Report Title:

Reciprocal Tax Agreements; California; Study

HOUSE OF REPRESENTATIVES

H.R. NO.

137

TWENTY-FIRST LEGISLATURE, 2001

 

STATE OF HAWAII

 
   


HOUSE RESOLUTION

 

requesting the department of taxation to report to the legislature on the feasibility of entering into a reciprocal income tax agreement with the state of california.

 

 

WHEREAS, many Hawaii residents work for part of the year in California, and vice versa. Many of these employees, who earn salaries, wages, and commissions from employers in both states, are subject to the income tax laws of both states; and

WHEREAS, residents of Hawaii who work in California do not have their Hawaii taxes withheld by California employers. If these Hawaii residents do not put money aside each year to pay Hawaii taxes on their California employment, they may be faced with large Hawaii tax liabilities; and

WHEREAS, a number of states have entered into reciprocal agreements with other states to assist in the enforcement and administration of their income tax laws; and

WHEREAS, under a typical reciprocal income tax agreement, a Hawaii resident would be exempt from income taxes imposed by a reciprocal state on wages, salaries, and commissions earned in the reciprocal state, while a resident of a reciprocal state who earns compensation for services performed in Hawaii would be exempt from Hawaii income taxes; and

WHEREAS, for example, in Michigan, under the general terms of a reciprocal agreement with another state, a Michigan resident will be, in effect, exempt from any income tax imposed by a reciprocal state on salaries, wages, and commissions earned for personal services performed in the reciprocal state; and

WHEREAS, conversely, a nonresident from a reciprocal state who earns compensation for services performed in Michigan will be, in effect, exempt from Michigan income tax. The nonresident from a reciprocal state need not file a Michigan income tax return if he or she has no other income subject to tax in Michigan; and

WHEREAS, the State of Wisconsin also currently has reciprocity agreements with five states: Illinois, Indiana, Kentucky, Michigan, and Minnesota. These agreements generally state that residents of these states will be taxed on personal service income by their home state, rather than by Wisconsin; and

WHEREAS, conversely, Wisconsin will tax Wisconsin residents working in one of these states and the other state generally will not tax the personal service income of Wisconsin residents who are employed in that state. Reciprocity applies only to personal service income, which generally includes salaries, wages, commissions, and fees earned by an employee. Reciprocity does not apply to other types of income, such as gains on the sale of property, rental income, and lottery winnings; and

WHEREAS, in Maryland, wages, salary and other compensation for personal services rendered in that state by a nonresident is subject to taxation unless Maryland has entered into a written reciprocal agreement with another jurisdiction exempting this income from taxation. At present, Maryland has written reciprocal agreements with Pennsylvania, Virginia, West Virginia, and the District of Columbia; and

WHEREAS, except for differences set forth in the agreements, nonresidents from these jurisdictions will be exempt from taxation on the wages, salary, and other compensation for personal services rendered in Maryland, and Maryland residents will be exempt from taxation on wages, salary, and other compensation for personal services rendered in those jurisdictions. In addition, withholding is not required if the individual files an exemption certificate with the employer. An income tax return is not required by the nonresident if the individual's only income is from wages, salary, and other compensation for personal services rendered in the nonresident jurisdiction; and

WHEREAS, the State of California has also apparently entered into reciprocal tax agreements with other states, including Illinois and New York; and

WHEREAS, there is a need to review the feasibility of Hawaii entering into a reciprocal agreement with the State of California to ease the tax burden on Hawaii's residents, as well as to increase efficiency in the enforcement and administration of Hawaii's income tax laws; now, therefore,

BE IT RESOLVED by the House of Representatives of the Twenty-first Legislature of the State of Hawaii, Regular Session of 2001, that the Department of Taxation is requested to report to the Legislature on the feasibility of entering into a reciprocal income tax agreement with the State of California; and

BE IT FURTHER RESOLVED that the Department of Taxation is requested to review the following:

(1) The potential number of people in Hawaii and California who would be affected by reciprocal income tax agreements;

(2) Reciprocal income tax agreements entered into by California and other states, including their use and cost effectiveness in those states, if known;

(3) The anticipated costs and benefits resulting from reciprocal income tax agreements; and

(4) Any other related issues as may be necessary;

and

BE IT FURTHER RESOLVED that the Department of Taxation is requested to consult with the California Franchise Tax Board to ascertain the willingness, if any, of the State of California to enter into a reciprocal income tax agreement with the State of Hawaii; and

BE IT FURTHER RESOLVED that certified copies of this Resolution be transmitted to the state Director of Taxation and the Director of the California Franchise Tax Board.

 

 

 

OFFERED BY:

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