HOUSE OF REPRESENTATIVES

H.B. NO.

1922

TWENTY-FIFTH LEGISLATURE, 2010

H.D. 1

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 legislature recognizes that there is a problem, as identified in the report of the 2005-2007 Tax Review Commission, with the collection of unpaid transient accommodations and general excise taxes on rental income from real property owned by nonresidents who fail to file tax returns on such income and move beyond the jurisdiction of the State after the property is sold and transferred.

     The purpose of this Act is to ensure that the State has collected all taxes owed by a transferor of real property by, with some exceptions, requiring persons who sell and transfer real property located in Hawaii to obtain a tax clearance.

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

     "§235-    Withholding of tax on the disposition of real property.  (a)  Before recording any transfer of title of real property the transferee shall submit to the bureau of conveyances a tax clearance issued by the department of taxation stating that the transferor has filed all tax returns and paid all taxes, penalties, and interest owed to the State.

     (b)  The transferee shall not be required to submit a tax clearance under subsection (a) if the transferor furnishes to the transferee an affidavit affirming that:

     (1)  The transferor is a resident person; provided that a transferor who claims residency based on a business in Hawaii is not a resident, if the business:

         (A)  Is not organized under the laws of the State;

         (B)  Does not maintain and staff a permanent office in the state; and

         (C)  Does not have any business activities in the State; provided that the mere holding of real property in the state for investment purposes does not constitute a business activity; or

     (2)  By reason of a nonrecognition provision of the Internal Revenue Code as operative under this Chapter or the provisions of any United States treaty, the transferor is not required to recognize any gain or loss with respect to the transfer,

and including a brief description of the transfer, and a brief summary of the law and facts supporting the claim that a tax clearance is not required with respect to the transfer.

     This subsection shall not apply if the transferee has actual knowledge that the affidavit referred to in this subsection is false.

     (c)  The director of taxation shall prepare forms as necessary to satisfy the requirements of this section and may require a transferor to furnish information needed to ascertain the person's compliance with the requirements of this section.  The director may adopt rules to effectuate this section pursuant to chapter 91.

     (d)  "Property" or "real property", "resident person", "transferee", and "transferor" shall have the same meaning as in section 235-68."

     SECTION 3.  Section 231-9.9, Hawaii Revised Statutes, is amended to read as follows:

     "§231-9.9  Filing and payment of taxes by electronic funds transfer.  (a)  The director of taxation is authorized to require every person whose tax liability for any one taxable year exceeds $100,000 and who files a tax return for any tax, including consolidated filers, to remit taxes by one of the means of electronic funds transfer approved by the department; provided that for withholding taxes under section 235-62, electronic funds transfers shall apply to annual tax liabilities that exceed $40,000.  Notwithstanding the tax liability thresholds in this subsection, the director of taxation is authorized to require any person who is required to electronically file a federal return or electronically remit any federal taxes to the federal government, to electronically file a state return and electronically remit any state taxes under title 14 to the department.  The director is authorized to grant an exemption to the electronic filing and payment requirements for good cause.

     (b)  The director of taxation may require every escrow depository who is required to file a return of the amount of tax withheld under subsection 235-68(c) to remit taxes by one of the means of electronic funds transfer approved by the department.  The director may grant an exemption to the electronic filing and payment requirements for good cause.

     [(b)] (c)  Any person who files a tax return for any tax and is not required by subsection (a) to remit taxes by means of electronic funds transfer may elect to remit taxes by one of the means of electronic funds transfer approved by the department with the approval of the director of taxation.

     [(c)] (d)  If a person who is required under subsection (a) or (b) to file a return electronically or remit taxes by one of the means of electronic funds transfer approved by the department fails to file electronically or to remit the taxes using an approved method on or before the date prescribed therefor, unless it is shown that the failure is due to reasonable cause and not to neglect, there shall be added to the tax required to be so remitted a penalty of two per cent of the amount of the tax.  The penalty under this subsection is in addition to any penalty set forth in section 231-39.

     [(d)] (e)  No later than twenty days prior to the convening of each regular session, the department shall submit a report to the legislature containing:

     (1)  The number of taxpayers who were assessed the two per cent penalty pursuant to subsection [(c);] (d);

     (2)  The amounts of each assessment; and

     (3)  The total amount of assessments collected for the previous year."

     SECTION 4.  Section 235-68, Hawaii Revised Statutes, is amended as follows:

     1.  By amending subsections (c) and (d) to read:

     "(c)  Every transferee required by this section to withhold tax under subsection (b) shall make a return of the amount withheld to the department of taxation not more than twenty days following the transfer date.  Every escrow depository authorized to file a completed return on behalf of a transferee shall file the return not more than two working days following the authorization date and deliver a receipt from the department of taxation therefor to the transferee.  An escrow depository who files a return past the two-day deadline shall be subject to a late fee of $100 per day that shall be remitted to the general fund.

     (d)  No person shall be required to deduct and withhold any amount under subsection (b), if the transferor furnishes to the transferee an affidavit by the transferor stating the transferor's taxpayer identification number and:

     (1)  The transferor is a resident person; [or] provided that a transferor who claims residency based on a business in Hawaii is not a resident, if the business:

         (A)  Is not organized under the laws of the State;

         (B)  Does not maintain and staff a permanent office in the state; and

         (C)  Does not have any business activities in the state; provided that the mere holding of real property in the state for investment purposes does not constitute a business activity;

          or

     (2)  That by reason of a nonrecognition provision of the Internal Revenue Code as operative under this chapter or the provisions of any United States treaty, the transferor is not required to recognize any gain or loss with respect to the transfer;

     (3)  A brief description of the transfer; and

     (4)  A brief summary of the law and facts supporting the claim that recognition of gain or loss is not required with respect to the transfer.

This subsection shall not apply if the transferee has actual knowledge that the affidavit referred to in this subsection is false."

     2.  By amending the definition of "transferee" to read:

     ""Transferee" means any person, the State and the counties and their respective subdivisions, agencies, authorities, and boards, acquiring real property [which] that is located in Hawaii."

     SECTION 5.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

     SECTION 6.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 7.  This Act shall take effect on July 1, 2020, and shall apply to taxable years beginning after December 31, 2009.



 

Report Title:

Disposition of Real Property; Tax Clearance

 

Description:

Requires transferors of real property located in Hawaii to furnish a tax clearance to the Bureau of Conveyances before recording the transfer.  Authorizes the Director of Taxation to require escrow depositories required to file a return of the tax withheld on a real property transfer to remit taxes by electronic funds transfer.  Requires an escrow depository filing a return on behalf of a transferee to file not more than two working days following the authorization date and deliver a receipt to the transferee, subject to a $100-per-day late fee.  Effective July 1, 2020.  (HB1922 HD1)

 

 

 

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