REPORT TITLE: 
Income tax simplification

DESCRIPTION:Establishes income tax rate as       the federal tax
liability.  Conforms standard deduction and personal exemption to
Internal Revenue Code and repeals certain exceptions to
conformity.  Retains all state deductions and credits.


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1813 
HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO INCOME TAX SIMPLIFICATION.



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


 1      SECTION 1.  Section 235-2.3, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "§235-2.3  Conformance to the federal Internal Revenue Code;
 
 4 general application.(a)  For all taxable years beginning after
 
 5 December 31, [1996,] 1999, as used in this chapter "Internal
 
 6 Revenue Code" means subtitle A, chapter 1 of the federal Internal
 
 7 Revenue Code of 1986, as amended as of December 31, [1996,] 1999,
 
 8 as it applies to the determination of gross income, adjusted
 
 9 gross income, ordinary income and loss, and taxable income except
 
10 those provisions of the Internal Revenue Code and federal public
 
11 laws which pursuant to this chapter do not apply or are otherwise
 
12 limited in application.
 
13      Sections 235-2, 235-2.1, and 235-2.2 shall continue to be
 
14 used to determine:
 
15           (1)  The basis of property, if a taxpayer first
 
16                determined the basis of property in a taxable year
 
17                to which such sections apply, and if such
 
18                determination was made before January 1, 1978; and
 
19            (2) Gross income, adjusted gross income, ordinary
 

 
Page 2                                                     1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1                income and loss, and taxable income for a taxable
 
 2                year to which such sections apply where such
 
 3                taxable year begins before January 1, 1978.
 
 4      (b)  The following Internal Revenue Code subchapters, parts
 
 5 of subchapters, sections, subsections, and parts of subsections
 
 6 shall not be operative for the purposes of this chapter, unless
 
 7 otherwise provided:
 
 8           (1)  [Subchapter A (sections 1 to 59A)] Sections 1 to
 
 9                15 (with respect to determination of tax
 
10                liability)[, except section].
 
11           (2)  Section 42 (with respect to the low-income housing
 
12                credit) and [except] sections 47 and 48, as
 
13                amended, as of December 31, 1984 (with respect to
 
14                certain depreciable tangible personal property).
 
15                For treatment, see sections 235-110.7 and
 
16                235-110.8.
 
17           [(2) Section 78 (with respect to dividends received
 
18                from certain foreign corporations by domestic
 
19                corporations choosing foreign tax credit).
 
20           (3)  Section 86 (with respect to social security and
 
21                tier 1 railroad retirement benefits).
 
22           (4)] (3)  Section 103 (with respect to interest on
 
23                state and local bonds).  For treatment, see
 

 
Page 3                                                     1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1                section 235-7(b).
 
 2           [(5)]((4)  Section 120 (with respect to amounts receive
 
 3           d under qualified group legal services plans).  For
 
 4           treatment, see section 235-7(a)(9) to (11).
 
 5           [(6)](5)  Section 122 (with respect to certain reduced 
 
 6      uniformed services retirement pay).  For treatment, see
 
 7           section 235-7(a)(3).
 
 8           [(7)](6)  Section 135 (with respect to income from
 
 9           United States savings bonds used to pay higher
 
10           education tuition and fees).  For treatment, see
 
11           section 235-7(a)(1).
 
12           [(8)](7)  Subchapter B (sections 141 to 150) (with
 
13           respect to tax exemption requirements for state and
 
14           local bonds).
 
15           [(9) Section 151 (with respect to allowance of
 
16                deductions for personal exemptions).  For
 
17                treatment, see section 235-54.
 
18           (10) Section 196 (with respect to deduction for certain
 
19                unused investment credits).
 
20           (11)](8)  Sections 241 to 247 (with respect to special
 
21           deductions for corporations).  For treatment, see
 
22           section 235-7(c).
 

 
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                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1           [(12)Section 280C (with respect to certain expenses for 
 
 2      which credits are allowable).
 
 3           (13) Section 291 (with respect to special rules
 
 4                relating to corporate preference items).
 
 5           (14) Section 367 (with respect to foreign
 
 6                corporations).
 
 7           (15) Section 501(c)(12), (15), (16) (with respect to
 
 8                exempt organizations).
 
