REPORT TITLE:
Corp. Income Tax


DESCRIPTION:
Amends chapter 235; repeals chapter 235, part IV, HRS, to repeal
the corporate income tax.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           15
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 235-3, Hawaii Revised Statutes, is
 
 2 amended by amending subsection (b) to read as follows:
 
 3      "(b)  The Internal Revenue Code, so far as made operative by
 
 4 this chapter, is a statute adopted and incorporated by reference.
 
 5 The Internal Revenue Code shall be applied using changes in
 
 6 nomenclature and other language, including the omission of
 
 7 inapplicable language, where necessary to effectuate the intent
 
 8 of this section.  In the Internal Revenue Code, references to
 
 9 terms such as:
 
10      (1)  "Secretary or his delegate" shall refer to the director
 
11           of taxation and the director's duly authorized
 
12           subordinates;
 
13      (2)  "Estate taxes" shall refer to the estate and transfer
 
14           tax imposed by chapter 236D;
 
15      (3)  "The highest rate of tax imposed upon individuals" or
 
16           "39.6 per cent" shall refer to the highest rate imposed
 
17           upon individuals under section 235-51;
 
18     [(4)  "The highest rate of tax imposed upon corporations"
 
19           shall refer to the highest rate imposed upon
 

 
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 1           corporations under section 235-71; and
 
 2      (5)] (4) "Interest at the underpayment rate" or "interest at
 
 3           the overpayment rate" shall refer to the interest rate
 
 4           set forth in section 231-39(b)(4) or section 231-
 
 5           23(d)(1), as the case may be."
 
 6      SECTION 2.  Section 235-4, Hawaii Revised Statutes, is
 
 7 amended to read as follows:
 
 8      "235-4 Income taxes by the State; residents, nonresidents,
 
 9 [corporations,] estates, and trusts.(a)  Residents.  The tax
 
10 imposed by this chapter applies to the entire income of a
 
11 resident, computed without regard to source in the State. 
 
12      (b)  Nonresidents.  In the case of a nonresident, the tax
 
13 applies to the income received or derived from property owned,
 
14 personal services performed, trade, or business carried on, and
 
15 any and every other source in the State. 
 
16      In the case of a nonresident spouse filing a joint return
 
17 with a resident spouse, the tax applies to the entire income of
 
18 the nonresident spouse computed without regard to source in the
 
19 State. 
 
20      (c)  Change of status.  Except where a joint return is
 
21 filed, when the status of a taxpayer changes during the taxable
 
22 year from resident to nonresident, or from nonresident to
 
23 resident, the tax imposed by this chapter applies to the entire
 

 
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 1 income earned during the period of residence in the manner
 
 2 provided in subsection (a) of this section and during the period
 
 3 of nonresidence the tax shall apply upon the income received or
 
 4 derived as a nonresident in the manner provided in subsection (b)
 
 5 of this section; provided that if it cannot be determined whether
 
 6 income was received or derived during the period of residence or
 
 7 during the period of nonresidence, there shall be attributed to
 
 8 the State such portion of the income as is determined by applying
 
 9 to such income for the whole taxable year the ratio which the
 
10 period of residence in the State bears to the whole taxable year,
 
11 unless the taxpayer shows to the satisfaction of the department
 
12 of taxation that the result is to attribute to the state income,
 
13 dependent upon residence, received or derived during the period
 
14 of nonresidence, in which event the amount of income as to which
 
15 such showing is made shall be excluded. 
 
16      The apportionment of income provided by this subsection
 
17 shall not apply where one spouse is a resident of this State and
 
18 a joint return is filed with the nonresident spouse in which
 
19 event the tax shall be computed on their aggregate income in the
 
20 manner provided in section 235-52 without regard to source in the
 
21 State.  Where, however, both spouses change their status from
 
22 resident to nonresident or from nonresident to resident, their
 
23 income shall be apportioned in the manner provided in this
 

 
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 1 subsection. 
 
 2      [(d)  A corporation, foreign or domestic, is taxable upon
 
 3 the income received or derived from property owned, trade or
 
 4 business carried on, and any and every other source in the State.
 
