REPORT TITLE:
Income Tax; Foreign Income


DESCRIPTION:
Conforms state income tax to federal Internal Revenue Code
exclusion of foreign earned income with limits of, $72,000 in
1998, with an additional $2,000 exclusion annually until 2002 and
thereafter where exclusion is $80,000.  Authorizes same exclusion
for income earned out-of-state.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           32
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO INCOME TAX.



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

 1      SECTION 1.  Section 235-2.3, Hawaii Revised Statutes, is
 
 2 amended by amending subsection (b) to read as follows:
 
 3      "(b)  The following Internal Revenue Code subchapters, parts
 
 4 of subchapters, sections, subsections, and parts of subsections
 
 5 shall not be operative for the purposes of this chapter, unless
 
 6 otherwise provided:
 
 7      (1)  Subchapter A (sections 1 to 59A) (with respect to
 
 8           determination of tax liability), except section 1(h)(3)
 
 9           (relating to net capital gain reduced by the amount
 
10           taken into account as investment income), except
 
11           section 42 (with respect to low-income housing credit),
 
12           and except sections 47 and 48, as amended, as of
 
13           December 31, 1984 (with respect to certain depreciable
 
14           tangible personal property).  For treatment, see
 
15           sections 235-110.7 and 235-110.8;
 
16      (2)  Section 78 (with respect to dividends received from
 
17           certain foreign corporations by domestic corporations
 
18           choosing foreign tax credit);
 
19      (3)  Section 86 (with respect to social security and tier 1
 

 
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 1           railroad retirement benefits);
 
 2      (4)  Section 103 (with respect to interest on state and
 
 3           local bonds).  For treatment, see section 235-7(b);
 
 4      (5)  Section 120 (with respect to amounts received under
 
 5           qualified group legal services plans).  For treatment,
 
 6           see section 235-7(a)(9) to (11);
 
 7      (6)  Section 122 (with respect to certain reduced uniformed
 
 8           services retirement pay).  For treatment, see section
 
 9           235-7(a)(3);
 
10      (7)  Section 135 (with respect to income from United States
 
11           savings bonds used to pay higher education tuition and
 
12           fees).  For treatment, see section 235-7(a)(1);
 
13      (8)  Subchapter B (sections 141 to 150) (with respect to tax
 
14           exemption requirements for state and local bonds);
 
15      (9)  Section 151 (with respect to allowance of deductions
 
16           for personal exemptions).  For treatment, see section
 
17           235-54;
 
18     (10)  Section 196 (with respect to deduction for certain
 
19           unused investment credits);
 
20     (11)  Sections 241 to 247 (with respect to special deductions
 
21           for corporations).  For treatment, see section
 
22           235-7(c);
 
23     (12)  Section 280C (with respect to certain expenses for
 

 
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 1           which credits are allowable);
 
 2     (13)  Section 291 (with respect to special rules relating to
 
 3           corporate preference items);
 
 4     (14)  Section 367 (with respect to foreign corporations);
 
 5     (15)  Section 501(c)(12), (15), (16) (with respect to exempt
 
 6           organizations);
 
 7     (16)  Section 515 (with respect to taxes of foreign countries
 
 8           and possessions of the United States);
 
 9     (17)  Subchapter G (sections 531 to 565) (with respect to
 
10           corporations used to avoid income tax on shareholders);
 
11     (18)  Subchapter H (sections 581 to 597) (with respect to
 
12           banking institutions), except section 584 (with respect
 
13           to common trust funds).  For treatment, see chapter
 
14           241;
 
15     (19)  Section 642(a) and (b) (with respect to special rules
 
16           for credits and deductions applicable to trusts).  For
 
17           treatment, see sections 235-54(b) and 235-55;
 
18     (20)  Section 668 (with respect to interest charge on
 
19           accumulation distributions from foreign trusts);
 
20     (21)  Subchapter L (sections 801 to 848) (with respect to
 
21           insurance companies).  For treatment, see sections
 
22           431:7-202 and 431:7-204;
 
23     (22)  Section 853 (with respect to foreign tax credit allowed
 

 
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 1           to shareholders).  For treatment, see section 235-55;
 
 2     (23)  Subchapter N (sections 861 to 999) (with respect to tax
 
 3           based on income from sources within or without the
 
 4           United States), except section 911 (with respect to
 
 5           citizens or residents of the United States living
 
 6           abroad), and except sections 985 to 989 (with respect
 
 7           to foreign currency transactions).  For treatment, see
 
 8           sections 235-4, 235-5, [and] 235-7(b), and 235-55;
 
 9     (24)  Section 1042(g) (with respect to sales of stock in
 
10           agricultural refiners and processors to eligible farm
 
11           cooperatives);
 