 9           (16) Section 515 (with respect to taxes of foreign
 
10                countries and possessions of the United States).
 
11           (17) Subchapter G (sections 531 to 565) (with respect
 
12                to corporations used to avoid income tax on
 
13                shareholders).
 
14           (18)](9)  Subchapter H (sections 581 to 597) (with
 
15           respect to banking institutions), except section 584
 
16           (with respect to common trust funds).  For treatment,
 
17           see chapter 241.
 
18           [(19)](10)  Section 642(a) and (b) (with respect to
 
19           special rules for credits and deductions applicable to
 
20           trusts).  For treatment, see [sections 235-54(b) and]
 
21           section 235-55.
 
22           [(20)Section 668 (with respect to interest charge on ac
 
23           cumulation distributions from foreign trusts).
 

 
Page 5                                                     1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1           (21)](11)  Subchapter L (sections 801 to 848) (with res
 
 2           pect to insurance companies).  For treatment, see
 
 3           sections 431:7-202 and 431:7-204.
 
 4           [(22)](12)  Section 853 (with respect to foreign tax cr
 
 5           edit allowed to shareholders).  For treatment, see
 
 6           section 235-55.
 
 7           [(23)](13)  Subchapter N (sections 861 to 999) (with re
 
 8           spect to tax based on income from sources within or
 
 9           without the United States), except sections 985 to 989
 
10           (with respect to foreign currency transactions).  For
 
11           treatment, see sections 235-4, 235-5, 235-7(b), and
 
12           235-55.
 
13           [(24)Section 1055 (with respect to redeemable ground re
 
14           nts).
 
15           (25) Section 1057 (with respect to election to treat
 
16                transfer to foreign trust, etc., as taxable
 
17                exchange).
 
18           (26) Sections 1291 to 1297 (with respect to treatment
 
19                of passive foreign investment companies).
 
20           (27) Subchapter Q (sections 1311 to 1351) (with respect
 
21                to readjustment of tax between years and special
 
22                limitations).
 
23           (28)](14)  Subchapter U (sections 1391 to 1397F) (with 
 

 
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                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1      respect to designation and treatment of empowerment zones,
 
 2           enterprise communities, and rural development
 
 3           investment areas).  For treatment, see chapter 209E."
 
 4      SECTION 2.  Section 235-2.4, Hawaii Revised Statutes, is
 
 5 amended to read as follows:
 
 6      "§235-2.4  Operation of certain Internal Revenue Code
 
 7 provisions.(a)  [Section 63 (with respect to taxable income
 
 8 defined) of the Internal Revenue Code shall be operative for the
 
 9 purposes of this chapter, except that the standard deduction
 
10 amount in section 63(c) of the Internal Revenue Code shall
 
11 instead mean:
 
12           (1)  $1,900 in the case of:
 
13                (A)  A joint return as provided by section 235-93,
 
14                     or
 
15                (B)  A surviving spouse (as defined in section
 
16                     2(a) of the Internal Revenue Code),
 
17           (2)  $1,650 in the case of a head of household (as
 
18                defined in section 2(b) of the Internal Revenue
 
19                Code),
 
20           (3)  $1,500 in the case of an individual who is not
 
21                married and who is not a surviving spouse or head
 
22                of household, or
 

 
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                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1           (4)  $950 in the case of a married individual filing a 
 
 2      separate return.
 
 3 Section 63(c)(4) shall not be operative in this State.  Section
 
 4 63(c)(5) shall be operative, except that the limitation on basic
 
 5 standard deduction in the case of certain dependents shall be the
 
 6 greater of $500 or such individual's earned income.  Section
 
 7 63(f) shall not be operative in this State.
 
 8      (b)  Section 213 (with respect to medical, dental, etc.,
 
 9 expenses) shall be operative, except that subsections (d)(1)(C)
 
10 with respect to long-term care services, (d)(1)(D) as it applies
 
11 to long-term care insurance contract premiums, (d)(7) as it
 
12 applies to long-term care insurance contract premiums, and
 
13 (d)(10) as it applies to eligible long-term care premiums, shall
 
14 not be operative in this State.
 
