REPORT TITLE:
Long-Term Ins. Income Tax 

DESCRIPTION:
Establishes a State income tax credit equal to 50 per cent of
premium costs paid, up to a maximum of $1,000 per taxable year,
during the taxable year for a qualified long-term care insurance
contract as defined in section 7702B of the Internal Revenue
Code.  Creates an income tax deduction for an individual for
payment of long-term care insurance premiums. (SB194 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 1999                                H.D. 1
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT
RELATING TO INCOME TAXATION.



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

 1      SECTION 1.  Chapter 235, Hawaii Revised Statutes, is amended
 
 2 by adding a new section to be appropriately designated and to
 
 3 read as follows:
 
 4      "§235-     Long-term care insurance tax credit.  (a)  Each
 
 5 resident individual taxpayer who files an income tax return for a
 
 6 taxable year, and who is not claimed or is not otherwise eligible
 
 7 to be claimed as a dependent by another taxpayer for Hawaii state
 
 8 income tax purposes, may claim a long-term care insurance tax
 
 9 credit against the resident taxpayer's income tax liability for
 
10 the taxable year for which the income tax return is being filed.
 
11 The tax credit shall be in an amount equal to fifty per cent of
 
12 the premium costs paid by the taxpayer during the taxable year
 
13 for a qualified long-term care insurance contract as defined in
 
14 section 7702B of the Internal Revenue Code that covers the
 
15 taxpayer, a dependent as defined in section 152 of the Internal
 
16 Revenue Code, the taxpayer's spouse, or the taxpayer's parent.
 
17 The amount of the tax credit shall not exceed $1,000 in any
 
18 taxable year.
 
19      (b)  If the tax credit claimed by the taxpayer under this
 
20 section exceeds the amount of the income tax payments due from
 

 
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 1 the taxpayer, the excess of credit over payments due shall be
 
 2 refunded to the taxpayer; provided that the tax credit properly
 
 3 claimed by a taxpayer who has no income tax liability shall be
 
 4 paid to the taxpayer; and provided that no refunds or payments on
 
 5 account of the tax credit allowed by this section shall be made
 
 6 for amounts less than $1.
 
 7      (c)  The director of taxation shall prepare any forms that
 
 8 may be necessary to claim a credit under this section, may
 
 9 require proof of the claim for the tax credit, and may adopt
 
10 rules pursuant to chapter 91.
 
11      (d)  All of the provisions relating to assessments and
 
12 refunds under this chapter and under section 231-23(c)(1) shall
 
13 apply to the tax credit under this section.
 
14      (e)  Claims for the tax credit under this section, including
 
15 any amended claims, shall be filed on or before the end of the
 
16 twelfth month following the taxable year for which the credit may
 
17 be claimed."
 
18      SECTION 2.  Section 235-2.4, Hawaii Revised Statutes, is
 
19 amended to read as follows:
 
20      "§235-2.4  Operation of certain Internal Revenue Code
 
21 provisions.(a)  Section 63 (with respect to taxable income
 
22 defined) of the Internal Revenue Code shall be operative for the
 
23 purposes of this chapter, except that the standard deduction
 

 
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 1 amount in section 63(c) of the Internal Revenue Code shall
 
 2 instead mean:
 
 3      (1)  $1,900 in the case of:
 
 4           (A)  A joint return as provided by section 235-93, or
 
 5           (B)  A surviving spouse (as defined in section 2(a) of
 
 6                the Internal Revenue Code),
 
 7      (2)  $1,650 in the case of a head of household (as defined
 
 8           in section 2(b) of the Internal Revenue Code),
 
 9      (3)  $1,500 in the case of an individual who is not married
 
10           and who is not a surviving spouse or head of household,
 
11           or
 
12      (4)  $950 in the case of a married individual filing a
 
13           separate return. 
 
14 Section 63(c)(4) shall not be operative in this State.  Section
 
15 63(c)(5) shall be operative, except that the limitation on basic
 
16 standard deduction in the case of certain dependents shall be the
 
17 greater of $500 or such individual's earned income.  Section
 
18 63(f) shall not be operative in this State.
 
19      (b)  Section 72 (with respect to annuities; certain proceeds
 
20 of endowment and life insurance contracts) of the Internal
 
21 Revenue Code shall be operative for purposes of this chapter and
 
22 be interpreted with due regard to section 235-7(a), except that
 
23 the ten per cent additional tax on early distributions from
 

 
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 1 retirement plans in section 72(t) shall not be operative for
 
 2 purposes of this chapter.
 
