we can move to conference to get something done for the country."

In terms of tax reform, Sen. Isakson, who is a member of the Senate Finance Committee, said his panel is prepared to move forward if it gets "the opportunity."

Isakson said that every provision in the tax code, including the mortgage interest deduction and Low Income Housing Tax Credit, must be justified in terms of "what they produce for the country. If you can't make a case for your tax provision, it should not be in there."

"I can make a great case for the preservation of the mortgage interest deduction and I can make a phenomenal case for low and moderate income housing tax credits in terms of the payback to the country, but those arguments have to be won and lost when you are truly doing a major reform," said Isakson.

Along with the Senate keynote speakers, housing analysts engaged in a series of in-depth discussions on key issues, with a special emphasis on the outlook for housing demand and production, ongoing efforts toward reform of the housing finance system and the potential impacts of tax reform on homeownership and the economy.

Demographics

The housing downturn led to a "remarkable slowdown in household growth," said Eric Belsky, managing director, Joint Center for Housing Studies at Harvard University. "There is not a strong recovery in household formations, but we are seeing signs of that happening. People don't want to live with their parents into their 30s; they are doing it out of economic necessity."

As the economy continues to mend, pent-up demand for housing should also increase, according to NAHB Chief Economist David Crowe.

"I would say in general the housing market is only half-way back," he said. "Multifamily production is back to 300,000 units per year, which is nearly back to normal."

While the single-family side continues to gradually bounce back, Crowe said that several challenges remain.

"Credit for buyers and builders remains difficult, and there is a lack of buildable lots," he said.

Looking ahead, the outlook looks bright for homeownership.

"Nineteen out of 20 people say they plan on buying a home somewhere in the future if they are under the age of 45," said Belsky. "You can lock in housing payments with a fixed rate mortgage today or look at higher rents in the future. A lot of people will look at that calculation and say 'I think it is time to buy a home.'"

Columbia Business School Professor Christopher Mayer also noted that homeownership is not just an American dream but a global dream.

"When you look at developing countries, people try to buy a home," said Mayer. "It is economic security."

Housing Finance

Panelists addressing the issue of housing finance were in general agreement that the private sector needs to play a greater role in mortgage financing but that maintaining some level of federal support is essential to ensure stability and liquidity in the mortgage markets.

A dissenting view on this latter point came from Peter Wallison of the American Enterprise Institute, who said that lowering the conforming loan limits of government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac over time will allow the private sector to come in and pick up that business.

"If you simply made those changes and authorized the withdrawal of the GSEs, you would find we would gradually move to a completely private system, which is where I think we should be going," said Wallison.

This response drew a sharp rebuttal from other panelists.

"Private capital by itself will not secure a safe market and most importantly, private capital during a down market is least likely to be there," said Michael Calhoun, president of the Center for Responsible Lending.

"Mike is making a real important point that credit will dry up in the housing finance market when times get tough," added Georgetown University Law Professor Adam Levitan.

"There is a government, taxpayer supported entity that stands up," said Michael Stegman, counselor to the Secretary of the Treasury for Housing Finance Policy. "We know how much more serious the [housing and economic] crisis would have been without the FHA stepping up."

Tax Reform

On the topic of tax reform, a third panel of housing experts were in general agreement that the mortgage interest deduction plays a key role in shaping housing demand, while differing in their evaluation of current policy.

"The nonpartisan Tax Foundation found that if we repealed the mortgage interest deduction and lowered marginal tax rates then GDP would decline by $100 billion annually," said NAHB economist Robert Dietz.

Dietz also said that repealing the deduction would case home values to fall. "Considering it only takes a 6 percent drop in home values to wipe out $1 trillion in household wealth, the economic consequences could be significant."

Noting the importance of the mortgage interest deduction to younger households, who are paying greater amounts of interest in the early years of a mortgage, Dietz warned that repeal of the deduction would lead the homeownership rate to fall and the average age of a first-time home buyer to rise. This delay could in turn affect family formation, wealth accumulation and other economic and demographic outcomes.

Anthony Randazzo, director of economic research at the Reason Foundation, said he opposes the mortgage interest deduction and believes that tax policy should not be set to achieve social purposes.

"Do we want to support middle class or low-income home owners? Then let's just provide an explicit subsidy to people we want to, and then find a middle ground," he said.

