REPORT TITLE: 
Business expense deduction


DESCRIPTION:
Allows 100% income tax deduction for meals and entertainment
expenses and allows a deduction for business organization dues.



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2239
HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO INCOME TAX.



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

 1      SECTION 1.  Section 235-2.4, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "§235-2.4  Operation of certain Internal Revenue Code
 
 4 provisions.(a)  Section 63 (with respect to taxable income
 
 5 defined) of the Internal Revenue Code shall be operative for the
 
 6 purposes of this chapter, except that the standard deduction
 
 7 amount in section 63(c) of the Internal Revenue Code shall
 
 8 instead mean:
 
 9      (1)  $1,900 in the case of:
 
10           (A)  A joint return as provided by section 235-93; or
 
11           (B)  A surviving spouse (as defined in section 2(a) of
 
12                the Internal Revenue Code);
 
13      (2)  $1,650 in the case of a head of household (as defined
 
14           in section 2(b) of the Internal Revenue Code);
 
15      (3)  $1,500 in the case of an individual who is not married
 
16           and who is not a surviving spouse or head of household;
 
17           or
 
18      (4)  $950 in the case of a married individual filing a
 
19           separate return.
 

 
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 1      Section 63(c)(4) shall not be operative in this State.
 
 2 Section 63(c)(5) shall be operative, except that the limitation
 
 3 on basic standard deduction in the case of certain dependents
 
 4 shall be the greater of $500 or such individual's earned income.
 
 5 Section 63(f) shall not be operative in this State.
 
 6      The standard deduction amount for nonresidents shall be
 
 7 calculated pursuant to section 235-5.
 
 8      (b)  Section 72 (with respect to annuities; certain proceeds
 
 9 of endowment and life insurance contracts) of the Internal
 
10 Revenue Code shall be operative for purposes of this chapter and
 
11 be interpreted with due regard to section 235-7(a), except that
 
12 the ten per cent additional tax on early distributions from
 
13 retirement plans in section 72(t) shall not be operative for
 
14 purposes of this chapter.
 
15      (c)  Section 121 (with respect to the exclusion of gain from
 
16 the sale of principal residence) of the Internal Revenue Code
 
17 shall be operative for purposes of this chapter, except that for
 
18 the election under section 121(f), a reference to section 1034
 
19 treatment means a reference to section 235-2.4(n) in effect for
 
20 taxable year 1997.
 
21      (d)  Section 219 (with respect to retirement savings) of the
 
22 Internal Revenue Code shall be operative for the purpose of this
 
23 chapter.  For the purpose of computing the limitation on the
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1 deduction for active participants in certain pension plans for
 
 2 state income tax purposes, adjusted gross income as used in
 
 3 section 219 as operative for this chapter means federal adjusted
 
 4 gross income.
 
 5      (e)  Section 220 (with respect to medical savings accounts)
 
 6 of the Internal Revenue Code shall be operative for the purpose
 
 7 of this chapter, but only with respect to medical services
 
 8 accounts that have been approved by the Secretary of the Treasury
 
 9 of the United States.
 
10      (f)  Section 274 (with respect to disallowance of certain
 
11 entertainment expenses) of the Internal Revenue Code shall be
 
12 operative for the purposes of this chapter, except:
 
13      (1)  Subsection (a)(3) shall not be operative and a
 
14           deduction for club dues shall be allowed; and
 
15      (2)  In subsection (n), the words "fifty per cent" shall be
 
16           replaced with "one hundred per cent" for purposes of
 
17           this chapter.
 
18      [(f)] (g)  Section 408A (with respect to Roth Individual
 
19 Retirement Accounts) of the Internal Revenue Code shall be
 
20 operative for the purposes of this chapter.  For the purposes of
 
21 determining the aggregate amount of contributions to a Roth
 
22 Individual Retirement Account or qualified rollover contribution
 
23 to a Roth Individual Retirement Account from an individual
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1 retirement plan other than a Roth Individual Retirement Account,
 
 2 adjusted gross income as used in section 408A as operative for
 
 3 this chapter means federal adjusted gross income.
 
