THE SENATE

S.B. NO.

1319

TWENTY-SIXTH LEGISLATURE, 2011

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO TAXATION.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


     SECTION 1.  The purpose of this Act is to amend Hawaii tax law to institute improvements and equity amongst taxpayers.  This Act accomplishes this through revisiting tax policies as they relate to tax exclusions, exemptions, deductions, and rates of particular individuals and businesses that have enjoyed tax benefits that are unwarranted today in light of the State's current budget crisis.

     This Act also acknowledges that certain provisions of Hawaii's income tax system are inherently unfair.  As such, this Act also provides taxpayers with long overdue relief in the form of indexing income tax amounts for inflation.

PART I.  INDEXING FOR INFLATION

     SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§235-A  Annual adjustments for inflation.  (a)  The following dollar amounts in this chapter shall be multiplied by the cost-of-living adjustment for the calendar year:

     (1)  The standard deduction amounts provided in section 235-2.4(a);

     (2)  The minimum and maximum taxable income rate bracket dollar amounts provided in sections 235-51(a),(b), and (c); provided that the tax rate applicable to each income bracket may not be changed; and

     (3)  Every personal exemption multiplier amount provided in section 235-54, except for the multiplier amount in subsection (b).

If any of the dollar amounts, as adjusted, are not multiples of $50, any increase must be rounded to the nearest $50.  If the cost-of-living adjustment for any taxable year is 1.000 or less, no adjustment shall be made for that taxable year.

     (b)  As used in this section:

     "Consumer price index" means the average over a twelve-month period of the National Consumer Price Index, not seasonably adjusted, published monthly by the Bureau of Labor Statistics, United States Department of Labor, designated as the "National Consumer Price Index for All Urban Consumers-United States City Average."

     "Cost-of-living adjustment" means the consumer price index for the twelve-month period ending June 30 of the preceding calendar year divided by the consumer price index for the twelve-month period ending June 30, 2009."

PART II.  TAXATION OF PENSION INCOME

     SECTION 3.  Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§235-B  Taxation of pension income.  For taxable years beginning after December 31, 2010, sections 88-91, 235-7(a)(2), and 235-7(a)(3) shall only apply to taxpayers with federal adjusted gross income of:

     (1)  Less than $37,500 for a taxpayer filing a single return or a married person filing separately;

     (2)  Less than $56,250 for a taxpayer filing as a head of household or surviving spouse; or

     (3)  Less than $75,000 for a taxpayer filing a joint return."

     SECTION 4.  Section 88-91, Hawaii Revised Statutes, is amended to read as follows:

     "§88-91  Exemption from taxation and execution.  The right of a person to a pension, an annuity or a retirement allowance, to the return of contributions, the pension, annuity or retirement allowance itself, any optional benefit or death benefit, any other right accrued or accruing to any person under this part and the moneys in the various funds created under this part are exempted from any tax of the State, subject to the limitations contained in section 235-B; and, except as in section 88-92 provided, shall not be subject to execution, garnishment or any other process and shall be unassignable except as in this part specifically provided."

     SECTION 5.  Section 235-7, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  There shall be excluded from gross income, adjusted gross income, and taxable income:

     (1)  Income not subject to taxation by the State under the Constitution and laws of the United States;

     (2)  Rights, benefits, and other income exempted from taxation by section 88-91, having to do with the state retirement system, and the rights, benefits, and other income, comparable to the rights, benefits, and other income exempted by section 88-91, under any other public retirement [system;] system, subject to the limitations contained in section 235-B;

     (3)  Any compensation received in the form of a pension for past [services,] services, subject to the limitations contained in section 235-B;

     (4)  Compensation paid to a patient affected with Hansen's disease employed by the State or the United States in any hospital, settlement, or place for the treatment of Hansen's disease;

     (5)  Except as otherwise expressly provided, payments made by the United States or this State, under an act of Congress or a law of this State, which by express provision or administrative regulation or interpretation are exempt from both the normal and surtaxes of the United States, even though not so exempted by the Internal Revenue Code itself;

