REPORT TITLE:
Housing Tax Credit


DESCRIPTION:
Allows a partnership, limited liability company, and S
corporation investors to claim the state low-income housing tax
credit whether or not they claim the federal low income housing
tax credit.  (HB2432 HD1)


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2432
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO LOW-INCOME HOUSING TAX CREDIT.



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

 1      SECTION 1.  The purpose of this Act is to allow partnership,
 
 2 limited liability company, and S corporation investors to claim
 
 3 the state low-income housing tax credit whether or not they
 
 4 claimed the federal low-income housing tax credit.  The Act would
 
 5 also provide entities taxed as partnerships with the flexibility
 
 6 of allocating the state low-income housing tax credit among its
 
 7 partners and members.
 
 8      SECTION 2.  Section 235-2.4, Hawaii Revised Statutes, is
 
 9 amended to read as follows:
 
10      "§235-2.4  Operation of certain Internal Revenue Code
 
11 provisions.(a)  Section 63 (with respect to taxable income
 
12 defined) of the Internal Revenue Code shall be operative for the
 
13 purposes of this chapter, except that the standard deduction
 
14 amount in section 63(c) of the Internal Revenue Code shall
 
15 instead mean:
 
16      (1)  $1,900 in the case of:
 
17           (A)  A joint return as provided by section 235-93; or
 
18           (B)  A surviving spouse (as defined in section 2(a) of
 
19                the Internal Revenue Code);
 

 
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 1      (2)  $1,650 in the case of a head of household (as defined
 
 2           in section 2(b) of the Internal Revenue Code);
 
 3      (3)  $1,500 in the case of an individual who is not married
 
 4           and who is not a surviving spouse or head of household;
 
 5           or
 
 6      (4)  $950 in the case of a married individual filing a
 
 7           separate return.
 
 8      Section 63(c)(4) shall not be operative in this State.
 
 9 Section 63(c)(5) shall be operative, except that the limitation
 
10 on basic standard deduction in the case of certain dependents
 
11 shall be the greater of $500 or such individual's earned income.
 
12 Section 63(f) shall not be operative in this State.
 
13      The standard deduction amount for nonresidents shall be
 
14 calculated pursuant to section 235-5.
 
15      (b)  Section 72 (with respect to annuities; certain proceeds
 
16 of endowment and life insurance contracts) of the Internal
 
17 Revenue Code shall be operative for purposes of this chapter and
 
18 be interpreted with due regard to section 235-7(a), except that
 
19 the ten per cent additional tax on early distributions from
 
20 retirement plans in section 72(t) shall not be operative for
 
21 purposes of this chapter.
 
22      (c)  Section 121 (with respect to the exclusion of gain from
 
23 sale of principal residence) of the Internal Revenue Code shall
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1 be operative for purposes of this chapter, except that for the
 
 2 election under section 121(f), a reference to section 1034
 
 3 treatment means a reference to section 235-2.4(n) in effect for
 
 4 taxable year 1997.
 
 5      (d)  Section 219 (with respect to retirement savings) of the
 
 6 Internal Revenue Code shall be operative for the purpose of this
 
 7 chapter.  For the purpose of computing the limitation on the
 
 8 deduction for active participants in certain pension plans for
 
 9 state income tax purposes, adjusted gross income as used in
 
10 section 219 as operative for this chapter means federal adjusted
 
11 gross income.
 
12      (e)  Section 220 (with respect to medical savings accounts)
 
13 of the Internal Revenue Code shall be operative for the purpose
 
14 of this chapter, but only with respect to medical services
 
15 accounts that have been approved by the Secretary of the Treasury
 
16 of the United States.
 
17      (f)  Section 408A (with respect to Roth Individual
 
18 Retirement Accounts) of the Internal Revenue Code shall be
 
19 operative for the purposes of this chapter.  For the purposes of
 
20 determining the aggregate amount of contributions to a Roth
 
21 Individual Retirement Account or qualified rollover contribution
 
22 to a Roth Individual Retirement Account from an individual
 
23 retirement plan other than a Roth Individual Retirement Account,
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1 adjusted gross income as used in section 408A as operative for
 
 2 this chapter means federal adjusted gross income.
 
 3      (g)  In administering the provisions of sections 410 to 417
 
 4 (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.
 

 
 
 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1      (h)  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)  Section 469 (with respect to passive activities and
 
 8 credits limited) of the Internal Revenue Code shall be operative
 
 9 for the purposes of this chapter.  For the purpose of computing
 
10 the offset for rental real estate activities for state income tax
 
11 purposes, adjusted gross income as used in section 469 as
 
12 operative for this chapter means federal adjusted gross income.
 