Dr. John Weicher, a director of the Hudson Institute's Center for Housing and Financial Markets, rejected the idea that the mortgage interest deduction is a tax distortion.

"Keep in mind if you are a home owner you have an asset and consumption," he said. "You are a landlord renting to yourself. It is silly to think of this as simply a consumption when it is the biggest investment that nearly anyone is going to make."

NAHB Forum Brings Together Lawmakers and Industry Experts on Top Housing Issues

NAHB Press Release

Participants are Invited to Join in Person or via Live Webcast

WHAT: On Sept. 17, 2013, the National Association of Home Builders (NAHB) is sponsoring Building a Better Future: America's Housing at a Crossroads, a series of in-depth discussions at the Newseum in Washington, D.C.

This free event, hosted by CQ Roll Call, will gather members of Congress, their staff, industry and association leaders and other key stakeholders together to examine the future of the housing market.

Topics that will be covered include:

• Demographics: The Outlook for Housing Demand and Production
• Financing Housing: GSE Reform and Sensible Mortgage Lending
• Tax Reform: Potential Effects on Homeownership and the Economy

Breakfast and lunch will be served to all attendees.

WHO: Keynote speakers include U.S. Senators Jon Tester (D-Mont.), Bob Corker (R-Tenn.) and Johnny Isakson (R-Ga.). Panel sessions feature industry experts from NAHB, Harvard University, the Center for Responsible Lending, the U.S. Department of the Treasury and more.

WHEN: Tuesday, Sept. 17 from 8:00 a.m. to 2:00 p.m.

WHERE: The Newseum- 555 Pennsylvania Ave NW, Washington, D.C., 20001

REGISTER: To see the full agenda and to register to attend the event in person, go to https://cqrcbuildingfuture.eventbrite.com

To register for the live webcast, go to: http://nsp.performedia.com/cqrollcall/nahb13/welcome

For press registration, please contact Liz Thompson at ethompson@nahb.org.

Setting the Record Straight on the Mortgage Interest Deduction

NAHB Press Release

WASHINGTON, July 25--As the Senate examines existing tax policies as part of its "blank slate" approach to tax reform, and as the House Ways and Means Committee continues its review of the tax code, it is appropriate to keep in mind the importance of the mortgage interest deduction (MID) as a middle-class tax provision that makes it possible for many families to achieve homeownership. It is also useful to review some of the claims against the MID to determine if those claims are valid. Economists at the National Association of Home Builders (NAHB) have analyzed data from the IRS and the Census Bureau, as well as estimates from other sources, to assess the validity of these claims.

Claim #1: The wealthy get most of the benefit from the mortgage interest deduction.

Fact: The majority of the tax benefits from the MID go to middle-class households. Data from the Congressional Joint Committee on Taxation shows that 86 percent of households who benefit from the mortgage interest deduction have incomes of less than $200,000. It is also useful to keep in mind that the majority of home owning households are married couples, so the household income measure will often include two incomes.

Claim #2: Repealing the mortgage interest deduction would not damage the economy or individual households.

Fact: Almost all studies examining the elimination of the mortgage interest deduction find that it would reduce demand for housing by raising taxes on prospective home buyers. This reduction in housing demand would also lower home values for existing home owners who would experience a significant loss in wealth.

A 1 percent decline in home prices would result in a loss of $185 billion to American households. Just a 6 percent decline would eliminate $1 trillion in household net worth. If repealing the deduction lowered prices by 10 percent or more, Americans would lose trillions of dollars in household net worth. If home values fall, then more families will find themselves under water, in default and in foreclosure. Eliminating the mortgage interest deduction would reduce the financial resources families can draw on for education, entrepreneurship and retirement. And if home values fall, then state and local tax revenues fall, making it harder to fund schools, infrastructure, public safety and other important government functions. Repealing the MID would have serious economic consequences.

Claim #3: Only a small percentage of home owners claim the mortgage interest deduction.

Fact: The mortgage interest deduction is broadly claimed. Seventy percent of home owners with a mortgage claim the MID in a given year, and almost all home owners benefit from the deduction at some point during their homeownership lifecycle.