     (6)  Any income expressly exempted or excluded from the measure of the tax imposed by this chapter by any other law of the State, it being the intent of this chapter not to repeal or supersede any express exemption or exclusion;

     (7)  Income received by each member of the reserve components of the Army, Navy, Air Force, Marine Corps, or Coast Guard of the United States of America, and the Hawaii national guard as compensation for performance of duty, equivalent to pay received for forty-eight drills (equivalent of twelve weekends) and fifteen days of annual duty, at an:

         (A)  E-1 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2004;

         (B)  E-2 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2005;

         (C)  E-3 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2006;

         (D)  E-4 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2007; and

         (E)  E-5 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2008;

     (8)  Income derived from the operation of ships or aircraft if the income is exempt under the Internal Revenue Code pursuant to the provisions of an income tax treaty or agreement entered into by and between the United States and a foreign country; provided that the tax laws of the local governments of that country reciprocally exempt from the application of all of their net income taxes, the income derived from the operation of ships or aircraft that are documented or registered under the laws of the United States;

     (9)  The value of legal services provided by a prepaid legal service plan to a taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

    (10)  Amounts paid, directly or indirectly, by a prepaid legal service plan to a taxpayer as payment or reimbursement for the provision of legal services to the taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

    (11)  Contributions by an employer to a prepaid legal service plan for compensation (through insurance or otherwise) to the employer's employees for the costs of legal services incurred by the employer's employees, their spouses, and their dependents;

    (12)  Amounts received in the form of a monthly surcharge by a utility acting on behalf of an affected utility under section 269-16.3 shall not be gross income, adjusted gross income, or taxable income for the acting utility under this chapter.  Any amounts retained by the acting utility for collection or other costs shall not be included in this exemption; and

    (13)  One hundred per cent of the gain realized by a fee simple owner from the sale of a leased fee interest in units within a condominium project, cooperative project, or planned unit development to the association of owners under chapter 514A or 514B, or the residential cooperative corporation of the leasehold units.

          For purposes of this paragraph:

              "Fee simple owner" shall have the same meaning as provided under section 516-1; provided that it shall include legal and equitable owners;

              "Legal and equitable owner", and "leased fee interest" shall have the same meanings as provided under section 516-1; and

              "Condominium project" and "cooperative project" shall have the same meanings as provided under section 514C-1."

III.  OTHER DEDUCTIONS AND EXCLUSIONS

     SECTION 6.  Section 235-2.4, Hawaii Revised Statutes, is amended by amending subsection (h) to read as follows:

     "(h)  Section 164 (with respect to taxes) of the Internal Revenue Code shall be operative for the purposes of this chapter, except that sections 164(a)(6) and 164(b)(6) shall not be operative for the purposes of this [chapter.] chapter; provided that amounts allowed as a deduction under sections 164(a)(3) and 164(b)(5), shall be reduced as follows:

     (1)  For a taxpayer filing a single return or a married person filing separately, the deduction shall be reduced in accordance with the following table:

If federal adjusted       The reduction shall be:

gross income is:

Less than $75,000         50 per cent for taxable years

                          beginning after December 31, 2010;

                          75 per cent for taxable years

                          beginning after December 31, 2011;

                          100 per cent for taxable years

                          beginning after December 31, 2012.

$75,000 and over          100 per cent for taxable years

                          beginning after December 31, 2010.

     (2)  For a taxpayer filing as a head of household or surviving spouse, the deduction shall be reduced in accordance with the following table:

If federal adjusted       The reduction shall be:

gross income is:

Less than $112,500        50 per cent for taxable years

                          beginning after December 31, 2010;

                          75 per cent for taxable years

                          beginning after December 31, 2011;

                          100 per cent for taxable years

                          beginning after December 31, 2012.

$112,500 and over         100 per cent for taxable years

                          beginning after December 31, 2010.

