REPORT TITLE:
General excise tax


DESCRIPTION:
Repeals the corporate income tax provisions.  Prohibits
advertising the general excise tax payment as an additional cost
to the price of an item.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
HOUSE OF REPRESENTATIVES                H.B. NO.745        
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO TAXATION.



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

 1      SECTION 1.  The intent of this bill is to improve the
 
 2 business climate by abolishing the corporate income tax and
 
 3 relying on the general excise tax as the tax on the business
 
 4 transaction.
 
 5      During the Depression, business was hard-pressed to pay tax
 
 6 on their income.  In 1935, the Territorial legislature helped
 
 7 business by changing the base of the tax from business income to
 
 8 the business transaction.  It worked, generating a surplus of one
 
 9 million dollars and relieving business of a major expense.
 
10      The general excise tax was never shown as a separate item
 
11 until the 1960's when federal deductions of local sales taxes
 
12 were allowed.  There is no such deduction now and thus no reason
 
13 for showing the general excise tax separately.
 
14      The federal government, as a sovereign, pays no taxes to any
 
15 government.  It has paid and continues to pay the general excise
 
16 tax because the tax is on business and is part of the price.
 
17      This bill returns the state business tax system to its
 
18 origins in 1935--no tax on business income and a tax on the
 
19 business transaction.
 

 
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 1      SECTION 2.  Section 235-2.4, Hawaii Revised Statutes, is
 
 2 amended as follows:
 
 3      1.   By amending subsection (j) to read:
 
 4      "(j)  Sections 512 to 514 (with respect to taxation of
 
 5 business income of certain exempt organizations) of the Internal
 
 6 Revenue Code shall be operative for the purposes of this chapter
 
 7 as provided in this subsection.
 
 8      "Unrelated business taxable income" means the same as in the
 
 9 Internal Revenue Code[,] except that in the computation thereof,
 
10 sections 235-3 to 235-5, and 235-7 (except subsection (c))[,]
 
11 shall apply, and in the determination of the net operating loss
 
12 deduction, there shall not be taken into account any amount of
 
13 income or deduction [which] that is excluded in computing the
 
14 unrelated business taxable income.  Unrelated business taxable
 
15 income shall not include any income from a prepaid legal service
 
16 plan.
 
17      For a person described in section 401 or 501 of the Internal
 
18 Revenue Code, as modified by section 235-2.3, the tax imposed by
 
19 section 235-51 [or 235-71] shall be imposed upon the person's
 
20 unrelated business taxable income."
 
21      2.   By amending subsection (l) to read:
 
22      "(l)  Sections 527 (with respect to political organizations)
 
23 and 528 (with respect to certain homeowners associations) of the
 

 
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 1 Internal Revenue Code shall be operative for the purposes of this
 
 2 chapter and the taxes imposed in each such section [are hereby
 
 3 imposed by this chapter at the rates determined under section
 
 4 235-71.] shall be at the rate of:
 
 5      (1)  4.4 per cent if the taxable income is not over $25,000;
 
 6      (2)  5.4 per cent if the taxable income is over $25,000 but
 
 7           not over $100,000; and
 
 8      (3)  6.4 per cent if the taxable income is over $100,000."
 
 9      SECTION 3.  Section 235-3, Hawaii Revised Statutes, is
 
10 amended by amending subsection (b) to read as follows:
 
11      "(b)  The Internal Revenue Code, so far as made operative by
 
12 this chapter, is a statute adopted and incorporated by reference.
 
13 The Internal Revenue Code shall be applied using changes in
 
14 nomenclature and other language, including the omission of
 
15 inapplicable language, where necessary to effectuate the intent
 
16 of this section.  In the Internal Revenue Code, references to
 
17 terms such as:
 
18      (1)  "Secretary or his delegate" shall refer to the director
 
19           of taxation and the director's duly authorized
 
20           subordinates;
 
21      (2)  "Estate taxes" shall refer to the estate and transfer
 
22           tax imposed by chapter 236D;
 

 
 
 
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 1      (3)  "The highest rate of tax imposed upon individuals" or
 
 2           "39.6 per cent" shall refer to the highest rate imposed
 
 3           upon individuals under section 235-51; and
 
 4      [(4) "The highest rate of tax imposed upon corporations"
 
 5           shall refer to the highest rate imposed upon
 
 6           corporations under section 235-71; and
 
 7      (5)] (4)  "Interest at the underpayment rate" or "interest
 
 8           at the overpayment rate" shall refer to the interest
 
 9           rate set forth in section 231-39(b)(4) or section 231-
 
10           23(d)(1), as the case may be."
 
11      SECTION 4.  Section 235-110, Hawaii Revised Statutes, is
 
12 amended by amending subsection (b) to read as follows:
 
13      "(b)  This section does not apply in the case of a payment
 
14 made pursuant to an assessment by the department of taxation
 
15 under section 235-107 or 235-108(b).  No refund or overpayment
 
16 credit may be had under this section in any event unless the
 
17 original payment of the tax was due to the law having been
 
18 interpreted or applied in respect of the taxpayer concerned
 
19 differently than in respect of the taxpayers generally.  As to
 
20 all tax payments for which a refund or credit is not authorized
 
21 by this section (including without prejudice to the generality of
 
22 the foregoing cases of unconstitutionality), the remedies
 
23 provided by appeal or under section 40-35 are exclusive.
 