The argument that only an estimated "quarter of taxpayers" claim the deduction is misleading because it ignores the lifecycle element of homeownership. Of the two-thirds of households who are home owners, one-third own free-and-clear with no mortgage. And of those with a mortgage who claim the standard deduction in lieu of the MID, many are in the final years of a mortgage and are paying small amounts of interest and greater amounts of principal. In the early years of their mortgage when much greater amounts went to interest, those home owners very likely claimed the mortgage interest deduction.

Claim #4: Repealing the mortgage interest deduction would make the tax code more progressive.

Fact: A progressive tax system is one in which taxpayers with lower incomes pay a smaller share of their earnings in taxes than higher income households. Repealing the mortgage interest deduction would result in larger tax hikes - as a share of household income - for the middle class. For example, for households with less than $200,000 in adjusted gross income (AGI), the typical mortgage interest deduction is worth 1.76 percent of that family's AGI. For taxpayers reporting more than $200,000 in income, the benefit falls to 1.5 percent of AGI. Thus, in the event of repeal, middle-class home owners face a larger tax hike as a share of their income, making the tax system less progressive.

Claim #5: The mortgage interest deduction incentivizes buyers to purchase a larger home.

Fact: While the mortgage interest deduction is sometimes connected with larger homes, evidence shows that it is more often the case that the tax benefit reflects family size and underlying housing demand. Larger families require a larger home, which in turn means a greater amount of mortgage interest paid and a larger tax benefit. And NAHB analysis of IRS data confirms this. Taxpayers with two personal exemptions (a measure of family size) who claimed the MID had an average tax benefit of $1,500. Taxpayers with four personal exemptions had an average benefit of approximately $1,950. In fact, the benefit increased correspondingly from one dependent to five-plus personal exemptions, which is consistent with the notion that larger families require larger homes.


Claim #6: Renters do not support the mortgage interest deduction.

Fact: Public opinion polling has generally found the MID to be popular with renters, most of whom hope to become home owners. Given that recent home buyers receive the greatest tax benefits from the deduction, such renters would have much to lose in case of repeal. A 2012 poll found that a majority of renters were opposed to eliminating the mortgage interest deduction.

Claim #7: Because mortgages on second homes also qualify for the mortgage interest deduction, taxpayers are subsidizing vacation homes for the wealthy.

Fact: The rules relating to second homes are complicated, and often apply to situations that do not involve a vacation home. The rule allows owners who sell their home and buy another - those who own more than one primary residence in a tax year - to claim the MID for both homes on their annual tax return. The rules also allow home owners who are building a new home to claim construction loan interest as a deduction.

And the rules support investment in seasonal residences that provide an economic foundation for many parts of the country. In fact, 49 states in the U.S. have at least one county where more than 10 percent of the housing stock fits the tax definition of a second home. But we are not talking about million-dollar homes on the beach, which are usually paid for in cash or claimed as rental property. According to an analysis of the Consumer Expenditure Survey, the average income of a household with a mortgage on a second home is $71,344.

Claim #8: While the mortgage interest deduction supports homeownership, federal policy neglects renters.

Fact: Housing policy support, in dollar terms, is roughly proportional to the total population living in renter- and owner-occupied homes. For example, the report of the Housing Commission of the Bipartisan Policy Center, which looked at all of the tax and spending programs for rentership and homeownership, found that about one-third of housing policy spending is attributable to rental housing, which is equal to the share of the population living in that form of housing. Such analysis is important because it shines a spotlight on important housing programs for affordable rental housing, including the Low-Income Housing Tax Credit (LIHTC).

Claim #9: Since not all home owners itemize, a credit would be better for the market.

Fact: Identifying winners and losers from moving from an itemized deduction to a credit depends on a number of factors, most importantly the tax credit rate. For example, the Simpson-Bowles report recommended a 12 percent tax credit, meaning a tax benefit of 12 cents for every dollar of qualified mortgage interest paid. A revenue-neutral tax credit would be approximately 20 percent. Thus, such a low rate as 12 percent would represent a significant tax hike for home owners. Moreover, it is important to remember that under most MID tax credit proposals, the property tax deduction (worth on average about one-third of the value of the MID) would cease to exist, further increasing the tax burden on home owners.

Claim #10: There is too much policy support for housing.

