Hawaii becomes a tax paradise lost

Hawaii is paradise for many travelers. In fact, access to the Aloha State was a key point made repeatedly by the guy who tried this week, while we were visiting Las Vegas, to sell the hubby and me a timeshare property.

While I definitely hope one day to visit Hawaii, recent tax-law chances will make it a bit more costly to do so.

And anyone considering moving to the island paradise might want to think twice, at least in the near future, especially if they make a pretty good living.

This week, state lawmakers overrode the governor's veto and increased personal income tax rates for high-income residents.

The income tax increase makes Hawaii the most taxing state by some statistical measures, according to the Tax Foundation. Not only does the 50th state now have the highest statutory income tax rate at 11 percent, but by adding three more tax brackets, its 12 brackets are the most of any U.S. state.

As for visitors, hotel stays will cost more, as will tobacco products for those who need to light up after the long oceanic flight.

The new, higher tax rates are effective immediately. That is, H.B. 1747, which the legislature's post-veto vote enacted, applies to "taxable years beginning after December 31, 2008."

Increased income tax rates: New tax brackets of 9 percent, 10 percent and 11 percent are added for joint filers and surviving spouses with taxable income over $300,000.

Heads of households with taxable income over $225,000 will face the new rates, as will single taxpayers and married individuals filing separately who have taxable income of more than $150,000.

Bigger deductions, exemptions: Another portion of the new tax statutes, however, offers a bit of a break.

In
addition to increasing some income tax rates, lawmakers also bumped up
Hawaii's standard deduction and personal exemption amounts. The
deduction and exemption increases take effect Jan. 1, 2010.

The standard deduction amount which now is $4,000 for joint filers and surviving spouses will go to $4,400.

Heads of households will be able to deduct $3,212, up from $2,920.

And the standard deduction for single taxpayers and married individuals filing separately will go from $2,000 to $2,200.

As for the personal exemption amount, it now will increase to $1,144, up from $1,040.

Other taxes hiked, too: While residents with taxable income will now pay the Hawaiian tax collector more, visitors get smacked with some higher taxes, too.

In addition to the increased income tax rates, Hawaii's lawmakers also hiked hotel and tobacco taxes.

The cigarette tax hike is the only component of the tax package that the governor declined to veto. The increase from $2.00 to $3.00 per pack will be phased in on a three-part schedule.

It will cost smokers an extra $2.60 per pack on July 1, 2009; $2.80 more on July 1, 2010; and $3.00 on July 1, 2011.

The hotel accommodations tax goes up 1 percent on July 1, 2009 and again on July 1, 2010.

Part of a trend: The Tax Foundation notes that Hawaii is part of a recent state tax-hike trend.

With its new, dramatically higher income tax rates, Hawaii becomes the fifth state to adopt a so-called "millionaires' tax," note Tax Foundation analysts. Hawaii joins California, Maryland, New Jersey and New York in this regard.

"The income level at which the new top rate applies is often a sharp jump from where the previous top rate applies," according to the Washington, D.C.-based tax group, Plus, with each new "millionaire's tax," the tax is kicking in on more and more people who are not millionaires.

Temporary … for now: There is one tiny bit of good news regarding some of Hawaii's new taxes.

Just like their federal counterparts so often do, Hawaiian tax-law writers decided to make most of the changes temporary.

The hotel tax applies only through 2015.

And without further legislative action, the just-revised income tax laws also will be repealed on Dec. 31, 2015,