A bill (SB 2923) is before the Hawaiian Legislature that would require citizens to pay all taxes, interest, and penalties before they appeal assessments. The prepayment requirement would apply only to assessments exceeding $50,000. The sponsors think they are looking out for the little guy, but don't be fooled: Pay-to-play is unfair to all the citizens of Hawaii.
Pay-to-play is a cruel, cynical way to shake down citizens for money. The idea is that when forced to pay before adjudication, citizens will give in and settle under terms more favorable to the state. Basically, the state can strong-arm citizens to settle or accept defeat. The alternative reasoning -- and I have heard this many times as well -- is that pay-to-play is more efficient. That's the government saying, "Taxpayers owe what we say they owe, so we might as well get the money upfront."
Even if you're not as jaded as I am, think about this: American liberty is grounded in certain principles, among them the idea that the government cannot take your life, liberty, or property without due process. In this case, the bill says you will get your process after the state has taken your money. There is no fairness or justice in that. We see the government taking people's stuff a lot lately. Most recently, there has been a spate of civil forfeitures in which the government finds that someone has a large amount of cash and takes it. After all, if you have cash you might be a drug dealer, a terrorist, or a money laundering banker. Of course, you might simply be a law-abiding citizen.
Leaving aside the likelihood that the state will have an incentive to be even more aggressive in its tax collection (if the state can put you over the barrel with the prepayment, it will), this law will burden many taxpayers. The sponsors think they're going to hit the rich, but a $50,000 threshold will be burdensome to people who aren't really rich. They will need to find the money and pay before they pay their lawyers and accountants to challenge the assessment. Contrary to what the state may believe, writing the check will be challenging for most people.
The proponents' assertion that pay-to-play is necessary to deter frivolous appeals is absurd. There is rarely anything frivolous about challenging a large assessment. Besides, there are other ways of deterring frivolous appeals, such as penalties. This bill will only hurt earnest taxpayers taking issue with the government, and the argument that it will have no effect on the general public (because of the $50,000 threshold) is false. It sends the signal that the system is unfair. And if it's unfair for some, it's unfair for all. Moreover, as my friends at the Council On State Taxation regularly argue, pay-to-play is bad for business.
Don't get me wrong -- if you owe taxes, you should pay them. But there is something inherently un-American about forcing citizens to pay before they have had their day in court.
A version of this post appeared in State Tax Notes.