Fact: At the federal level, much of the focus on housing tax policy is centered on important and long-standing policies like the MID and the LIHTC, but this focus ignores the fact that home owners pay property taxes that are not collected on other forms of investment. For example, owners of owner-occupied and rental housing pay approximately $300 billion a year in property taxes to local and state governments. Such tax burdens should not be ignored in federal tax debates when considering the overall effective tax rate on housing.

Tax Code Rewrite Threatens Homeownership, Rental Housing, and Our Industry

Act NOW!

Write Your Senators at:
www.CapitolConnect.com/BuilderLink

Tell Them:

It is critical that they preserve vital housing tax incentives like the mortgage interest deduction and the Low Income Housing Tax Credit to create jobs and keep the economic recovery moving forward.

What’s at Stake:

The Senate is considering revamping the tax code which could ELIMINATE SOME OR ALL HOUSING TAX INCENTIVES. This could harm the bottom line of all residential construction businesses, depress home values, impose a tax increase on home owners and cause massive layoffs in housing and other industries.

Background:

The Senate Finance Committee recently announced it will consider comprehensive tax reform and initiate proceedings with a blank slate: no exemptions, deductions, or credits. Our industry must pull together to defend the mortgage interest deduction and other critical housing tax incentives.

Many of the tax reform proposals have suggested eliminating or reducing the mortgage interest deduction, the Low Income Housing Tax Credit, the capital gains exclusion for home sales and the deduction of property taxes, among others. This would DEVASTATE OUR INDUSTRY by depressing home values, which would put countless more home owners underwater and trigger a new wave of foreclosures and layoffs in our industry.

Urge Your Senators to:

Preserve important housing incentives (the mortgage interest deduction, the Low Income Housing Tax Credit, the capital gains exclusion for home sales, and the deduction of property taxes) in the tax code.

How to Contact Your Senators:

Write them at www.CapitolConnect.com/BuilderLink

Act NOW!

Senate Bill an Important Step Forward in Debate on Housing Finance Reform

NAHB Press Release

WASHINGTON, June 25 - Bipartisan legislation introduced today by Sens. Bob Corker (R-Tenn.) and Mark Warner (D-Va.) is an important first step in moving the dialogue forward on overhauling the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, and the U.S. housing finance system, according to the National Association of Home Builders (NAHB).

"We applaud Sens. Corker and Warner, along with Sens. Jon Tester (D-Mont.), Mike Johanns (R-Neb.), Heidi Heitkamp (D-N.D.), Dean Heller (R-Nev.), Kay Hagan (D-N.C.) and Jerry Moran (R-Kan.) for crafting comprehensive legislation to reform the mortgage finance system," said NAHB Chairman Rick Judson, a home builder and developer from Charlotte, N.C. "This bill will advance the debate on GSE reform in an earnest manner."

The Housing Finance Reform and Taxpayer Protection Act of 2013 (S. 1217) contains several elements recommended by NAHB to restructure the nation's housing finance system, such as retaining a federal backstop while limiting taxpayer exposure.

A stable and reliable housing finance system is vital to a vibrant housing market and sustainable economic recovery. Currently, Fannie Mae, Freddie Mac and the Federal Housing Administration guarantee or insure more than 90 percent of all home mortgage activity. This is not sustainable or desirable as NAHB believes the private sector must play a greater role.

"As private lenders gradually re-enter the mortgage market, it is essential that the federal government plays a proper role in backing up the nation's housing finance system to ensure liquidity and stability for homeownership and rental housing," said Judson.

"We look forward to participating in the discussions to reform the mortgage finance system as the bill moves forward," he added.

IRS Small Business Week Webinar – Get All the Tax Benefits You Deserve – June 18th

Taking all the deductions you’re entitled to? Know what business tax credits you can take?

Get answers to these questions and more during this FREE one-hour webinar…

Topic: Small Business Owners: Get All the Tax Benefits You Deserve

Date: Tuesday, June 18, 2013

Time: 11:00 a.m. (Pacific); Noon (Mountain); 1:00 p.m. (Central); 2:00 p.m. (Eastern)

What's Covered:
Learn about business expenses and deductions
What is a business depreciation deduction?
Find out which business tax credits are available for your business
Get the latest facts about the American Taxpayer Relief Act
What are the qualifications for the Earned Income Tax Credit?
Broadcast will include a live Q&A session

CPE: CE Credit is NOT being offered for this webinar.

