REPORT TITLE: 
Tax relief


DESCRIPTION:
Reduces the tax burden on corporations, regulated investment
companies, real estate investment companies, and franchises.
(HB231 HD2)


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        231
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 2
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO TAXATION.



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

 1      SECTION 1.  Section 235-71, Hawaii Revised Statutes, is
 
 2 amended as follows:
 
 3      1.  By amending subsections (a) and (b) to read:
 
 4      "(a)  A tax at the rates [herein provided] as set forth in
 
 5 this section shall be assessed, levied, collected, and paid for
 
 6 each taxable year on the taxable income of every corporation,
 
 7 including a corporation carrying on business in partnership,
 
 8 except that [in]:
 
 9      (1)  In the case of a regulated investment company, the tax
 
10           [is as provided by] shall be as set forth in subsection
 
11           (b); and [further that in]
 
12      (2)  In the case of a real estate investment trust as
 
13           defined in section 856 of the Internal Revenue Code [of
 
14           1954], the tax [is as provided] shall be as set forth
 
15           in subsection (d).
 
16      "Corporation" includes any professional corporation
 
17 incorporated pursuant to chapter 415A.
 
18      The tax on all taxable income shall be at the rate of [4.4]
 
19     per cent if the taxable income is not over [$25,000, 5.4]
 
20 $50,000,     per cent if the taxable income is over [$25,000]
 

 
Page 2                                                     231
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 $50,000 but not over $100,000, and [on all over $100,000, 6.4 per
 
 2 cent.]     per cent on all taxable income over $100,000.
 
 3      (b)  In the case of a regulated investment company, there is
 
 4 imposed on the taxable income, computed as provided in sections
 
 5 852 and 855 of the Internal Revenue Code but with the changes and
 
 6 adjustments made by this chapter [(without prejudice to the
 
 7 generality of the foregoing, the deduction for dividends paid is
 
 8 limited to such amount of dividends as is attributable to income
 
 9 taxable under this chapter)], a tax consisting in the sum of the
 
10 following:  [4.4]     per cent if the taxable income is not over
 
11 [$25,000, 5.4] $50,000,     per cent if the taxable income is
 
12 over [$25,000] $50,000 but not over $100,000, and [on all over
 
13 $100,000, 6.4 per cent.]     per cent on all taxable income over
 
14 $100,000.
 
15      2.  By amending subsection (d) to read:
 
16      "(d)  In the case of a real estate investment trust, there
 
17 is imposed on the taxable income, computed as provided in
 
18 sections 857 and 858 of the Internal Revenue Code but with the
 
19 changes and adjustments made by this chapter [(without prejudice
 
20 to the generality of the foregoing, the deduction for dividends
 
21 paid is limited to such amount of dividends as is attributable to
 
22 income taxable under this chapter)], a tax consisting in the sum
 
23 of the following:  [4.4]     per cent if the taxable income is
 

 
Page 3                                                     231
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 not over [$25,000, 5.4] $50,000,     per cent if the taxable
 
 2 income is over [$25,000] $50,000 but not over $100,000, and [on
 
 3 all over $100,000, 6.4 per cent.]     per cent on all taxable
 
 4 income over $100,000.
 
 5      In addition to any other penalty provided by law, any real
 
 6 estate investment trust whose tax liability for any taxable year
 
 7 is deemed to be increased pursuant to section 859(b)(2)(A) or
 
 8 860(c)(1)(A) after December 31, 1978, (relating to interest and
 
 9 additions to tax determined with respect to the amount of the
 
10 deduction for deficiency dividends allowed) of the Internal
 
11 Revenue Code shall pay a penalty in an amount equal to the amount
 
12 of interest for which [such] the trust is liable that is
 
13 attributable solely to [such] the increase.
 
14      The penalty payable under this subsection with respect to
 
15 any determination shall not exceed one-half of the amount of the
 
16 deduction allowed by section 859(a), or 860(a) after December 31,
 
17 1978, of the Internal Revenue Code for [such] that taxable year."
 