     (3)  For a taxpayer filing a joint return, the deduction shall be reduced in accordance with the following table:

If federal adjusted       The reduction shall be:

gross income is:

Less than $150,000        50 per cent for taxable years

                          beginning after December 31, 2010;

                          75 per cent for taxable years

                          beginning after December 31, 2011;

                          100 per cent for taxable years

                          beginning after December 31, 2012.

$150,000 and over         100 per cent for taxable years

                          beginning after December 31, 2010."

     SECTION 7.  Section 235-7.3, Hawaii Revised Statutes, is amended to read as follows:

     "§235-7.3  Royalties derived from patents, copyrights, or trade secrets excluded from gross income.  (a)  In addition to the exclusions in section 235-7, there shall be excluded from gross income, adjusted gross income, and taxable income, amounts received by an individual or a qualified high technology business as royalties and other income derived from any patents, copyrights, and trade secrets:

     (1)  Owned by the individual or qualified high technology business; and

     (2)  Developed and arising out of a qualified high technology business.

     [(b)  With respect to performing arts products, this exclusion shall extend to:

     (1)  The authors of performing arts products, or any parts thereof, without regard to the application of the work-for-hire doctrine under United States copyright law;

     (2)  The authors of performing arts products, or any parts thereof, under the work-for-hire doctrine under United States copyright law; and

     (3)  The assignors, licensors, and licensees of any copyright rights in performing arts products, or any parts thereof.]

     [(c)] (b) For the purposes of this section:

     "Performing arts products" means:

     (1)  Audio files, video files, audiovideo files, computer animation, and other entertainment products perceived by or through the operation of a computer; and

     (2)  Commercial television and film products for sale or license, and reuse or residual fee payments from these products.

     "Qualified high technology business" means a business that conducts more than fifty per cent of its activities in qualified [research.] research in Hawaii.

     "Qualified research" means:

     (1)  The same as in section 41(d) of the Internal Revenue Code;

     (2)  The development and design of computer software for ultimate commercial sale, lease, license or to be otherwise marketed, for economic consideration.  With respect to the software's development and design, the business shall have substantial control and retain substantial rights to the resulting intellectual property;

     (3)  Biotechnology;

     (4)  Performing arts products;

     (5)  Sensor and optic technologies;

     (6)  Ocean sciences;

     (7)  Astronomy; or

     (8)  Nonfossil fuel energy-related technology."

 

 

 

PART IV.  TAXATION OF TRANSIENT ACCOMMOCATIONS AND OCCUPANCY

     SECTION 8.  Section 237D-1, Hawaii Revised Statutes, is amended by amending the definition of "fair market rental value" to read as follows:

     ""Fair market rental value" means an amount equal to [one-half] one hundred and fifty (150) per cent of the gross daily maintenance fees that are paid by the owner, are attributable to the time share unit, and include maintenance costs, operational costs, insurance, repair costs, administrative costs, taxes, other than transient accommodations taxes, and other costs including payments required for reserves or sinking funds.  The taxpayer shall use gross daily maintenance fees, unless the taxpayer proves or the director determines that the gross daily maintenance fees do not fairly represent fair market rental value taking into account comparable transient accommodation rentals or other appraisal methods."

     SECTION 9.  Section 237D-2, Hawaii Revised Statutes, is amended to read as follows:

     "§237D-2  Imposition and rates.  (a)  There is levied and shall be assessed and collected each month a tax of:

     (1)  Five per cent for the period beginning on January 1, 1987, to June 30, 1994;

     (2)  Six per cent for the period beginning July 1, 1994, to December 31, 1998; and

     (3)  7.25 per cent for the period beginning on January 1, 1999, and thereafter;

on the gross rental or gross rental proceeds derived from furnishing transient accommodations.

     (b)  There is levied and shall be assessed and collected each month an additional:

     (1)  One per cent for the period beginning July 1, 2009, to June 30, 2010; and

     (2)  Two per cent for the period beginning July 1, 2010, to June 30, 2015;

on the gross rental or gross rental proceeds derived from furnishing transient accommodations.  The rate levied and assessed under this subsection shall be additional to the rate levied and assessed under section 237D-2(a)(3).