Information & Registration:

Click on the following link to register:
http://www.visualwebcaster.com/IRS/94208/reg.asp?id=94208

Act 105 to Sunset

Act 105 (2011), which temporarily suspended the exemption for the subcontractors' deduction, will sunset on June 30, 2013! Beginning July 1, 2013, contractors will once again be able to deduct subcontractor expense when calculating GE Tax.

However, until then, it is unclear how the current law will be applied. The Department of Taxation is planning to release a Tax Announcement sometime in June regarding the sunset of Act 105. When it is finalized, it will be posted on their website at www.tax.hawaii.gov.

BIA will also work with DoTax to get the information to circulate to our membership as soon as it's posted.

Housing Tax Incentives Critical to Maintain Thriving Middle Class, NAHB Tells Congress

NAHB Press Release

WASHINGTON, April 25 - To meet the nation's growing need for affordable rental housing and homeownership opportunities, the National Association of Home Builders (NAHB) today called on Congress to maintain its support for vital housing tax incentives, including the Low Income Housing Tax Credit, the mortgage interest deduction and real estate tax deductions.

"Home building is an industry dominated by small businesses, so the idea of simplifying the complicated tax rules related to business has great appeal. At the same time, our industry remembers painful lessons from the 1986 Tax Reform Act, when the commercial and multifamily sectors experienced a downturn due to unintended consequences," said Robert Dietz, an economist and assistant vice president for NAHB, in testimony during a House Ways and Means Committee hearing on tax reform and residential real estate.

Moreover, when housing fares well, it spurs job and economic growth, Dietz added. "For these reasons, we urge Congress to be cautious and thoughtful when it comes to housing and tax reform."

U.S. Census data shows that more than 40 percent of renters are "rent burdened," or pay more than 30 percent of their household income on rent. The need for affordable rental options remains acute. The Low Income Housing Tax Credit (LIHTC) is the most effective tool for the creation of affordable rental housing. Utilizing a public-private partnership to attract investment, the program has produced and financed more than 2 million affordable rental units since its inception in 1986.

"As LIHTC properties must generally remain affordable for 30 years, they provide long-term rent stability for low-income households around the country," Dietz said. "But the demand for affordable housing far exceeds the availability of financing through the LIHTC program. The solution is not to eliminate the most successful affordable housing program in the country, but to provide it with the resources necessary to address the shortage of affordable housing options in our cities and towns."

When it comes to housing and tax reform, the spotlight typically falls on the mortgage interest deduction, and Dietz set the record straight on a number of false assumptions regarding this important homeownership benefit.

"First, we frequently hear that few home owners benefit from the mortgage interest deduction because itemization is required," he said. "In fact, most home owners will claim it. In 2009, 35 million taxpayers, or 70 percent of home owners with a mortgage, claimed the mortgage deduction in that year. Among all home owners who have ever held a mortgage, the vast majority have claimed the home mortgage deduction for years at a time."

Critics charge that the mortgage interest deduction encourages the purchase of a larger home, but these claims ignore the role of family size. Home owners with larger families need bigger homes and will therefore have a higher mortgage interest deduction.

"The need for a larger home created the higher home loan deduction, not the other way around," said Dietz.

He also noted that the cost of housing varies greatly across the nation, so what appears to be a large deduction for a given home in one area may reflect a modest home in a high-cost area.

Moreover, the mortgage interest and real estate tax deductions are two of the few elements in the tax code that that account for differences in cost-of-living.

"The real estate tax deduction is an important reminder that home owners pay more than $300 billion in property taxes each year. This fact is often ignored in the federal tax debates because these taxes are collected by state and local governments," said Dietz.

There is also a direct correlation between the age of a home owner and their resulting benefit from the mortgage interest deduction. As a share of household income, the largest deductions are for those 35 and younger. The benefit of a deduction that reduces the net cost of monthly house payments is particularly important to these home buyers, who typically have less equity, tighter household budgets, and must meet the needs of a growing family.

"Given this demographic connection, NAHB believes that any policy change that makes it harder to buy a home, or forces young families to defer home purchases, will have a significant impact on wealth accumulation and the makeup of the middle class," said Dietz.

Regarding the mortgage interest deduction rule for second homes, Dietz said that many mistakenly think this refers to expensive beach property, when in reality, such homes are often owned free and clear or rented, which excludes the owner from taking the mortgage interest deduction.