 5 In addition thereto a domestic corporation is taxable upon its
 
 6 income from property owned, trade or business carried on, and any
 
 7 and every other source outside the State, unless subjected to
 
 8 income tax thereon in any other jurisdiction.  Subjection to
 
 9 federal tax does not constitute subjection to income tax in
 
10 another jurisdiction.  "Corporation" includes any professional
 
11 corporation incorporated pursuant to chapter 415A or 416.
 
12      (e)] (d)  (1)  The income of a resident estate or trust
 
13           shall be computed without regard to source in the
 
14           State.  The income of a nonresident estate or trust
 
15           shall be that received or derived from sources in the
 
16           State.
 
17      (2)  A beneficiary of an estate or trust, or person treated
 
18           as the owner of any portion of a trust, who is taxable
 
19           upon income thereof under the Internal Revenue Code,
 
20           shall be taxed thereon as herein provided, irrespective
 
21           of the taxability of the estate or trust or whether it
 
22           is required to make a fiduciary return under this
 
23           chapter.  If all such income consists of income which
 

 
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 1           would be taxable under this chapter if received
 
 2           directly by the beneficiary or person, the beneficiary
 
 3           or person shall be taxed upon all of it.  If some of it
 
 4           consists of income which would not be taxable if
 
 5           received directly by the beneficiary or person, then
 
 6           unless the trust instrument provides otherwise the
 
 7           income of each such beneficiary or person shall be
 
 8           conclusively presumed to have been received or derived
 
 9           out of each class of income of the estate or trust, and
 
10           the beneficiary or person shall be taxed upon such part
 
11           of it as would be taxable if received directly by the
 
12           beneficiary or person. 
 
13      (3)  Each estate or trust shall include in its return all of
 
14           the information necessary to determine the taxability
 
15           of the income of the estate or trust, regardless of
 
16           source.  Only in the case of a nonresident estate or
 
17           trust of which all the beneficiaries are nonresidents
 
18           and no part of which is treated as owned by a resident
 
19           shall the return be confined to income from sources in
 
20           the State.  This paragraph shall not cause income to be
 
21           taxed to an estate or trust that otherwise would not
 
22           have been so taxed."
 
23      SECTION 3.  Section 235-7, Hawaii Revised Statutes, is
 

 
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 1 amended to read as follows:
 
 2      "235-7 Other provisions as to gross income, adjusted gross
 
 3 income, and taxable income.(a)  There shall be excluded from
 
 4 gross income, adjusted gross income, and taxable income:
 
 5      (1)  Income not subject to taxation by the State under the
 
 6           Constitution and laws of the United States;
 
 7      (2)  Rights, benefits, and other income exempted from
 
 8           taxation by section 88-91, having to do with the state
 
 9           retirement system, and the rights, benefits, and other
 
10           income, comparable to the rights, benefits, and other
 
11           income exempted by section 88-91, under any other
 
12           public retirement system;
 
13      (3)  Any compensation received in the form of a pension for
 
14           past services;
 
15      (4)  Compensation paid to a patient affected with Hansen's
 
16           disease employed by the State or the United States in
 
17           any hospital, settlement, or place for the treatment of
 
18           Hansen's disease;
 
19      (5)  Except as otherwise expressly provided, payments made
 
20           by the United States or this State, under an act of
 
21           Congress or a law of this State, which by express
 
22           provision or administrative regulation or
 
23           interpretation are exempt from both the normal and
 

 
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 1           surtaxes of the United States, even though not so
 
 2           exempted by the Internal Revenue Code itself;
 
 3      (6)  Any income expressly exempted or excluded from the
 
 4           measure of the tax imposed by this chapter by any other
 
 5           law of the State, it being the intent of this chapter
 
 6           not to repeal or supersede any such express exemption
 
 7           or exclusion;
 
 8      (7)  The first $1,750 received by each member of the reserve
 
 9           components of the Army, Navy, Air Force, Marine Corps,
 
10           or Coast Guard of the United States of America, and the
 
11           Hawaii national guard as compensation for performance
 
12           of duty;
 
13      (8)  Income derived from the operation of ships or aircraft
 
14           if the income is exempt under the Internal Revenue Code
 
15           pursuant to the provisions of an income tax treaty or
 
16           agreement entered into by and between the United States
 
17           and a foreign country, provided that the tax laws of
 
18           the local governments of that country reciprocally
 
19           exempt from the application of all of their net income
 
20           taxes, the income derived from the operation of ships
 
21           or aircraft which are documented or registered under
 
22           the laws of the United States;
 