13      (j)  Sections 512 to 514 (with respect to taxation of
 
14 business income of certain exempt organizations) of the Internal
 
15 Revenue Code shall be operative for the purposes of this chapter
 
16 as provided in this subsection.
 
17      "Unrelated business taxable income" means the same as in the
 
18 Internal Revenue Code, except that in the computation thereof
 
19 sections 235-3 to 235-5, and 235-7 (except subsection (c)), shall
 
20 apply, and in the determination of the net operating loss
 
21 deduction there shall not be taken into account any amount of
 
22 income or deduction which is excluded in computing the unrelated
 
23 business taxable income. Unrelated business taxable income shall
 
24 not include any income from a prepaid legal service plan.
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        


 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      (k)  Section 521 (with respect to cooperatives) and
 
 6 subchapter T (sections 1381 to 1388, with respect to cooperatives
 
 7 and their patrons) of the Internal Revenue Code shall be
 
 8 operative for the purposes of this chapter as to any cooperative
 
 9 fully meeting the requirements of section 421-23, except that
 
10 Internal Revenue Code section 521 cooperatives need not be
 
11 organized in Hawaii.
 
12      (l)  Sections 527 (with respect to political organizations)
 
13 and 528 (with respect to certain homeowners associations) of the
 
14 Internal Revenue Code shall be operative for the purposes of this
 
15 chapter and the taxes imposed in each such section are hereby
 
16 imposed by this chapter at the rates determined under section
 
17 235-71.
 
18      (m)  Section 530 (with respect to education individual
 
19 retirement accounts) of the Internal Revenue Code shall be
 
20 operative for the purposes of this chapter.  For the purpose of
 
21 determining the maximum amount that a contributor could make to
 
22 an education individual retirement account for state income tax
 
23 purposes, modified adjusted gross income as used in section 530
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1 for this chapter means federal modified adjusted gross income as
 
 2 defined in section 530.
 
 3      (n)  Section 641 (with respect to imposition of tax) of the
 
 4 Internal Revenue Code shall be operative for the purposes of this
 
 5 chapter subject to the following:
 
 6      (1)  The deduction for exemptions shall be allowed as
 
 7           provided in section 235-54(b).
 
 8      (2)  The deduction for contributions and gifts in
 
 9           determining taxable income shall be limited to the
 
10           amount allowed in the case of an individual, unless the
 
11           contributions and gifts are to be used exclusively in
 
12           the State.
 
13      (3)  The tax imposed by section 1(e) of the Internal Revenue
 
14           Code as applied by section 641 of the Internal Revenue
 
15           Code is hereby imposed by this chapter at the rate and
 
16           amount as determined under section 235-51 on estates
 
17           and trusts.
 
18      (o)  Section 667 (with respect to treatment of amounts
 
19 deemed distributed by trusts in preceding years) of the Internal
 
20 Revenue Code shall be operative for the purposes of this chapter
 
21 and the tax imposed therein is hereby imposed by this chapter at
 
22 the rate determined under this chapter; except that the reference
 
23 to tax-exempt interest to which section 103 of the Internal
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1 Revenue Code applies in section 667(a) of the Internal Revenue
 
 2 Code shall instead be a reference to tax-exempt interest to which
 
 3 section 235-7(b) applies.
 
 4      (p)  Section 685 (with respect to treatment of qualified
 
 5 funeral trusts) of the Internal Revenue Code shall be operative
 
 6 for purposes of this chapter, except that the tax imposed under
 
 7 this chapter shall be computed at the tax rates provided under
 
 8 section 235-51, and no deduction for the exemption amount
 
 9 provided in section 235-54(b) shall be allowed.  The cost-of-
 
10 living adjustment determined under section 1(f)(3) of the
 
11 Internal Revenue Code shall be operative for the purpose of
 
12 applying section 685(c)(3) under this chapter.
 
13      (q)  Section 704 of the Internal Revenue Code (with respect
 
14 to a partner's distributive share) shall be operative for
 
15 purposes of this chapter; except that, section 704(b)(2) shall
 
16 not apply to allocations of low-income housing tax credits among
 
17 partners under section 235-110.8.
 