 4      [(g)] (h)  In administering the provisions of sections 410
 
 5 to 417 (with respect to special rules relating to pensions,
 
 6 profit sharing, stock bonus plans, etc.), sections 418 to 418E
 
 7 (with respect to special rules for multiemployer plans), and
 
 8 sections 419 and 419A (with respect to treatment of welfare
 
 9 benefit funds) of the Internal Revenue Code, the department of
 
10 taxation shall adopt rules under chapter 91 relating to the
 
11 specific requirements under such sections and to such other
 
12 administrative requirements under those sections as may be
 
13 necessary for the efficient administration of sections 410 to
 
14 419A.
 
15      In administering sections 401 to 419A (with respect to
 
16 deferred compensation) of the Internal Revenue Code, Public Law
 
17 93-406, section 1017(i), shall be operative for the purposes of
 
18 this chapter.
 
19      In administering section 402 (with respect to the taxability
 
20 of beneficiary of employees' trust) of the Internal Revenue Code,
 
21 the tax imposed on lump sum distributions by section 402(e) of
 
22 the Internal Revenue Code shall be operative for the purposes of
 
23 this chapter and the tax imposed therein is hereby imposed by
 
24 this chapter at the rate determined under this chapter.
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1      [(h)] (i)  Section 468B (with respect to special rules for
 
 2 designated settlement funds) of the Internal Revenue Code shall
 
 3 be operative for the purposes of this chapter and the tax imposed
 
 4 therein is hereby imposed by this chapter at a rate equal to the
 
 5 maximum rate in effect for the taxable year imposed on estates
 
 6 and trusts under section 235-51.
 
 7      [(i)] (j)  Section 469 (with respect to passive activities
 
 8 and credits limited) of the Internal Revenue Code shall be
 
 9 operative for the purposes of this chapter.  For the purpose of
 
10 computing the offset for rental real estate activities for state
 
11 income tax purposes, adjusted gross income as used in section 469
 
12 as operative for this chapter means federal adjusted gross
 
13 income.
 
14      [(j)] (k)  Sections 512 to 514 (with respect to taxation of
 
15 business income of certain exempt organizations) of the Internal
 
16 Revenue Code shall be operative for the purposes of this chapter
 
17 as provided in this subsection.
 
18      "Unrelated business taxable income" means the same as in the
 
19 Internal Revenue Code, except that in the computation thereof
 
20 sections 235-3 to 235-5, and 235-7 (except subsection (c)), shall
 
21 apply, and in the determination of the net operating loss
 
22 deduction there shall not be taken into account any amount of
 
23 income or deduction which is excluded in computing the unrelated
 

 
Page 6                                                     2239
                                     H.B. NO.           
                                                        
                                                        

 
 1 business taxable income.  Unrelated business taxable income shall
 
 2 not include any income from a prepaid legal service plan.
 
 3      For a person described in section 401 or 501 of the Internal
 
 4 Revenue Code, as modified by section 235-2.3, the tax imposed by
 
 5 section 235-51 or 235-71 shall be imposed upon the person's
 
 6 unrelated business taxable income.
 
 7      [(k)] (l)  Section 521 (with respect to cooperatives) and
 
 8 subchapter T (sections 1381 to 1388, with respect to cooperatives
 
 9 and their patrons) of the Internal Revenue Code shall be
 
10 operative for the purposes of this chapter as to any cooperative
 
11 fully meeting the requirements of section 421-23, except that
 
12 Internal Revenue Code section 521 cooperatives need not be
 
13 organized in Hawaii.
 
14      [(l)] (m)  Sections 527 (with respect to political
 
15 organizations) and 528 (with respect to certain homeowners
 
16 associations) of the Internal Revenue Code shall be operative for
 
17 the purposes of this chapter and the taxes imposed in each such
 
18 section are hereby imposed by this chapter at the rates
 
19 determined under section 235-71.
 
20      [(m)] (n)  Section 530 (with respect to education individual
 
21 retirement accounts) of the Internal Revenue Code shall be
 
22 operative for the purposes of this chapter.  For the purpose of
 
23 determining the maximum amount that a contributor could make to
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1 an education individual retirement account for state income tax
 
 2 purposes, modified adjusted gross income as used in section 530
 
 3 for this chapter means federal modified adjusted gross income as
 
 4 defined in section 530.
 
 5      [(n)] (o)  Section 641 (with respect to imposition of tax)
 
 6 of the Internal Revenue Code shall be operative for the purposes
 
 7 of this chapter subject to the following:
 
 8      (1)  The deduction for exemptions shall be allowed as
 
 9           provided in section 235-54(b).
 