23      (9)  The value of legal services provided by a prepaid legal
 

 
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 1           service plan to a taxpayer, the taxpayer's spouse, and
 
 2           the taxpayer's dependents;
 
 3     (10)  Amounts paid, directly or indirectly, by a prepaid
 
 4           legal service plan to a taxpayer as payment or
 
 5           reimbursement for the provision of legal services to
 
 6           the taxpayer, the taxpayer's spouse, and the taxpayer's
 
 7           dependents;
 
 8     (11)  Contributions by an employer to a prepaid legal service
 
 9           plan for compensation (through insurance or otherwise)
 
10           to the employer's employees for the costs of legal
 
11           services incurred by the employer's employees, their
 
12           spouses, and their dependents; and
 
13     (12)  Amounts received in the form of a monthly surcharge by
 
14           a utility acting on behalf of an affected utility under
 
15           section 269-16.3 shall not be gross income, adjusted
 
16           gross income, or taxable income for the acting utility
 
17           under this chapter.  Any amounts retained by the acting
 
18           utility for collection or other costs shall not be
 
19           included in this exemption.
 
20      (b)  There shall be included in gross income, adjusted gross
 
21 income, and taxable income:  (1) unless excluded by this chapter
 
22 relating to the uniformed services of the United States, cost-of-
 
23 living allowances and other payments exempted by section 912 of
 

 
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                                     S.B. NO.           15
                                                        
                                                        

 
 1 the Internal Revenue Code, but section 119 of the Internal
 
 2 Revenue Code nevertheless shall apply; (2) unless expressly
 
 3 exempted or excluded as provided by subsection (a)(6), interest
 
 4 on the obligations of a State or a political subdivision thereof.
 
 5      [(c)  The deductions of or based on dividends paid or
 
 6 received, allowed to a corporation under chapter 1, subchapter B,
 
 7 Part VIII of the Internal Revenue Code, shall not be allowed.  In
 
 8 lieu thereof there shall be allowed as a deduction the entire
 
 9 amount of dividends received by any corporation upon the shares
 
10 of stock of a national banking association, qualifying dividends,
 
11 as defined in section 243(b) of the Internal Revenue Code,
 
12 received by members of an affiliated group, or dividends received
 
13 by a small business investment company operating under the Small
 
14 Business Investment Act of 1958 (Public Law 85-699) upon shares
 
15 of stock qualifying under paragraph (3), seventy per cent of the
 
16 amount received by any corporation as dividends:
 
17      (1)  Upon the shares of stock of another corporation, if at
 
18           the date of payment of the dividend at least ninety-
 
19           five per cent of the other corporation's capital stock
 
20           is owned by one or more corporations doing business in
 
21           this State and if the other corporation is subjected to
 
22           an income tax in another jurisdiction (but subjection
 
23           to federal tax does not constitute subjection to income
 

 
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 1           tax in another jurisdiction);
 
 2      (2)  Upon the shares of stock of a bank or insurance company
 
 3           organized and doing business under the laws of the
 
 4           State;
 
 5      (3)  Upon the shares of stock of another corporation, if at
 
 6           least fifteen per cent of the latter corporation's
 
 7           business, for the taxable year of the latter
 
 8           corporation preceding the payment of the dividend, has
 
 9           been attributed to this State.
 
10 However, except for national bank dividends, the deductions under
 
11 this subsection are not allowed when they would not have been
 
12 allowed under section 243 of the Internal Revenue Code, as
 
13 amended by Public Law 85-866, by reason of subsections (b) and
 
14 (c) of section 246 of the Internal Revenue Code.  For the
 
15 purposes of this subsection fifteen per cent of a corporation's
 
16 business shall be deemed to have been attributed to this State if
 
17 fifteen per cent or more of the entire gross income of the
 
18 corporation as defined in this chapter (which for the purposes of
 
19 this subsection shall be computed without regard to source in the
 
20 State and shall include income not taxable by reason of the fact
 
21 that it is from property not owned in the State or from a trade
 
22 or business not carried on in the State in whole or in part),
 
23 under section 235-5 and the other provisions of this chapter,
 

 
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 1 shall have been attributed to the State and subjected to
 
 2 assessment of the taxable income therefrom (including the
 
 3 determination of the resulting net loss, if any).
 