15      (c)]  Section 219 (with respect to retirement savings) of
 
16 the Internal Revenue Code shall be operative for the purpose of
 
17 this chapter.  For the purpose of computing the limitation on the
 
18 deduction for active participants in certain pension plans for
 
19 state income tax purposes, adjusted gross income as used in
 
20 section 219 as operative for this chapter means federal adjusted
 
21 gross income.
 
22      [(d)  Section 220 (with respect to medical savings accounts)
 
23 shall be operative for the purposes of this chapter, but only
 

 
Page 8                                                     1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1 with respect to medical services accounts that have been approved
 
 2 by the secretary of the Treasury of the United States.
 
 3      (e)] (b)  In administering the provisions of sections 410 to
 
 4 417 (with respect to special rules relating to pensions, profit
 
 5 sharing, stock bonus plans, etc.), sections 418 to 418E (with
 
 6 respect to special rules for multiemployer plans), and sections
 
 7 419 and 419A (with respect to treatment of welfare benefit funds)
 
 8 of the Internal Revenue Code, the department of taxation shall
 
 9 adopt rules under chapter 91 relating to the specific
 
10 requirements under such sections and to such other administrative
 
11 requirements under those sections as may be necessary for the
 
12 efficient administration of sections 410 to 419A.
 
13      In administering sections 401 to 419A (with respect to
 
14 deferred compensation) of the Internal Revenue Code, Public Law
 
15 93-406, section 1017(i), shall be operative for the purposes of
 
16 this chapter.
 
17      In administering section 402 (with respect to the taxability
 
18 of beneficiary of employees' trust) of the Internal Revenue Code,
 
19 the tax imposed on lump sum distributions by section 402(e) of
 
20 the Internal Revenue Code shall be operative for the purposes of
 
21 this chapter and the tax imposed therein is hereby imposed by
 
22 this chapter at the rate determined under this chapter.
 
23      [(f)  Section 468B (with respect to special rules for
 

 
Page 9                                                     1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1 designated settlement funds) shall be operative for the purposes
 
 2 of this chapter and the tax imposed therein is hereby imposed by
 
 3 this chapter at a rate equal to the maximum rate in effect for
 
 4 the taxable year imposed on estates and trusts under section
 
 5 235-51.
 
 6      (g)] (c)  Section 469 (with respect to passive activities
 
 7 and credits limited) shall be operative for the purposes of this
 
 8 chapter.  For the purpose of computing the offset for rental real
 
 9 estate activities for state income tax purposes, adjusted gross
 
10 income as used in section 469 as operative for this chapter means
 
11 federal adjusted gross income.
 
12      [(h)] (d)  Sections 512 to 514 (with respect to taxation of
 
13 business income of certain exempt organizations) of the Internal
 
14 Revenue Code shall be operative for the purposes of this chapter
 
15 as provided in this subsection.
 
16      "Unrelated business taxable income" means the same as in the
 
17 Internal Revenue Code, except that in the computation thereof
 
18 sections 235-3 to 235-5, and 235-7 (except subsection (c)), shall
 
19 apply, and in the determination of the net operating loss
 
20 deduction there shall not be taken into account any amount of
 
21 income or deduction which is excluded in computing the unrelated
 
22 business taxable income.  Unrelated business taxable income shall
 
23 not include any income from a prepaid legal service plan.
 

 
Page 10                                                    1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1      For a person described in section 401 or 501 of the Internal
 
 2 Revenue Code, as modified by section 235-2.3, the tax imposed by
 
 3 section 235-51 or 235-71 shall be imposed upon the person's
 
 4 unrelated business taxable income.
 
 5      [(i)] (e)  Section 521 (with respect to cooperatives) and
 
 6 subchapter T (sections 1381 to 1388, with respect to cooperatives
 
 7 and their patrons) shall be operative for the purposes of this
 
 8 chapter as to any cooperative fully meeting the requirements of
 
 9 section 421-23, except that Internal Revenue Code section 521
 
10 cooperatives need not be organized in Hawaii.
 
11      [(j)] (f)  Sections 527 (with respect to political
 
12 organizations) and 528 (with respect to certain homeowners
 
13 associations) shall be operative for the purposes of this chapter
 
14 and the taxes imposed in each such section are hereby imposed by
 
15 this chapter at the rates determined under section 235-71.
 