In practice, the second home deduction is important for many who don't think of themselves as owning two homes. Repealing the deduction for second homes would penalize millions of home owners who move from an existing home and buy a second home in a given tax year. There would be further negative economic consequences in terms of lost home sales, home construction and local tax revenues.

Noting that building 100 single-family homes creates more than 300 full-time jobs and $8.9 million in federal, state and local tax revenues that helps boost local communities and schools, Dietz said that how housing is treated in an future tax reform will shape the economy going forward.

"Housing provides the momentum behind an economic recovery because home building and associated businesses employ such a wide range of workers. With the right policies in place, housing can be a key engine of job growth that this country needs."

The Fiscal Cliff: Updates for Homeowners

If you own your home, here are important facts that may affect you:

• The mortgage insurance premium deduction now extends through 2013 and is retroactive for 2012 for people who make less than $110,000.
• Mortgage cancellation relief now extends until January 1, 2014.
• The Capital Gains Tax exclusion for the sale of a Main Home remains unchanged at $250K for an individual, and $500K for married couples, as long as you have lived in the home 2 out of 5 years prior to the sale.
• The first $5M of an individual estate ($10M of a family estate) is now exempt from estate taxes. After those amounts, the estate tax is 40%.
• The Energy Efficiency Tax Credit of 10% up to $500 was extended through 2013 for improvements to existing homes.
  (from the National Association of Realtors)

Single Family	Nov '12 - Jan '13	Nov '11 - Jan '12	% Change
Number of Sales	814	699	16.5%
Median Price	$610,000	$595,000	2.5%
Condominium	Nov '12 - Jan '13	Nov '11 - Jan '12	% Change
Number of Sales	1,045	931	12.2%
Median Price	$330,000	$290,500	13.6%

                                                                Information Provided by Prudential Locations

How Does Hawaii’s General Excise Tax Impact Our Construction Costs?

By: Karen T. Nakamura, CEO

Building Industry Association of Hawaii

In 2011, Act 105 became law and disallowed the exemption of Hawaii’s General Excise Tax (“GET”) on subcontractor work by the general contractor. This law is scheduled to sunset on June 30, 2013.

Act 105 causes the GET to be charged multiple times on the same GET already paid. This practice is called tax pyramiding. Since the inception of Hawaii’s GET, pyramiding was cautiously avoided by exempting services that triggers tax on tax situations.

In Hawaii, the number of subcontractor licenses continues to grow with every new product or new way of work, due to a current state law. We have two types of General Contractor licenses, “A” for general engineering contractors, and “B” for general building contractors, and over 168 subcontractor licenses. Each type of license identifies work dedicated to a specific jurisdiction. For example there are different licenses for fencing depending on the type of fence: wood, vinyl, stone, glass, and more. There are different licenses for roofing depending on the type of roof: wood shake, asphalt shingles, hot tar, metal, tile, and more. Each type of license can be subject to multiple taxing of the GET depending on if a subcontractor uses other subcontractors to get the final product to the general contractors.

Example: When a cabinet maker sells to a cabinet installer (1), and the installer sells the same cabinet with installation to a general contractor (2), and the general contractor sells the total job with cabinets and the installation to you, the consumer (3), the State Tax Collector gets the 4.5% GET three times on the same cabinet, which is ultimately passed on to the buyer.

By allowing Act 105 to sunset on June 30, 2013, contractors will be allowed to pay the 4.5% GET at the first level, just once, and not continuously add the tax at each level. Contractors identify the amount the previous subcontractor has paid and deducts that from the amount due on the total sale. This practice lowers the cost of construction to you, the buyer.

The State Tax Collector is in favor of allowing this law to sunset on June 30, 2013.

Representative Sharon Har introduced HB 1194, which allows for the sunset of the subcontractor exemption. The Committee on Consumer Protection & Commerce has scheduled this bill for hearing on Wednesday, February 6, 2:30, in room 325 of the State Capitol.

Representative Sylvia Luke has introduced HB 1360, which would make permanent the suspension of the subcontractor exemption. It has a single-referral to the Finance Committee, of which she is Chair, and no hearing has yet been scheduled.

Please write to your representative to tell them to allow this law to sunset so construction costs can remain affordable in Hawaii.