 4      (d)] (c) (1) For taxable years ending before January 1,
 
 5           1967, the net operating loss deductions allowed as
 
 6           carrybacks and carryovers by the Internal Revenue Code
 
 7           shall not be allowed.  In lieu thereof the net
 
 8           operating loss deduction shall consist of the excess of
 
 9           the deductions allowed by this chapter over the gross
 
10           income, computed with the modifications specified in
 
11           paragraphs (1) to (4) of section 172(d) of the Internal
 
12           Revenue Code, and with the further modification stated
 
13           in paragraph (3) hereof; and shall be allowed as a
 
14           deduction in computing the taxable income of the
 
15           taxpayer for the succeeding taxable year.
 
16      (2)  (A)  With respect to net operating loss deductions
 
17                resulting from net operating losses for taxable
 
18                years ending after December 31, 1966, the net
 
19                operating loss deduction provisions of the
 
20                Internal Revenue Code shall apply, provided that
 
21                there shall be no net operating loss deduction
 
22                carried back to any taxable year ending prior to
 
23                January 1, 1967.
 

 
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 1           (B)  In the case of a taxable year beginning in 1966
 
 2                and ending in 1967, the entire amount of all net
 
 3                operating loss deductions carried back to the
 
 4                taxable year shall be limited to that portion of
 
 5                taxable income for such taxable year which the
 
 6                number of days in 1967 bears to the total days in
 
 7                the taxable year ending in 1967.
 
 8           (C)  The computation of any net operating loss
 
 9                deduction for a taxable year covered by this
 
10                subsection shall require the further modifications
 
11                stated in paragraphs (3), (4), and (5) of this
 
12                subsection.
 
13      (3)  In computing the net operating loss deduction allowed
 
14           by this subsection there shall be included in gross
 
15           income the amount of interest which is excluded from
 
16           gross income by subsection (a), decreased by the amount
 
17           of interest paid or accrued which is disallowed as a
 
18           deduction by subsection (e).  In determining the amount
 
19           of the net operating loss deduction under this
 
20           subsection of any corporation, there shall be
 
21           disregarded the net operating loss of such corporation
 
22           for any taxable year for which the corporation is an
 
23           electing small business corporation.
 

 
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 1      (4)  No net operating loss carryback or carryover shall be
 
 2           allowed by this chapter if not allowed under section
 
 3           172 of the Internal Revenue Code.
 
 4      (5)  The election to relinquish the entire carryback period
 
 5           with respect to a net operating loss allowed under
 
 6           section 172(b)(3)(C) of the Internal Revenue Code shall
 
 7           be operative for the purposes of this chapter; provided
 
 8           that no taxpayer shall make such an election as to a
 
 9           net operating loss of a business where such net
 
10           operating loss occurred in the taxpayer's business
 
11           prior to the taxpayer entering business in this State.
 
12      [(e)] (d)  There shall be disallowed as a deduction the
 
13 amount of interest paid or accrued within the taxable year on
 
14 indebtedness incurred or continued, (1) to purchase or carry
 
15 bonds the interest upon which is excluded from gross income by
 
16 subsection (a); or (2) to purchase or carry property owned
 
17 without the State, or to carry on trade or business without the
 
18 State, if the taxpayer is a person taxable only upon income from
 
19 sources in the State.
 
20      [(f)] (e)  Losses of property as the result of tidal wave,
 
21 hurricane, earthquake, or volcanic eruption, or as a result of
 
22 flood waters overflowing the banks or walls of a river or stream,
 

 
 
 
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 1 or from any other natural disaster, to the extent of the amount
 
 2 deductible, under this chapter, not compensated for by insurance
 
 3 or otherwise, may be deducted in the taxable year in which
 
 4 sustained, or at the option of the taxpayer may be deducted in
 
 5 equal installments over a period of five years, the first such
 
 6 year to be the calendar year or fiscal year of the taxpayer in
 
 7 which such loss occurred.
 