 
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 1 However, nothing in this subsection shall be deemed applicable to
 
 2 a credit or refund authorized by [sections] section 235-55[,] or
 
 3 235-66, [or 235-71,] or resulting from the tax as returned being
 
 4 less than the tax as estimated; in any of these cases a credit or
 
 5 refund is authorized even though the tax for the taxable year
 
 6 remains subject to determination by the department and assessment
 
 7 as provided by law."
 
 8      SECTION 5.  Section 235-110.6, Hawaii Revised Statutes, is
 
 9 amended by amending subsection (c) to read as follows:
 
10      "(c)  The tax credit claimed under this section by the
 
11 principal operator shall be deductible from the principal
 
12 operator's individual [or corporate income] tax liability, if
 
13 any, for the tax year in which the credit is properly claimed;
 
14 provided that a husband and wife filing separate returns for a
 
15 taxable year for which a joint return could have been made by
 
16 them shall claim only the tax credit to which they would have
 
17 been entitled had a joint return been filed.  If the tax credit
 
18 claimed by the principal operator under this section exceeds the
 
19 amount of the income tax payments due from the principal
 
20 operator, the excess of credit over payments due shall be
 
21 refunded to the principal operator; provided that the tax credit
 
22 properly claimed by a principal operator who has no income tax
 
23 liability shall be paid to the principal operator; and provided
 

 
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 1 further no refunds or payments on account of the tax credit
 
 2 allowed by this section shall be made for amounts less than $1."
 
 3      SECTION 6.  Section 235-122, Hawaii Revised Statutes, is
 
 4 amended to read as follows:
 
 5      "§235-122  Taxation of an S corporation and its
 
 6 shareholders.(a)  An election under section 1361(b)(3) and (e),
 
 7 or 1362(a) of the Internal Revenue Code shall be effective for
 
 8 the purposes of this chapter.  Evidence of a valid election for
 
 9 federal purposes shall be submitted to the department in such
 
10 form and at such time the department may prescribe.
 
11      [(b)  Except as provided in the following sentence, an S
 
12 corporation shall not be subject to the tax imposed by section
 
13 235-71.  If income of an S corporation is subject to federal
 
14 income tax, then such income as modified by section 235-123, to
 
15 the extent it constitutes income attributable to the State, shall
 
16 be taxed at the highest marginal rate of tax imposed on the net
 
17 income of corporations.  If an S corporation is required to pay a
 
18 tax to this State by reason of the preceding sentence, then the
 
19 income attributable to the State of the S corporation shall be
 
20 reduced by the amount of the tax.
 
21      (c)] (b)  Each shareholder's pro rata share of income
 
22 attributable to the State and each resident shareholder's pro
 
23 rata share of income not attributable to the State, to the extent
 

 
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 1 modified pursuant to section 235-123, shall be taken into account
 
 2 by the shareholder in the manner provided in section 1366 of the
 
 3 Internal Revenue Code for the purposes of section 235-4 and shall
 
 4 be taxable under section 235-51."
 
 5      SECTION 7.  Section 237-16, Hawaii Revised Statutes, is
 
 6 amended by amending subsection (c) to read as follows:
 
 7      "(c)  No retailer shall advertise or hold out to the public
 
 8 in any manner, directly or indirectly, that the tax imposed by
 
 9 this section is [not considered as an element in the price to] a
 
10 tax on the consumer.  No retailer shall demand payment of any
 
11 amount added to an advertised price to pay the tax imposed by
 
12 this section.  Any person violating this subsection shall be
 
13 fined not more than $50 for each offense."
 
14      SECTION 8.  Part IV, chapter 235, Hawaii Revised Statutes,
 
15 is repealed.
 
16      SECTION 9.  Section 235-130, Hawaii Revised Statutes, is
 
17 repealed.
 
18      ["[§235-130]  LIFO recapture.  If an S corporation is
 
19 subject to last in first out (LIFO) recapture pursuant to section
 
20 1363 of the Internal Revenue Code, then:
 
21      (1)  Any increase in the tax imposed by section 235-71 by
 
22           reason of the inclusion of the LIFO recapture amount in
 
23           its income shall be payable in four equal installments;
 

 
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 1      (2)  The first installment shall be paid on or before the
 
 2           due date (determined without regard to extensions) for
 
 3           filing the return for the first taxable year for which
 
 4           the corporation was subject to the LIFO recapture;
 
 5      (3)  The three succeeding installments shall be paid on or
 
 6           before the due date (determined without regard to
 
 7           extensions) for filing the corporation's return for the
 
 8           three succeeding taxable years; and
 
 9      (4)  For purposes of computing interest on underpayments,
 
10           the last three installments shall not be considered
 
11           underpayments until after the payment due date
 
12           specified above."]
 
13      SECTION 10.  Statutory material to be repealed is bracketed.
 
14 New statutory material is underscored.
 
15      SECTION 11.  This Act, upon its approval, shall apply to
 
16 taxable years beginning after December 31, 1998.
 
17 
 
18                           INTRODUCED BY:  _______________________