12     (25)  Section 1055 (with respect to redeemable ground rents);
 
13     (26)  Section 1057 (with respect to election to treat
 
14           transfer to foreign trust, etc., as taxable exchange);
 
15     (27)  Sections 1291 to 1298 (with respect to treatment of
 
16           passive foreign investment companies);
 
17     (28)  Subchapter Q (sections 1311 to 1351) (with respect to
 
18           readjustment of tax between years and special
 
19           limitations); and
 
20     (29)  Subchapter U (sections 1391 to 1397F) (with respect to
 
21           designation and treatment of empowerment zones,
 
22           enterprise communities, and rural development
 
23           investment areas).  For treatment, see chapter 209E."
 

 
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 1      SECTION 2.  Section 235-7, Hawaii Revised Statutes, is
 
 2 amended by amending subsection (a) to read as follows:
 
 3      "(a)  There shall be excluded from gross income, adjusted
 
 4 gross income, and taxable income:
 
 5      (1)  Income not subject to taxation by the State under the
 
 6           Constitution and laws of the United States;
 
 7      (2)  Rights, benefits, and other income exempted from
 
 8           taxation by section 88-91, having to do with the state
 
 9           retirement system, and the rights, benefits, and other
 
10           income, comparable to the rights, benefits, and other
 
11           income exempted by section 88-91, under any other
 
12           public retirement system;
 
13      (3)  Any compensation received in the form of a pension for
 
14           past services;
 
15      (4)  Compensation paid to a patient affected with Hansen's
 
16           disease employed by the State or the United States in
 
17           any hospital, settlement, or place for the treatment of
 
18           Hansen's disease;
 
19      (5)  Except as otherwise expressly provided, payments made
 
20           by the United States or this State, under an act of
 
21           Congress or a law of this State, which by express
 
22           provision or administrative regulation or
 
23           interpretation are exempt from both the normal and
 

 
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 1           surtaxes of the United States, even though not so
 
 2           exempted by the Internal Revenue Code itself;
 
 3      (6)  Any income expressly exempted or excluded from the
 
 4           measure of the tax imposed by this chapter by any other
 
 5           law of the State, it being the intent of this chapter
 
 6           not to repeal or supersede any such express exemption
 
 7           or exclusion;
 
 8      (7)  The first $1,750 received by each member of the reserve
 
 9           components of the Army, Navy, Air Force, Marine Corps,
 
10           or Coast Guard of the United States of America, and the
 
11           Hawaii national guard as compensation for performance
 
12           of duty;
 
13      (8)  Income derived from the operation of ships or aircraft
 
14           if the income is exempt under the Internal Revenue Code
 
15           pursuant to the provisions of an income tax treaty or
 
16           agreement entered into by and between the United States
 
17           and a foreign country, provided that the tax laws of
 
18           the local governments of that country reciprocally
 
19           exempt from the application of all of their net income
 
20           taxes, the income derived from the operation of ships
 
21           or aircraft which are documented or registered under
 
22           the laws of the United States;
 
23      (9)  The value of legal services provided by a prepaid legal
 

 
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 1           service plan to a taxpayer, the taxpayer's spouse, and
 
 2           the taxpayer's dependents;
 
 3     (10)  Amounts paid, directly or indirectly, by a prepaid
 
 4           legal service plan to a taxpayer as payment or
 
 5           reimbursement for the provision of legal services to
 
 6           the taxpayer, the taxpayer's spouse, and the taxpayer's
 
 7           dependents;
 
 8     (11)  Contributions by an employer to a prepaid legal service
 
 9           plan for compensation (through insurance or otherwise)
 
10           to the employer's employees for the costs of legal
 
11           services incurred by the employer's employees, their
 
12           spouses, and their dependents; [and]
 
13     (12)  Amounts received in the form of a monthly surcharge by
 
14           a utility acting on behalf of an affected utility under
 
15           section 269-16.3 shall not be gross income, adjusted
 
16           gross income, or taxable income for the acting utility
 
17           under this chapter.  Any amounts retained by the acting
 
18           utility for collection or other costs shall not be
 
19           included in this exemption[.]; and
 
20     (13)  Income earned and received by a resident from out-of-
 
21           state sources up to the limits allowed under section
 
22           911 of the Internal Revenue Code for exclusion of
 
23           foreign earned income."
 

 
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 1      SECTION 3.  Statutory material to be repealed is bracketed.
 
 2 New statutory material is underscored.
 
 3      SECTION 4.  This Act, upon its approval, shall apply to
 
 4 taxable years beginning after December 31, 1998.
 
 5 
 
 6                              INTRODUCED BY:______________________