STAND. COM. REP. NO. 662

Honolulu, Hawaii

, 2005

RE: S.B. No. 842

S.D. 1

 

 

Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred S.B. No. 842 entitled:

"A BILL FOR AN ACT RELATING TO WITHHOLDING OF TAX ON THE DISPOSITION OF REAL PROPERTY BY NONRESIDENT PERSONS,"

begs leave to report as follows:

The purpose of this measure is to clarify the applicability of withholding requirements under the Hawaii Real Property Tax Act to nonresident single member limited liability companies that elected not to be taxed as corporations.

The Hawaii Real Property Tax Act requires buyers of real property to withhold five per cent of the gross proceeds of the sale to ensure that appropriate tax returns are filed and taxes are paid by the seller. Under present law, non-resident single member limited liability companies that have not elected to be taxed as corporations are exempt from this withholding requirement. As a result, these companies have little incentive to file the appropriate tax returns or to pay the State any taxes due. Further, because the single member is a nonresident, the Department of Taxation is at a serious disadvantage in enforcing compliance.

Your Committee finds that this bill closes the loophole by clarifying that where the single member limited liability company has elected not to be taxed as a corporation, withholding requirements may apply to the sales transaction, depending upon the residency of the single member.

Your Committee has amended the measure by clarifying that nothing in the measure shall be construed to create any inference with respect to the proper tax treatment of single member limited liability companies for taxable years prior to the taxable year beginning on January 1, 2005. Technical nonsubstantive amendments were also made for the purposes of clarity and style.

As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 842, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 842, S.D. 1, and be placed on the calendar for Third Reading.

Respectfully submitted on behalf of the members of the Committee on Ways and Means,

____________________________

BRIAN T. TANIGUCHI, Chair