10      (2)  The deduction for contributions and gifts in
 
11           determining taxable income shall be limited to the
 
12           amount allowed in the case of an individual, unless the
 
13           contributions and gifts are to be used exclusively in
 
14           the State.
 
15      (3)  The tax imposed by section 1(e) of the Internal Revenue
 
16           Code as applied by section 641 of the Internal Revenue
 
17           Code is hereby imposed by this chapter at the rate and
 
18           amount as determined under section 235-51 on estates
 
19           and trusts.
 
20      [(o)] (p)  Section 667 (with respect to treatment of amounts
 
21 deemed distributed by trusts in preceding years) of the Internal
 
22 Revenue Code shall be operative for the purposes of this chapter
 
23 and the tax imposed therein is hereby imposed by this chapter at
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1 the rate determined under this chapter; except that the reference
 
 2 to tax-exempt interest to which section 103 of the Internal
 
 3 Revenue Code applies in section 667(a) of the Internal Revenue
 
 4 Code shall instead be a reference to tax-exempt interest to which
 
 5 section 235-7(b) applies.
 
 6      [(p)] (q)  Section 685 (with respect to treatment of
 
 7 qualified funeral trusts) of the Internal Revenue Code shall be
 
 8 operative for purposes of this chapter, except that the tax
 
 9 imposed under this chapter shall be computed at the tax rates
 
10 provided under section 235-51, and no deduction for the exemption
 
11 amount provided in section 235-54(b) shall be allowed.  The cost-
 
12 of-living adjustment determined under section 1(f)(3) of the
 
13 Internal Revenue Code shall be operative for the purpose of
 
14 applying section 685(c)(3) under this chapter.
 
15      [(q)] (r)  Section 1212 (with respect to capital loss
 
16 carrybacks and carryforwards) of the Internal Revenue Code shall
 
17 be operative for the purposes of this chapter; except that for
 
18 the purposes of this chapter the capital loss carryback
 
19 provisions of section 1212 shall not be operative and the capital
 
20 loss carryforward allowed by section 1212(a) shall be limited to
 
21 five years.
 
22      [(r)] (s)  Subchapter S (sections 1361 to 1379) (with
 
23 respect to tax treatment of S corporations and their
 
24 shareholders) of chapter 1 of the Internal Revenue Code shall be
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1 operative for the purposes of this chapter as provided in part
 
 2 VII.
 
 3      [(s)] (t)  Section 6015 (with respect to relief from joint
 
 4 and several liability on joint return) of the Internal Revenue
 
 5 Code is operative for purposes of this chapter.
 
 6      [(t)] (u)  Subchapter C (sections 6221 to 6233) (with
 
 7 respect to tax treatment of partnership items) of chapter 63 of
 
 8 the Internal Revenue Code shall be operative for the purposes of
 
 9 this chapter.
 
10      [(u)] (v)  Subchapter D (sections 6240 to 6255) (with
 
11 respect to simplified audit procedures for electing large
 
12 partnerships) of the Internal Revenue Code shall be operative for
 
13 the purposes of this chapter, with due regard to chapter 232
 
14 relating to tax appeals.
 
15      [(v)] (w)  Section 6511(h) (with respect to running of
 
16 periods of limitation suspended while taxpayer is unable to
 
17 manage financial affairs due to disability) of the Internal
 
18 Revenue Code shall be operative for purposes of this chapter,
 
19 with due regard to section 235-111 relating to the limitation
 
20 period for assessment, levy, collection, or credit.
 
21      [(w)] (x)  Section 7518 (with respect to capital
 
22 construction fund for commercial fishers) of the Internal Revenue
 
23 Code shall be operative for the purposes of this chapter.
 
24 Qualified withdrawals for the acquisition, construction, or
 

 
Page 10                                                    2239
                                     H.B. NO.           
                                                        
                                                        

 
 1 reconstruction of any qualified asset which is attributable to
 
 2 deposits made before the effective date of this section shall not
 
 3 reduce the basis of the asset when withdrawn.  Qualified
 
 4 withdrawals shall be treated on a first-in-first-out basis."
 
 5      SECTION 2.  Statutory material to be repealed is bracketed.
 
 6 New statutory material is underscored.
 
 7      SECTION 3.  This Act, upon its approval, shall apply to
 
 8 taxable years beginning after December 31, 1999.
 
 9 
 
10                       INTRODUCED BY:  ___________________________