16      [(k)] (g)  Section 641 (with respect to imposition of tax)
 
17 of the Internal Revenue Code shall be operative for the purposes
 
18 of this chapter subject to the following:
 
19           [(1) The deduction for exemptions shall be allowed as
 
20                provided in section 235-54(b).
 
21           (2)] (1)  The deduction for contributions and gifts in
 
22                determining taxable income shall be limited to the
 
23                amount allowed in the case of an individual,
 

 
Page 11                                                    1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1                unless the contributions and gifts are to be used
 
 2                exclusively in the State.
 
 3           [(3)](2)  The tax imposed by section 1(e) of the
 
 4           Internal Revenue Code as applied by section 641 of the
 
 5           Internal Revenue Code is hereby imposed by this chapter
 
 6           at the rate and amount as determined under section
 
 7           235-51 on estates and trusts.
 
 8      [(l)  Section 644 (with respect to special rule for gain on
 
 9 property transferred to trust at less than fair market value) of
 
10 the Internal Revenue Code shall be operative for the purposes of
 
11 this chapter and the tax imposed therein is hereby imposed by
 
12 this chapter at the rate determined under this chapter; except
 
13 that the determination of the interest rate established under
 
14 section 6621 of the Internal Revenue Code referred to in section
 
15 644(a)(2) of the Internal Revenue Code shall instead be the
 
16 interest rate established under section 231-39(b)(4).]
 
17      [(m)] (h)  Section 667 (with respect to treatment of amounts
 
18 deemed distributed by trusts in preceding years) of the Internal
 
19 Revenue Code shall be operative for the purposes of this chapter
 
20 and the tax imposed therein is hereby imposed by this chapter at
 
21 the rate determined under this chapter; except that the reference
 
22 to tax-exempt interest to which section 103 of the Internal
 
23 Revenue Code applies in section 667(a) of the Internal Revenue
 

 
Page 12                                                    1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1 Code shall instead be a reference to tax-exempt interest to which
 
 2 section 235-7(b) applies.
 
 3      [(n)  Section 1034 (with respect to rollover of gain on sale
 
 4 of principal residence) of the Internal Revenue Code shall be
 
 5 operative for the purpose of this chapter; provided section
 
 6 1034(a) (with respect to nonrecognition of gain) of the Internal
 
 7 Revenue Code shall apply only to:
 
 8           (1)  A taxpayer who purchases a replacement residence
 
 9                which is located within the State;
 
10           (2)  A taxpayer who is a resident of the State, taxable
 
11                upon the taxpayer's entire income, computed
 
12                without regard to source within the State; or
 
13           (3)  A taxpayer (or the taxpayer's spouse if the old
 
14                residence and the new residence are each used by
 
15                the taxpayer and the taxpayer's spouse as their
 
16                principal residence) who, while serving on
 
17                extended active duty with the armed forces of the
 
18                United States, purchased a residence in Hawaii and
 
19                later sold the residence.
 
20      (o)  Section 1212 (with respect to capital loss carrybacks
 
21 and carryforwards) of the Internal Revenue Code shall be
 
22 operative for the purposes of this chapter; except that for the
 
23 purposes of this chapter the capital loss carryback provisions of
 

 
Page 13                                                    1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1 section 1212 shall not be operative and the capital loss
 
 2 carryforward allowed by section 1212(a), shall be limited to five
 
 3 years.
 
 4      (p)] (i)  Subchapter S (sections 1361 to 1379) (with respect
 
 5 to tax treatment of S corporations and their shareholders) of
 
 6 chapter 1 of the Internal Revenue Code shall be operative for the
 
 7 purposes of this chapter as provided in part VII.
 
 8      [(q)] (j)  Subchapter C (sections 6221 to 6233) (with
 
 9 respect to tax treatment of partnership items) of chapter 63 of
 
10 the Internal Revenue Code shall be operative for the purposes of
 
11 this chapter.
 
12      [(r)] (k)  Subchapter D (sections 6240 to 6255) (with
 
13 respect to simplified audit procedures for electing large
 
14 partnerships) of chapter 63 of the Internal Revenue Code shall be
 
15 operative for the purposes of this chapter, with due regard to
 
16 chapter 232 relating to tax appeals.
 