 3      (c)  Section 121 (with respect to exclusion of gain from
 
 4 sale of principal residence) of the Internal Revenue Code shall
 
 5 be operative for purposes of this chapter, except that for the
 
 6 election under section 121(f), a reference to section 1034
 
 7 treatment means a reference to section 235-2.4(n) in effect for
 
 8 taxable year 1997.
 
 9      [(d)  Section 213 (with respect to medical, dental, etc.,
 
10 expenses) of the Internal Revenue Code shall be operative, except
 
11 that subsections (d)(1)(C) with respect to long-term care
 
12 services, (d)(1)(D) as it applies to long-term care insurance
 
13 contract premiums, (d)(7) as it applies to long-term care
 
14 insurance contract premiums, and (d)(10) as it applies to
 
15 eligible long-term care premiums shall not be operative in this
 
16 State.
 
17      (e)] (d)  Section 219 (with respect to retirement savings)
 
18 of the Internal Revenue Code shall be operative for the purpose
 
19 of this chapter.  For the purpose of computing the limitation on
 
20 the deduction for active participants in certain pension plans
 
21 for state income tax purposes, adjusted gross income as used in
 
22 section 219 as operative for this chapter means federal adjusted
 
23 gross income.
 

 
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 1      [(f)] (e)  Section 220 (with respect to medical savings
 
 2 accounts) of the Internal Revenue Code shall be operative for the
 
 3 purpose of this chapter, but only with respect to medical
 
 4 services accounts that have been approved by the [secretary]
 
 5 Secretary of the Treasury of the United States.
 
 6      [(g)] (f)  In administering the provisions of sections 410
 
 7 to 417 (with respect to special rules relating to pensions,
 
 8 profit sharing, stock bonus plans, etc.), sections 418 to 418E
 
 9 (with respect to special rules for multiemployer plans), and
 
10 sections 419 and 419A (with respect to treatment of welfare
 
11 benefit funds) of the Internal Revenue Code, the department of
 
12 taxation shall adopt rules under chapter 91 relating to the
 
13 specific requirements under such sections and to such other
 
14 administrative requirements under those sections as may be
 
15 necessary for the efficient administration of sections 410 to
 
16 419A.
 
17      In administering sections 401 to 419A (with respect to
 
18 deferred compensation) of the Internal Revenue Code, Public Law
 
19 93-406, section 1017(i), shall be operative for the purposes of
 
20 this chapter.
 
21      In administering section 402 (with respect to the taxability
 
22 of beneficiary of employees' trust) of the Internal Revenue Code,
 
23 the tax imposed on lump sum distributions by section 402(e) of
 

 
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 1 the Internal Revenue Code shall be operative for the purposes of
 
 2 this chapter and the tax imposed therein is hereby imposed by
 
 3 this chapter at the rate determined under this chapter.
 
 4      [(h)] (g)  Section 468B (with respect to special rules for
 
 5 designated settlement funds) of the Internal Revenue Code shall
 
 6 be operative for the purposes of this chapter and the tax imposed
 
 7 therein is hereby imposed by this chapter at a rate equal to the
 
 8 maximum rate in effect for the taxable year imposed on estates
 
 9 and trusts under section 235-51.
 
10      [(i)] (h)  Section 469 (with respect to passive activities
 
11 and credits limited) of the Internal Revenue Code shall be
 
12 operative for the purposes of this chapter.  For the purpose of
 
13 computing the offset for rental real estate activities for state
 
14 income tax purposes, adjusted gross income as used in section 469
 
15 as operative for this chapter means federal adjusted gross
 
16 income.
 
17      [(j)] (i)  Sections 512 to 514 (with respect to taxation of
 
18 business income of certain exempt organizations) of the Internal
 
19 Revenue Code shall be operative for the purposes of this chapter
 
20 as provided in this subsection.
 
21      "Unrelated business taxable income" means the same as in the
 
22 Internal Revenue Code, except that in the computation thereof
 
23 sections 235-3 to 235-5, and 235-7 (except subsection (c)), shall
 

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

 
 
 
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 1      [(m)] (l)  Section 641 (with respect to imposition of tax)
 
 2 of the Internal Revenue Code shall be operative for the purposes
 
 3 of this chapter subject to the following:
 
 4      (1)  The deduction for exemptions shall be allowed as
 
 5           provided in section 235-54(b).
 
