A new bill signed into law this month by Gov. Linda Lingle has some frequent Las Vegas visitors and local CPAs scratching their heads.
Under House Bill 1495, no longer will gamblers be able to offset their winnings with their losses for Hawaii state income tax purposes. Previously gamblers would be taxed only on their net winnings, but now they will be taxed on gross winnings.
A Hawaii resident who wins $10,000 in a year, for example, and loses $9,000 in the same year used to be taxed only on the $1,000 in net winnings. Under the new law, that resident would be taxed on the full $10,000 in winnings.
Even if you end up a net loser, you will still be taxed on whatever you won along the way.
Dennis Kohara, a certified public accountant in Honolulu, called the law "ridiculous."
"You sit down at the blackjack table. You win a hand. You lose the next one. You win another hand. You lose the next one," he said.
And, under the new law, you now owe taxes on all the winning hands, which are not offset by any of the losing hands, Kohara said.
State Rep. Pono Chong, who sponsored the legislation, acknowledged that Kohara is correct.
However, Chong said, the new law will mainly affect those who have substantial winnings, along with substantial losses.
The law is expected to add about $300,000 a year to Hawaii tax revenue.
Chong, D-49th (Mauna- wili, Olomana, Enchanted Lake), introduced the measure as a way to bring in additional revenue at a time when the state is "undergoing a significant and possibly protracted economic downturn in tandem with the national and global economic and financial crises."
He said no one wanted to increase taxes, but something had to be done to address the state's budget deficit. Chong said his bill was one of numerous measures taken to address the shortfall.
He also noted that Hawaii is one of only two states where gambling is not permitted. The previous statute that allowed offsetting wagering income with wagering losses "in effect subsidizes the other 48 states that do allow gambling."
Some in Vegas have not taken the news lightly. Even before the new bill had been signed into law, April Gardner, staff editor for CasinoGamblingWeb.com, criticized Chong as hypocritical for questioning whether it's good policy to allow Hawaii taxpayers to make deductions for an activity that's not even allowed in their state.
"Of course," wrote Gardner, "the state has no problem taking the taxes on money that is won in other jurisdictions."
Frequent Vegas traveler Robyn Oshita-Vranesevic falls into the category of the average gambler — win a little here, lose overall.
She used to have plenty of losses to offset her winnings.
"When we did go to Vegas I lost my behind," she said.
She said she understands the government's need to make up for lost income but suggested they do it elsewhere.
"I can see why the government wants to do it," she said. "Because there's probably a lot of untapped money out there. But you know what? Make marijuana legal and tax that instead."
The Department of Taxation, which supported the bill, has said it's unclear how much the law will actually bring in to the state. However, if it is assumed the gambling losses remain at the $5 million level currently claimed, the revenue gain could be $300,000 a year, the department said in testimony in support of the measure.
The new law is retroactive to January of this year.
Thanks to truecritic for the tip.