17      [(s)] (l)  Section 7518 (with respect to capital
 
18 construction fund for commercial fishers) of the Internal Revenue
 
19 Code shall be operative for the purposes of this chapter.
 
20 Qualified withdrawals for the acquisition, construction, or
 
21 reconstruction of any qualified asset which is attributable to
 
22 deposits made before the effective date of this section shall not
 
23 reduce the basis of the asset when withdrawn.  Qualified
 

 
Page 14                                                    1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1 withdrawals shall be treated on a first-in-first-out basis."
 
 2      SECTION 3.  Section 235-3, Hawaii Revised Statutes, is
 
 3 amended by amending subsection (b) to read as follows:
 
 4      "(b)  The Internal Revenue Code, so far as made operative by
 
 5 this chapter, is a statute adopted and incorporated by reference.
 
 6 The Internal Revenue Code shall be applied using changes in
 
 7 nomenclature and other language, including the omission of
 
 8 inapplicable language, where necessary to effectuate the intent
 
 9 of this section.  In the Internal Revenue Code, references to
 
10 terms such as:
 
11           (1)  "Secretary or his delegate" shall refer to the
 
12                director of taxation and the director's duly
 
13                authorized subordinates;
 
14           (2)  "Estate taxes" shall refer to the estate and
 
15                transfer tax imposed by chapter 236D;
 
16           [(3) "The highest rate of tax imposed upon individuals"
 
17                or "39.6 per cent" shall refer to the highest rate
 
18                imposed upon individuals under section 235-51; 
 
19           (4)] (3)  "The highest rate of tax imposed upon
 
20                corporations" shall refer to the highest rate
 
21                imposed upon corporations under section 235-71;
 
22                and
 
23           [(5)](4)  "Interest at the underpayment rate" or
 

 
Page 15                                                    1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1           "interest at the overpayment rate" shall refer to the
 
 2           interest rate set forth in section 231-39(b)(4) or
 
 3           section 231-23(d)(1), as the case may be."
 
 4      SECTION 4.  Section 235-4, Hawaii Revised Statutes, is
 
 5 amended by amending subsection (c) to read as follows:
 
 6      "(c)  Change of status.  Except where a joint return is
 
 7 filed, when the status of a taxpayer changes during the taxable
 
 8 year from resident to nonresident, or from nonresident to
 
 9 resident, the tax imposed by this chapter applies to the entire
 
10 income earned during the period of residence in the manner
 
11 provided in subsection (a) of this section and during the period
 
12 of nonresidence the tax shall apply upon the income received or
 
13 derived as a nonresident in the manner provided in subsection (b)
 
14 of this section; provided that if it cannot be determined whether
 
15 income was received or derived during the period of residence or
 
16 during the period of nonresidence, there shall be attributed to
 
17 the State such portion of the income as is determined by applying
 
18 to such income for the whole taxable year the ratio which the
 
19 period of residence in the State bears to the whole taxable year,
 
20 unless the taxpayer shows to the satisfaction of the department
 
21 of taxation that the result is to attribute to the state income,
 
22 dependent upon residence, received or derived during the period
 

 
Page 16                                                    1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1 of nonresidence, in which event the amount of income as to which
 
 2 such showing is made shall be excluded. 
 
 3      The apportionment of income provided by this subsection
 
 4 shall not apply where one spouse is a resident of this State and
 
 5 a joint return is filed with the nonresident spouse in which
 
 6 event the tax shall be computed on their aggregate income [in the
 
 7 manner provided in section 235-52] without regard to source in
 
 8 the State.  Where, however, both spouses change their status from
 
 9 resident to nonresident or from nonresident to resident, their
 
10 income shall be apportioned in the manner provided in this
 
11 subsection." 
 
