Mayor Mufi Hannemann and the state's tax director said they will continue to work toward resolving issues over the best way to collect the excise tax increase that is scheduled to begin next year to pay for mass transit for Honolulu.

That's despite an exchange between Gov. Linda Lingle and Hannemann this week over who has done what in trying to work out details of how the state will collect a tax requested by the city.

Hannemann said the disagreement over the specifics will not block the planned transit system.

"We're continuing to work toward a transit solution for O'ahu, with the state providing the local funding mechanism," he said.

Last year, the Legislature passed a bill to give the counties the power to levy a half-percent excise tax increase for mass transit, with the state Tax Department collecting the tax.

But as the veto deadline approached, Lingle said she was planning to veto the bill because she didn't think the state should collect the tax for the county. She agreed to allow it to become law without her signature after state lawmakers agreed to work to shift tax collection to the city.

State tax director Kurt Kawafuchi said the state remains confident that officials can work with the city and legislative leadership to work out a way to collect the tax that will work for all.

"We want this to be a win-win all around," he said.

"We obviously want to minimize the cost to taxpayers. We would minimize any kind of duplication. Taxpayers would still have to file and pay in one place."

Hannemann said he still wants to work it out.

"While I always said this was a bad idea because that would mean duplicating what the state already does at unnecessary expense to taxpayers, in the spirit of cooperation, I agreed to work with the Legislature to introduce legislation to address the governor's concerns and to work with her Department of Taxation to come up with alternate solutions," he said.

Kawafuchi said the state has been diligently working on the issue as well. "We had 14 meetings with very high-level people," Kawafuchi said.

Reach Robbie Dingeman at rdingeman@honoluluadvertiser.com.