 8      [(g)] (f)  In computing taxable income there shall be
 
 9 allowed as a deduction:
 
10      (1)  Political contributions by any taxpayer not in excess
 
11           of $250 in any year; provided that such contributions
 
12           are made to a central or county committee of a
 
13           political party whose candidates shall have qualified
 
14           by law to be voted for at the immediately previous
 
15           general election; or
 
16      (2)  Political contributions by any individual taxpayer in
 
17           an aggregate amount not to exceed $1,000 in any year;
 
18           provided that such contributions are made to candidates
 
19           as defined in section 11-191, who have agreed to abide
 
20           by the campaign expenditure limits as set forth in
 
21           section 11-209; and provided further that not more than
 
22           $250 of an individual's total contribution to any
 
23           single candidate shall be deductible for purposes of
 

 
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 1           this section."
 
 2      SECTION 4.  Section 235-92, Hawaii Revised Statutes, is
 
 3 amended to read as follows:
 
 4      "235-92  Returns, who shall make.  For each taxable year,
 
 5 returns shall be made by the following persons to the department
 
 6 of taxation in such form and manner as it shall prescribe: 
 
 7      (1)  Every person doing business in the State during the
 
 8           taxable year, whether or not the person derives any
 
 9           taxable income therefrom.  As used in this paragraph
 
10           "doing business" includes all activities engaged in or
 
11           caused to be engaged in with the object of gain or
 
12           economic benefit, direct or indirect, except personal
 
13           services performed as an employee under the direction
 
14           and control of an employer.  Every person receiving
 
15           rents from property owned in the State is classed as
 
16           "doing business" and shall make a return whether or not
 
17           the person derives taxable income therefrom. 
 
18     [(2)  Every corporation having for the taxable year gross
 
19           income subject to taxation under this chapter; provided
 
20           that an affiliated group of domestic corporations may
 
21           make and file a consolidated return for the taxable
 
22           year in lieu of separate tax returns in the manner and
 
23           to the extent, so far as applicable, set forth in
 

 
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                                     S.B. NO.           15
                                                        
                                                        

 
 1           sections 1501 through 1505 and 1552 of the Internal
 
 2           Revenue Code of 1954, as amended. 
 
 3      (3)] (2)  Every individual, estate, or trust having for the
 
 4           taxable year gross income subject to taxation under
 
 5           this chapter, except as exempted from the filing of a
 
 6           return by regulations of the department. 
 
 7      The department may by regulation excuse the filing of a
 
 8 return by an individual, estate, or trust in cases not coming
 
 9 within paragraph (1), where the gross income and exemptions are
 
10 such that no tax is expected to accrue under this chapter, or are
 
11 such that substantially all the tax will have been collected
 
12 through tax withholdings or at the source."
 
13      SECTION 5.  Section 235-94, Hawaii Revised Statutes, is
 
14 amended to read as follows:
 
15      "235-94  Returns by agent, guardian, etc.; liability of
 
16 fiduciaries.(a)  Returns of decedents.  If an individual is
 
17 deceased, the return of the individual required under section
 
18 235-92 shall be made by the individual's personal representative
 
19 or other person charged with the care of property of the
 
20 decedent. 
 
21      (b)  Persons under a disability.  If an individual is unable
 
22 to make a return required under section 235-92 or 235-97, the
 
23 return of the individual shall be made by a duly authorized
 

 
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 1 agent, the individual's committee, guardian, fiduciary, or other
 
 2 person charged with the care of the person or property of the
 
 3 individual.  The preceding sentence shall not apply in the case
 
 4 of a receiver appointed by authority of law in possession of only
 
 5 a part of the property of an individual. 
 
 6     [(c)  Receivers, trustees, and assignees for corporations.
 
 7 In a case where a receiver, trustee in bankruptcy, or assignee,
 
 8 by order of a court of competent jurisdiction, by operation of
 
 9 law, or otherwise, has possession of or holds title to all or
 
10 substantially all the property or business of a corporation,
 
11 whether or not the property or business is being operated, such
 
12 receiver, trustee, or assignee shall make the return of income
 
13 for the corporation in the same manner and form as corporations
 
14 are required to make such returns.
 
15      (d)] (c)  Returns of estates and trusts.  Returns of an
 
16 estate or a trust shall be made by the fiduciary thereof. 
 
17     [(e)] (d)  Joint fiduciaries.  Under such regulations as the
 
18 department of taxation may prescribe, a return made by one of two
 
19 or more joint fiduciaries shall be sufficient compliance with the
 
20 requirement of this section.  A return made pursuant to this
 
21 subsection shall contain a statement that the fiduciary has
 
22 sufficient knowledge of the affairs of the person for whom the
 
23 return is made to enable the fiduciary to make the return, and
 

 
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 1 the return is, to the best of the fiduciary's knowledge and
 
 2 belief, true and correct. 
 