12      SECTION 5.  Section 235-51, Hawaii Revised Statutes, is
 
13 amended to read as follows:
 
14      "§235-51  Tax imposed on individuals; rates.(a)  There is
 
15 hereby imposed on the taxable income of every: 
 
16           (1)  [every taxpayer] Taxpayer who files a joint return
 
17                under section 235-93; [and]
 
18           (2)  [every surviving] Surviving spouse [a tax
 
19                determined in accordance with the following table:
 
20      In the case of any taxable year beginning after December 31,
 
21 1988:
 
22 
 

 
Page 17                                                    1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1 If the taxable income is:           The tax shall be:
 
 2 Not over $3,000                     2% of taxable income
 
 3 Over $3,000 but                     $60.00 plus 4% of excess
 
 4 not over $5,000                     over $3,000
 
 5 Over $5,000 but                     $140.00 plus 6% of excess
 
 6 not over $7,000                     over  $5,000
 
 7 Over $7,000 but                     $260.00 plus 7.25% of excess
 
 8 not over $11,000                    over  $7,000
 
 9 Over $11,000 but                    $550.00 plus 8% of excess
 
10 not over $21,000                    over $11,000
 
11 Over $21,000 but                    $1,350.00 plus 8.75% of
 
12 not over $31,000                    excess over $21,000
 
13 Over $31,000 but                    $2,225.00 plus 9.5% of
 
14 not over $41,000                    excess over $31,000
 
15 Over $41,000                        $3,175.00 plus 10% of
 
16                                     excess over $41,000
 
17      (b)  There is hereby imposed on the taxable income of every
 
18 head of a household a tax determined in accordance with the
 
19 following table:
 
20      In the case of any taxable year beginning after December 31,
 
21 1988:
 
22 
 
23 If the taxable income is:           The tax shall be:
 

 
Page 18                                                    1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1 Not over $1,500                     2% of taxable income
 
 2 Over $1,500 but                     $30.00 plus 3% of excess
 
 3 not over $2,500                     over $1,500
 
 4 Over $2,500 but                     $60.00 plus 4.5% of excess
 
 5 not over $3,500                     over $2,500
 
 6 Over $3,500 but                     $105.00 plus 5.9% of excess
 
 7 not over $5,500                     over $3,500
 
 8 Over $5,500 but                     $223.00 plus 7.25% of excess
 
 9 not over $11,000                    over $5,500
 
10 Over $11,000 but                    $621.75 plus 8.6% of excess
 
11 not over $21,000                    over $11,000
 
12 Over $21,000 but                    $1,481.75 plus 9.6% of
 
13 not over $41,000                    excess over $21,000
 
14 Over $41,000                        $3,401.75 plus 10% of
 
15                                     excess over $41,000
 
16      (c)  There is hereby imposed on the taxable income of (1)
 
17 every unmarried individual (other than a surviving spouse, or the
 
18 head of a household) and (2) on the taxable income of every
 
19 married individual who does not make a single return jointly with
 
20 the individual's spouse under section 235-93 a tax determined in
 
21 accordance with the following table:
 
22      In the case of any taxable year beginning after December 31,
 
23 1988:
 

 
Page 19                                                    1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1 
 
 2 If the taxable income is:           The tax shall be:
 
 3 Not over $1,500                     2% of taxable income
 
 4 Over $1,500 but                     $30.00 plus 4% of excess
 
 5 not over $2,500                     over $1,500
 
 6 Over $2,500 but                     $70.00 plus 6% of excess
 
 7 not over $3,500                     over  $2,500
 
 8 Over $3,500 but                     $130.00 plus 7.25% of excess
 
 9 not over $5,500                     over $3,500
 
10 Over $5,500 but                     $275.00 plus 8% of excess
 
11 not over $10,500                    over $5,500
 
12 Over $10,500 but                    $675.00 plus 8.75% of excess
 
13 not over $15,500                    over $10,500
 
14 Over $15,500 but                    $1,112.50 plus 9.5% of
 
15 not over $20,500                    excess over $15,500
 
16 Over $20,500                        $1,587.50 plus 10% of
 
17                                     excess over $20,500];
 
18           (3)  Head of a household;
 
19           (4)  Unmarried individual (other than a surviving
 
20                spouse, or the head of a household); or
 
21           (5)  Married individual who does not make a single
 
22                return jointly with the individual's spouse under
 
23                section 235-93;
 

 
Page 20                                                    1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1 for the taxable year, a tax equal to      of the federal income
 
 2 tax liability of twenty-eight per cent or below, plus     per
 
 3 cent of the federal taxable income taxed at the federal rate of
 
 4 thirty-one per cent or higher.
 