18      SECTION 2.  Section 235-71.5, Hawaii Revised Statutes, is
 
19 amended to read as follows:
 
20      "235-71.5  Alternative tax for corporations.  Section 1201
 
21 (with respect to alternative tax for corporations) of the
 
22 Internal Revenue Code of 1986, as amended as of December 31,
 
23 1996, shall be operative for the purposes of this chapter and
 

 
Page 4                                                     231
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 shall be applied as set forth in this section.  If for any
 
 2 taxable year a corporation, regulated investment company, or real
 
 3 estate investment trust has a net capital gain, then, in lieu of
 
 4 the tax imposed by section 235-71, there is hereby imposed a tax
 
 5 (if [such] the tax is less than the tax imposed under section
 
 6 235-71) [which] that shall consist of the sum of:
 
 7      (1)  A tax computed on the taxable income reduced by the
 
 8           amount of the net capital gain, at the rates and in the
 
 9           manner as if this section had not been enacted[,]; plus
 
10      (2)  The sum of:
 
11           (A)  [3.08]     per cent of the lesser of: 
 
12                (i)  The net capital gain determined by including
 
13                     only the gain or loss [which] that is
 
14                     properly taken into account for the portion
 
15                     of the taxable year before [April 1, 1987]
 
16                     January 1, 2000 (i.e., the amount in
 
17                     paragraph (1))[,]; or
 
18               (ii)  The net capital gain for the taxable year[,];
 
19                     plus,
 
20           (B)  [4]      per cent of the excess (if any) of[:
 
21                (i)  The] the net capital gain for the taxable
 
22                     year[,] over
 

 
 
 
Page 5                                                     231
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1              [(ii)  The] the amount of the net capital gain taken
 
 2                     into account under subparagraph (A).
 
 3      SECTION 3.  Section 241-4, Hawaii Revised Statutes, is
 
 4 amended by amending subsection (a) to read as follows:
 
 5      "(a)  The measure of the tax imposed by this chapter is the
 
 6 entire net income from all sources for the preceding calendar
 
 7 year, or in the case of a taxpayer operating on a fiscal year
 
 8 basis, for the preceding fiscal year.  The tax shall be at the
 
 9 rate of [seven and ninety-two]            one hundredths per cent
 
10 of the entire net income from all sources."
 
11      SECTION 4.  Section 241-4.3, Hawaii Revised Statutes, is
 
12 amended to read as follows:
 
13      "[[]241-4.3[]]  Alternative tax.  Section 1201 (with
 
14 respect to alternative tax for corporations) of the Internal
 
15 Revenue Code shall be operative for the purposes of this chapter
 
16 and shall be applied as set forth in this section.  If for any
 
17 taxable year a bank, building and loan association, development
 
18 company, financial corporation, financial services loan company,
 
19 small business investment company, mortgage loan company,
 
20 financial holding company, or trust company has a net capital
 
21 gain, then, in lieu of the tax imposed by section 241-4, there is
 
22 hereby imposed a tax (if [such] the tax is less than the tax
 
23 imposed under section 241-4) [which] that shall consist of the
 
24 sum of:
 

 
Page 6                                                     231
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      (1)  A tax computed on the taxable income reduced by the
 
 2           amount of the net capital gain, at the rates and in the
 
 3           manner as if this section had not been enacted; plus
 
 4      (2)  [Four]       per cent of the net capital gain for the
 
 5           taxable year."
 
 6      SECTION 5.  Statutory material to be repealed is bracketed.
 
 7 New statutory material is underscored.
 
 8      SECTION 6.  This Act shall take effect upon its approval;
 
 9 provided that:
 
10      (1)  Sections 1 and 2 shall apply to taxable years beginning
 
11           after December 31, 1999;
 
12      (2)  For purposes of sections 1 and 2 if a taxpayer's
 
13           taxable year includes the effective date of the tax
 
14           rate changes (unless that date is the first day of the
 
15           taxable year), then:
 
16           (A)  The tentative taxes shall be computed by applying
 
17                the rate for the period before the effective date
 
18                change, and the rate for the period on and after
 
19                that date, to the taxable income for the entire
 
20                year; and
 
21           (B)  The tax for the taxable year shall be the sum of
 
22                that proportion of each tentative tax which the
 
23                number of days in each period bears to the number
 
24                of days in the entire taxable year;
 

 
Page 7                                                     231
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      (3)  Sections 3 and 4 shall take effect on January 1, 2000,
 
 2           so that the amendments made shall apply to the entire
 
 3           net income received in the calendar year preceding
 
 4           January 1, 2000, and for each subsequent calendar year;
 
 5           and
 
 6      (4)  In the case of a taxpayer operating on a fiscal year
 
 7           basis, sections 3 and 4 shall apply to the entire net
 
 8           income received for the fiscal year in which January 1,
 
 9           2000, occurs and for each subsequent fiscal year.