 3     [(f)] (e)  Liability of fiduciaries.  A tax imposed upon a
 
 4 fiduciary shall be a charge upon the property held by the
 
 5 fiduciary in that capacity."
 
 6      SECTION 6.  Section 235-97, Hawaii Revised Statutes, is
 
 7 amended as follows:
 
 8      1.  By amending subsection (a) to read:
 
 9      "(a) (1)  Individuals, [corporations (including] S
 
10           corporations[)], estates, and trusts, shall annually
 
11           furnish the department of taxation with a declaration
 
12           of estimated tax for the current taxable year.
 
13           Declarations of estimated tax, except as otherwise
 
14           provided by rule, shall be governed by the provisions
 
15           as to returns contained in sections 235-94, 235-98,
 
16           235-99, and 235-128.  The declarations shall be made on
 
17           estimated tax payment voucher forms.  The payment
 
18           voucher shall be filed, in the case of taxpayers on the
 
19           calendar year basis, on or before April 20.  In the
 
20           case of a husband and wife who are entitled to submit a
 
21           joint payment voucher for federal purposes, a single
 
22           payment voucher may be submitted by them jointly, in
 
23           which case the liability with respect to the estimated
 

 
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 1           tax shall be joint and several; if a joint payment
 
 2           voucher is submitted but a joint income tax return is
 
 3           not made for the taxable year, the estimated tax for
 
 4           the year may be treated as the estimated tax of either
 
 5           the husband or the wife or may be divided between them.
 
 6      (2)  Each taxpayer shall transmit, with the payment voucher,
 
 7           payment of one-quarter of the estimated tax for the
 
 8           current taxable year.  In determining this quarterly
 
 9           payment and all other installments, there first shall
 
10           be deducted from the total estimated tax the amount of
 
11           estimated tax withholding or collection at source for
 
12           the taxable year.  Thereafter, on the twentieth day of
 
13           June and September, the taxpayer shall transmit with
 
14           the payment voucher, payment of one-quarter of the
 
15           estimated tax.  The fourth quarter payment of the
 
16           estimated tax shall be transmitted with the payment
 
17           voucher by January 20 of the year following the taxable
 
18           year for which the estimate was made.
 
19      (3)  Taxpayers operating on a fiscal year basis shall make
 
20           similar estimates and tax payments, on or before the
 
21           twentieth day of the fourth month of the fiscal year
 
22           and periodically thereafter so as to conform to the
 
23           payments and returns required in the case of those on a
 

 
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 1           calendar year basis.
 
 2      (4)  The department by rule may excuse individuals from
 
 3           filing an estimate in those cases where the gross
 
 4           income and exemptions are such that no tax is expected
 
 5           to accrue under this chapter, or are such that
 
 6           substantially all the tax will be collected through tax
 
 7           withholding or at the source.
 
 8     [(5)  In the case of a foreign corporation, the department
 
 9           may excuse the filing of an estimate and the payment of
 
10           estimated tax if it is satisfied that less than fifteen
 
11           per cent of the corporation's business for the taxable
 
12           year will be attributable to the State.  For the
 
13           purposes of this paragraph, fifteen per cent of a
 
14           corporation's business shall be deemed attributable to
 
15           the State if fifteen per cent or more of the entire
 
16           gross income of the corporation (which for the purposes
 
17           of this paragraph means gross income computed without
 
18           regard to source in the State) is attributable to the
 
19           State under sections 235-21 to 235-39 or other
 
20           provisions of this chapter.
 
21      (6)] (5)  In the case of a taxpayer whose tax liability is
 
22           less than $500, the filing of an estimate and the
 
23           payment of estimated tax shall not be required."
 

 
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 1      2.  By amending subsection (f) to read:
 
 2      "(f)  In the case of any underpayment of estimated tax,
 
 3 except as provided by this subsection, there shall be added to
 
 4 the tax for the taxable year an amount determined at the rate of
 
 5 two-thirds of one per cent a month or fraction of a month upon
 
 6 the amount of the underpayment for the period of the
 
 7 underpayment.
 