 5      [(d)] (b)  The tax imposed by section 235-2.4 on estates and
 
 6 trusts shall be determined in accordance with the following
 
 7 table:
 
 8      In the case of any taxable year beginning after December 31,
 
 9 1988:
 
10 
 
11 If the taxable income is:           The tax shall be:
 
12 Not over $1,500                     2% of taxable income
 
13 Over $1,500 but                     $30.00 plus 4% of excess
 
14 not over $2,500                     over  $1,500
 
15 Over $2,500 but                     $70.00 plus 6% of excess
 
16 not over $3,500                     over  $2,500
 
17 Over $3,500 but                     $130.00 plus 7.25% of excess
 
18 not over $5,500                     over  $3,500
 
19 Over $5,500 but                     $275.00 plus 8% of excess
 
20 not over $10,500                    over  $5,500
 
21 Over $10,500 but                    $675.00 plus 8.75% of excess
 
22 not over $15,500                    over $10,500
 
23 Over $15,500 but                    $1,112.50 plus 9.5% of
 

 
Page 21                                                    1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1 not over $20,500                    excess over $15,500
 
 2 Over $20,500                        $1,587.50 plus 10% of
 
 3                                     excess over $20,500
 
 4      [(e)  Any taxpayer, other than a corporation, acting as a
 
 5 business entity in more than one state who is required by this
 
 6 chapter to file a return may elect to report and pay a tax of .5
 
 7 per cent of its annual gross sales (1) where the taxpayer's only
 
 8 activities in this State consist of sales; and (2) who does not
 
 9 own or rent real estate or tangible personal property; and (3)
 
10 whose annual gross sales in or into this State during the tax
 
11 year is not in excess of $100,000.
 
12      (f)  If a taxpayer has a net capital gain for any taxable
 
13 year to which this subsection applies, then the tax imposed by
 
14 this section shall not exceed the sum of:
 
15           (1)  The tax computed at the rates and in the same
 
16                manner as if this subsection had not been enacted
 
17                on the greater of:
 
18                (A)  The taxable income reduced by the amount of
 
19                     net capital gain, or
 
20                (B)  The amount of taxable income taxed at a rate
 
21                     below 7.25 per cent, plus
 
22           (2)  A tax of 7.25 per cent of the amount of taxable
 
23                income in excess of the amount determined under
 
24                paragraph (1).
 
Page 22                                                    1813
 
                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1      This subsection shall apply to individuals, estates, and
 
 2 trusts for taxable years beginning after December 31, 1986.]"
 
 3      SECTION 6.  Section 235-93, Hawaii Revised Statutes, is
 
 4 amended by amending subsection (a) to read as follows:
 
 5      "(a)  A husband and wife, having that status for purposes of
 
 6 the Internal Revenue Code and entitled to make a joint federal
 
 7 return for the taxable year, may make a single return jointly of
 
 8 taxes under this chapter for the taxable year.  In that case the
 
 9 tax shall be computed on their aggregate income [as provided in
 
10 section 235-52,] and the liability with respect to the tax shall
 
11 be joint and several.  For purposes of this chapter "aggregate
 
12 income" means the income of both spouses without regard to source
 
13 in the State."
 
14      SECTION 7.  Section 235-52, Hawaii Revised Statutes, is
 
15 repealed.
 
16      ["§235-52  Tax in case of joint return or return of
 
17 surviving spouse.  In the case of a joint return of a husband and
 
18 wife under section 235-93, the tax imposed, as near as may be, by
 
19 this chapter shall be twice the tax which would be imposed if the
 
20 taxable income were cut in half.  For purposes of this section
 
21 and section 235-53, a return of a surviving spouse, as defined in
 
22 the Internal Revenue Code, shall be treated as a joint return of
 
23 a husband and wife under section 235-93."]
 

 
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                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1      SECTION 8.  Section 235-53, Hawaii Revised Statutes, is
 
 2 repealed.
 
 3      ["§235-53  Tax tables for individuals.(a)  Imposition of
 
 4 tax table tax: 
 
 5           (1)  In general.  In lieu of the tax imposed by section
 
 6                235-51, there is hereby imposed for each taxable
 
 7                year on the taxable income of every individual: 
 
 8                (A)  Who does not itemize the individual's
 
 9                     deductions for the taxable year; and 
 
10                (B)  Whose taxable income for such taxable year
 
11                     does not exceed the ceiling amount, 
 
12                a tax determined under tables, applicable to such
 
13                taxable year, which shall be prescribed by the
 
14                director.  In the tables so prescribed, the
 
15                amounts of tax shall be computed on the basis of
 
16                the rates prescribed by section 235-51. 
 