18      [(q)] (r)  Section 1212 (with respect to capital loss
 
19 carrybacks and carryforwards) of the Internal Revenue Code shall
 
20 be operative for the purposes of this chapter; except that for
 
21 the purposes of this chapter the capital loss carryback
 
22 provisions of section 1212 shall not be operative and the capital
 
23 loss carryforward allowed by section 1212(a) shall be limited to
 
24 five years.
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1      [(r)] (s)  Subchapter S (sections 1361 to 1379) (with
 
 2 respect to tax treatment of S corporations and their
 
 3 shareholders) of chapter 1 of the Internal Revenue Code shall be
 
 4 operative for the purposes of this chapter as provided in part
 
 5 VII.
 
 6      [(s)] (t)  Section 6015 (with respect to relief from joint
 
 7 and several liability on joint return) of the Internal Revenue
 
 8 Code is operative for purposes of this chapter.
 
 9      [(t)] (u)  Subchapter C (sections 6221 to 6233) (with
 
10 respect to tax treatment of partnership items) of chapter 63 of
 
11 the Internal Revenue Code shall be operative for the purposes of
 
12 this chapter.
 
13      [(u)] (v)  Subchapter D (sections 6240 to 6255) (with
 
14 respect to simplified audit procedures for electing large
 
15 partnerships) of the Internal Revenue Code shall be operative for
 
16 the purposes of this chapter, with due regard to chapter 232
 
17 relating to tax appeals.
 
18      [(v)] (w)  Section 6511(h) (with respect to running of
 
19 periods of limitation suspended while taxpayer is unable to
 
20 manage financial affairs due to disability) of the Internal
 
21 Revenue Code shall be operative for purposes of this chapter,
 
22 with due regard to section 235-111 relating to the limitation
 
23 period for assessment, levy, collection, or credit.
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1      [(w)](x)  Section 7518 (with respect to capital construction
 
 2 fund for commercial fishers) of the Internal Revenue Code shall
 
 3 be operative for the purposes of this chapter.  Qualified
 
 4 withdrawals for the acquisition, construction, or reconstruction
 
 5 of any qualified asset which is attributable to deposits made
 
 6 before the effective date of this section shall not reduce the
 
 7 basis of the asset when withdrawn.  Qualified withdrawals shall
 
 8 be treated on a first-in-first-out basis."
 
 9      SECTION 3.  Section 235-110.8, Hawaii Revised Statutes, is
 
10 amended as follows:
 
11      (1)  By amending subsection (b) to read:
 
12      "(b)  [There shall be allowed to each resident] Each
 
13 taxpayer subject to the tax imposed by this chapter, who has
 
14 filed net income tax return for a taxable year may claim a low-
 
15 income housing tax credit [which] against the taxpayer's net
 
16 income tax liability.  The amount of the credit shall be
 
17 deductible from the taxpayer's net income tax liability, if any,
 
18 imposed by this chapter for the taxable year in which the credit
 
19 is properly claimed[.] on a timely basis.  A credit under this
 
20 section may be claimed whether or not the taxpayer claims a
 
21 federal low-income housing tax credit pursuant to section 42 of
 
22 the Internal Revenue Code."
 
23      (2)  By amending subsection (g) to read:
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1      "(g)  The credit allowed under this section shall be
 
 2 claimed against net income tax liability for the taxable year.
 
 3 For the purpose of deducting this tax credit, net income tax
 
 4 liability means net income tax liability reduced by all other
 
 5 credits allowed the taxpayer under this section.
 
 6      A tax credit under this section which exceeds the taxpayer's
 
 7 income tax liability may be used as a credit against the
 
 8 taxpayer's income tax liability in subsequent years until
 
 9 exhausted.  All claims for a tax credit under this section must
 
10 be filed on or before the end of the twelfth month following the
 
11 close of the taxable year for which the credit may be claimed.
 
12 Failure to properly and timely claim the credit shall constitute
 
13 a waiver of the right to claim the credit.  [In order to] A
 
14 taxpayer may claim a credit under this section[, a taxpayer must
 
15 claim a credit] only if the building or project is a qualified
 
16 low-income housing building or a qualified low-income housing
 
17 project under section 42 of the Internal Revenue Code.
 
18      Section 469 (with respect to passive activity losses and
 
19 credits limited) of the Internal Revenue Code shall be applied in
 
20 claiming the credit under this section."
 
21      SECTION 4.  Statutory material to be repealed is bracketed.
 
22 New statutory material is underscored.
 
23      SECTION 5.  This Act, upon its approval, shall apply to
 
24 taxable years beginning after December 31, 1999.