 8      (1)  The amount of the underpayment shall be the excess 
 
 9           of:
 
10           (A)  The required installment, over 
 
11           (B)  The amount, if any, of the installment paid on or
 
12                before the due date for the installment.
 
13      (2)  The period of the underpayment shall run from the due
 
14           date for the installment to whichever of the following
 
15           dates is the earlier:
 
16           (A)  The twentieth day of the fourth month following
 
17                the close of the taxable year, or
 
18           (B)  With respect to any portion of the underpayment,
 
19                the date on which the portion is paid.  For
 
20                purposes of this paragraph, a payment of estimated
 
21                tax on any installment date shall be credited
 
22                against unpaid required installments in the order
 
23                in which the installments are required to be paid.
 

 
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                                     S.B. NO.           15
                                                        
                                                        

 
 1      (3)  For the purposes of this section, the term "tax" means
 
 2           the tax imposed under this chapter reduced by any
 
 3           credits available to the taxpayer other than the credit
 
 4           for amounts withheld from the taxpayer's wages or taxes
 
 5           withheld at the source, if any, for the taxable year.
 
 6      (4)  [Sections] Section 6654(d), (e)(2), (e)(3), (h), (i),
 
 7           (j), (k), and (l), (with respect to failure by an
 
 8           individual to pay estimated income tax)[, and 6655(d),
 
 9           (e), (g)(2), (g)(3), (g)(4), and (i) (with respect to
 
10           failure by a corporation to pay estimated income tax)]
 
11           of the Internal Revenue Code, as of the date set forth
 
12           in section 235-2.3(a), shall be operative for the
 
13           purposes of this section; provided that the due dates
 
14           contained [in any] of the preceding Internal Revenue
 
15           Code [sections] section shall be deemed to be the
 
16           twentieth day of the applicable month; and provided
 
17           further that, for purposes of this chapter in applying
 
18           section 6654(d), if the adjusted gross income shown on
 
19           the return of the individual for the preceding taxable
 
20           year exceeds $150,000, the required annual payment
 
21           shall be the lesser of ninety per cent of the tax shown
 
22           on the return for the taxable year (or, if no return is
 
23           filed, ninety per cent of the tax for the taxable year)
 

 
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 1           or one hundred ten per cent of the tax shown on the
 
 2           return of the individual for the preceding taxable
 
 3           year."
 
 4      SECTION 7.  Section 235-103, Hawaii Revised Statutes, is
 
 5 amended to read as follows:
 
 6      "235-103  Distortion of income.  When a taxpayer so
 
 7 conducts business as either directly or indirectly to benefit
 
 8 stockholders thereof, or any other person interested therein, by
 
 9 selling products or the goods or commodities in which the
 
10 taxpayer deals at less than the fair price that could be obtained
 
11 for them, [or where a corporation, a substantial portion of the
 
12 capital stock of which is owned either directly or indirectly by
 
13 another corporation, acquires or disposes of the products of the
 
14 corporation so owning a substantial portion of its stock in such
 
15 manner as to create a loss or improper income to either of the
 
16 corporations,] or where a partnership or individual owns an
 
17 interest in another corporation or business either directly or
 
18 indirectly and acquires and disposes of the products of such
 
19 other business in such manner as to create a loss or improper
 
20 income to either of the businesses, and generally in all cases
 
21 where different forms of business enterprise are used in
 
22 conjunction with one another for the purpose, among others, of
 
23 diverting profits reasonably and properly made by one factor
 

 
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 1 agency or segment of the business to another, the director of
 
 2 taxation may determine the amount of tax upon either or both of
 
 3 the enterprises for the taxable year, having due regard to the
 
 4 reasonable profits which but for such arrangement, understanding,
 
 5 business device, or organization might or could have accrued to
 
 6 either or both of the enterprises."
 
 7      SECTION 8.  Chapter 235, part IV , Hawaii Revised Statutes,
 
 8 is repealed.
 
 9      SECTION 9.  Statutory material to be repealed is bracketed.
 
10 New statutory material is underscored.
 
11      SECTION 10.  This Act shall take effect on July 1, 1999, and
 
12 shall apply to taxable years beginning January 1, 2000, and in
 
13 the case of fiscal year taxpayers whose fiscal year ends after
 
14 December 31, 1999, a return for income received during the period
 
15 preceding January 1, 2000, shall be filed.
 
16 
 
17                           INTRODUCED BY:  _______________________