 6      (2)  The deduction for contributions and gifts in
 
 7           determining taxable income shall be limited to the
 
 8           amount allowed in the case of an individual, unless the
 
 9           contributions and gifts are to be used exclusively in
 
10           the State.
 
11      (3)  The tax imposed by section 1(e) of the Internal Revenue
 
12           Code as applied by section 641 of the Internal Revenue
 
13           Code is hereby imposed by this chapter at the rate and
 
14           amount as determined under section 235-51 on estates
 
15           and trusts.
 
16      [(n)] (m)  Section 644 (with respect to special rule for
 
17 gain on property transferred to trust at less than fair market
 
18 value) of the Internal Revenue Code shall be operative for the
 
19 purposes of this chapter and the tax imposed therein is hereby
 
20 imposed by this chapter at the rate determined under this
 
21 chapter; except that the determination of the interest rate
 
22 established under section 6621 of the Internal Revenue Code
 
23 referred to in section 644(a)(2) of the Internal Revenue Code
 

 
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 1 shall instead be the interest rate established under section 231-
 
 2 39(b)(4).
 
 3      [(o)] (n)  Section 667 (with respect to treatment of amounts
 
 4 deemed distributed by trusts in preceding years) of the Internal
 
 5 Revenue Code shall be operative for the purposes of this chapter
 
 6 and the tax imposed therein is hereby imposed by this chapter at
 
 7 the rate determined under this chapter; except that the reference
 
 8 to tax-exempt interest to which section 103 of the Internal
 
 9 Revenue Code applies in section 667(a) of the Internal Revenue
 
10 Code shall instead be a reference to tax-exempt interest to which
 
11 section 235-7(b) applies.
 
12      [(p)] (o)  Section 685 (with respect to treatment of
 
13 qualified funeral trusts) of the Internal Revenue Code shall be
 
14 operative for purposes of this chapter, except that the tax
 
15 imposed under this chapter shall be computed at the tax rates
 
16 provided under section 235-51, and no deduction for the exemption
 
17 amount provided in section 235-54(b) shall be allowed.  The cost-
 
18 of-living adjustment determined under section 1(f)(3) of the
 
19 Internal Revenue Code shall be operative for the purpose of
 
20 applying section 685(c)(3) under this chapter.
 
21      [(q)] (p)  Section 1212 (with respect to capital loss
 
22 carrybacks and carryforwards) of the Internal Revenue Code shall
 
23 be operative for the purposes of this chapter; except that for
 

 
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 1 the purposes of this chapter the capital loss carryback
 
 2 provisions of section 1212 shall not be operative and the capital
 
 3 loss carryforward allowed by section 1212(a) shall be limited to
 
 4 five years.
 
 5      [(r)] (q)  Subchapter S (sections 1361 to 1379) (with
 
 6 respect to tax treatment of S corporations and their
 
 7 shareholders) of chapter 1 of the Internal Revenue Code shall be
 
 8 operative for the purposes of this chapter as provided in part
 
 9 VII.
 
10      [(s)] (r)  Subchapter C (sections 6221 to 6233) (with
 
11 respect to tax treatment of partnership items) of chapter 63 of
 
12 the Internal Revenue Code shall be operative for the purposes of
 
13 this chapter.
 
14      [(t)] (s)  Subchapter D (sections 6240 to 6255) (with
 
15 respect to simplified audit procedures for electing large
 
16 partnerships) of the Internal Revenue Code shall be operative for
 
17 the purposes of this chapter, with due regard to chapter 232
 
18 relating to tax appeals.
 
19      [(u)] (t)  Section 7518 (with respect to capital
 
20 construction fund for commercial fishers) of the Internal Revenue
 
21 Code shall be operative for the purposes of this chapter.
 
22 Qualified withdrawals for the acquisition, construction, or
 
23 reconstruction of any qualified asset which is attributable to
 

 
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 1 deposits made before the effective date of this section shall not
 
 2 reduce the basis of the asset when withdrawn.  Qualified
 
 3 withdrawals shall be treated on a first-in-first-out basis."
 
 4      SECTION 3.  Statutory material to be repealed is bracketed.
 
 5 New statutory material is underscored.
 
 6      SECTION 4.  This Act, upon its approval, shall apply to
 
 7 taxable years beginning after December 31, 1998.