     (c)  Every operator shall pay to the State the tax imposed by subsections (a) and (b) as provided in this chapter.

     (d)  There is levied and shall be assessed and collected each month on the occupant of a resort time share vacation unit, a transient accommodations tax of 7.25 per cent on the fair market rental value.

     (e)  There is levied and shall be assessed and collected each month on the occupant of a resort time share unit, an additional two per cent for the period beginning January 1, 2012 to June 30, 2015 on the fair market rental value.  The rate levied and assessed under this subsection shall be additional to the rate levied and assessed under section 237D-2(d).

     [(e)](f)  Every plan manager shall be liable for and pay to the State the transient accommodations tax imposed by subsection (d) and (e) as provided in this chapter.  Every resort time share vacation plan shall be represented by a plan manager who shall be subject to this chapter."

     SECTION 10.  Section 237D-6.5, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

     "(b)  Revenues collected under this chapter, except for revenues collected under section 237D-2(b), shall be distributed as follows, with the excess revenues to be deposited into the general fund:

     (1)  17.3 per cent of the revenues collected under this chapter shall be deposited into the convention center enterprise special fund established under section 201B-8; provided that beginning January 1, 2002, if the amount of the revenue collected under this paragraph exceeds $33,000,000 in any calendar year, revenues collected in excess of $33,000,000 shall be deposited into the general fund;

     (2)  34.2 per cent of the revenues collected under this chapter shall be deposited into the tourism special fund established under section 201B-11 for tourism promotion and visitor industry research; provided that beginning on July 1, 2002, of the first $1,000,000 in revenues deposited:

         (A)  Ninety per cent shall be deposited into the state parks special fund established in section 184-3.4; and

         (B)  Ten per cent shall be deposited into the special land and development fund established in section 171-19 for the Hawaii statewide trail and access program;

          provided that of the 34.2 per cent, 0.5 per cent shall be transferred to a sub-account in the tourism special fund to provide funding for a safety and security budget, in accordance with the Hawaii tourism strategic plan 2005-2015; provided further that of the revenues remaining in the tourism special fund after revenues have been deposited as provided in this paragraph and except for any sum authorized by the legislature for expenditure from revenues subject to this paragraph, beginning July 1, 2007, funds shall be deposited into the tourism emergency trust fund, established in section 201B-10, in a manner sufficient to maintain a fund balance of $5,000,000 in the tourism emergency trust fund; and

     (3)  44.8 per cent of the revenues collected under this chapter shall be transferred as follows:  Kauai county shall receive 14.5 per cent, Hawaii county shall receive 18.6 per cent, city and county of Honolulu shall receive 44.1 per cent, and Maui county shall receive 22.8 per cent.

     Revenues collected under section 237D-2(b) and section 237D-2(e) shall be deposited into the general fund.  All transient accommodations taxes shall be paid into the state treasury each month within ten days after collection and shall be kept by the state director of finance in special accounts for distribution as provided in this subsection."

     SECTION 11.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 12.  This Act shall take effect on approval; provided that:

     (1)  Parts I through III of this Act shall apply to taxable years beginning after December 31, 2010;

     (2)  Section 8 of this Act shall apply to fair market rental value attributable to timeshare occupants on or after July 1, 2011; and

     (3)  Section 9 of this Act shall apply to fair market rental value attributable to timeshare occupants on or after January 1, 2012.

 

INTRODUCED BY:

_____________________________

 

BY REQUEST


 


 

Report Title:

Taxation; Tax Improvement

 

Description:

Makes various amendments to the tax laws including indexing income tax amounts for inflation; excluding pension income from income tax only for certain persons; eliminating the deduction for state income taxes paid; eliminating the income tax exclusion for certain persons involved in copyrights; and modifying the tax rate on timeshare occupants and modifying the tax base upon which these persons are taxed.

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.