17           (2)  Ceiling amount defined.  For purposes of paragraph
 
18                (1), the term "ceiling amount" means, with respect
 
19                to any taxpayer, the amount (not less than
 
20                $20,000) determined by the director for the tax
 
21                rate category in which such taxpayer falls. 
 
22           (3)  Authority to prescribe tables for taxpayers who
 
23                itemize deductions.  The director may provide that
 

 
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                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1                this section shall apply also for any taxable year
 
 2                to individuals who itemize their deductions.  Any
 
 3                tables prescribed under the preceding sentence
 
 4                shall be on the basis of taxable income. 
 
 5      (b)  Section inapplicable to certain individuals.  This
 
 6 section shall not apply to: 
 
 7           (1)  An individual making a return for a period of less
 
 8                than twelve months on account of a change in
 
 9                annual accounting period, and 
 
10           (2)  An estate or trust. 
 
11      (c)  Tax treated as imposed by section 235-51.  For purposes
 
12 of this chapter, the tax imposed by this section shall be treated
 
13 as tax imposed by section 235-51. 
 
14      (d)  Taxable income.  Whenever it is necessary to determine
 
15 the taxable income of an individual to whom this section applies,
 
16 the taxable income shall be determined under section
 
17 235-2.4(a)."]
 
18      SECTION 9.  Section 235-54, Hawaii Revised Statutes, is
 
19 repealed.
 
20      ["§235-54  Exemptions.(a)  In computing the taxable income
 
21 of any individual, there shall be deducted, in lieu of the
 
22 personal exemptions allowed by the Internal Revenue Code,
 
23 personal exemptions computed as follows: Ascertain the number of
 

 
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                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1 exemptions which the individual can lawfully claim under the
 
 2 Internal Revenue Code, add an additional exemption for the
 
 3 taxpayer or the taxpayer's spouse who is sixty-five years of age
 
 4 or older within the taxable year, and multiply that number by
 
 5 $1,040, for taxable years beginning after December 31, 1984.  A
 
 6 nonresident shall be entitled to the same personal exemptions as
 
 7 a resident, without proration of the personal exemptions on
 
 8 account of income from sources outside the State.  In the case of
 
 9 an individual with respect to whom an exemption under this
 
10 section is allowable to another taxpayer for a taxable year
 
11 beginning in the calendar year in which the individual's taxable
 
12 year begins, the personal exemption amount applicable to such
 
13 individual under this subsection for such individual's taxable
 
14 year shall be zero. 
 
15      (b)  In computing the taxable income of an estate or trust
 
16 there shall be allowed, in lieu of the deductions allowed under
 
17 subsection (a), the following: 
 
18           (1)  An estate shall be allowed a deduction of $400. 
 
19           (2)  A trust which, under its governing instrument, is
 
20                required to distribute all of its income currently
 
21                shall be allowed a deduction of $200. 
 
22           (3)  All other trusts shall be allowed a deduction of
 
23                $80.
 

 
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                                     H.B. NO.           
 
                                                        
 
                                                        
 
 1      (c)  A blind person, a deaf person and any person totally
 
 2 disabled, in lieu of the personal exemptions allowed by the
 
 3 Internal Revenue Code, shall be allowed, and there shall be
 
 4 deducted in computing the taxable income of a blind person, a
 
 5 deaf person, or a totally disabled person, instead of the
 
 6 exemptions provided by subsection (a), the amount of $7,000."]
 
 7      SECTION 10.  Statutory material to be repealed is bracketed.
 
 8 New statutory material is underscored.
 
 9      SECTION 11.  This Act, upon its approval, shall apply to
 
10 taxable years beginning after December 31, 1999.
 
11 
 
12 
 
13                         INTRODUCED BY:___________________________
 
14 
 
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16 
 
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18 
 
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20 
 
21                                       ___________________________
 
22 
 
23                                       ___________________________
 

 
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 3 
 
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 5 
 
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 7 
 
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 9 
 
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11 
 
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