Levies a surtax on the gain from the sale or exchange of affected property in the State within two years of purchase.

A BILL FOR AN ACT

SECTION 1. The legislature finds that the practice of buying and selling residential property for speculative purposes contributes substantially to the high cost of housing. Not only are Hawaii consumers affected by sudden increases in the price of housing as consumers, but the rapid changes in price negatively affect the factors under which a steady flow of new housing is optimized. For homeowners on a fixed income, rapid appreciation in property values fueled by speculative transfers cause property taxes to rise beyond tolerable limits. As resales drive the assessed valuations skyward, the effects on the State's elderly population are particularly devastating.

It is intended that this Act significantly reduce the incidence of short-term capital gain on the resale of non-owner occupant residential property.

The purpose of this Act is to levy a surtax on the gain upon the resale of non-owner occupied real property within two years of purchase, thereby discouraging purely speculative transactions.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER

§ -1 Imposition of tax. (a) There is imposed, in addition to any other applicable tax, a tax on the gain from the sale or exchange of affected property in this State within two years of purchase.

(b) For the purposes of this chapter:

"Affected property" means all real property, including but not limited to vacant land, single family residences, farmhouses and condominiums, which is zoned residential or which is located on land zoned residential by any county, and which is not resided upon by the owner of such property as one's principal residence for at least three hundred sixty-five days during the two-year period after purchase.

"Director" means the director of taxation.

"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended.

"Sale or exchange of property" means any transfer of title to affected property for a consideration. The transfer of an option for the sale or exchange of property shall be considered a transfer of title to property for the purposes of this chapter.

§ -2 Rate of tax; disposition of proceeds. (a) The tax imposed by this chapter shall be:

Gain shall be as calculated under subchapter O of the Internal Revenue Code.

(b) All proceeds collected under this chapter shall be deposited in the general fund.

§ -3 Sale or exchange. (a) Contracts for the sale of property shall constitute sales or exchanges of property for all purposes of this chapter. However, contracts shall not constitute sales or exchanges until some consideration has passed to or for the benefit of the seller or exchanger. The sale or exchange is considered to take place at the time any consideration whatsoever, of whatever nature, first passes under the contract. If the affected property has been held by the seller for less than one year, the entire tax due on the sale then shall become due as provided under this chapter, even if the transaction between the parties involves an installment sale. A mere promise to purchase, and amounts paid as earnest money or amounts paid in deposit or amounts paid in escrow to which the seller has no immediate right, do not constitute the passing of consideration for the purposes of this chapter.

(b) Any sale or exchange of shares in a corporation or other entity, or of comparable rights or property interests in any other form of organization or legal entity, which effectively entitles the purchaser to the use or occupancy of affected property constitutes a sale or exchange of property.

§ -4 Basis and holding period. (a) The Internal Revenue Code shall determine the basis of affected property sold or exchanged.

(b) The amount realized from the sale or exchange shall be the full actual consideration, paid or to be paid, including the amount of any liens or encumbrances on the affected property existing before the sale or exchange and not removed. The amount realized from the sale or exchange shall be the gross amount, reduced by any reasonable expenses of sale and commissions. If the seller has owned the affected property for less than one year, the amount realized from the sale or exchange shall be the gross amount reduced by no more than a total of twelve per cent by any expenses of sale and commissions.

(c) The amount of the taxable gain shall be calculated by the party acting as escrow depositary of the real estate transaction. The escrow depositary shall withhold the amount of the tax at the time of sale and shall transmit the tax payment to the general fund. No gain shall be recognized in cases where gain is not recognized under the Internal Revenue Code in relation to the sale or exchange of capital assets.

(d) The affected property sold or exchanged shall be deemed to have been held as determined under the Internal Revenue Code. If a husband and wife are tenants by the entirety there may be added to the holding period the amount of time the affected property was held by one spouse alone before that spouse created the tenancy by the entirety. Notwithstanding any provision to the contrary under the Internal Revenue Code, if a tenancy by the entirety is dissolved by reason of death or divorce, the holding period during the tenancy by the entirety shall be added to the holding period of the spouse subsequently owning the affected property in the spouse's own name. For the purposes of this subsection affected property devised to or inherited by a surviving spouse or affected property awarded to a spouse upon dissolution of marriage shall be treated as though it had been held by husband and wife as tenants by the entirety.

(e) The taxable gain under this chapter from the sale or exchange of property shall not be reduced by any losses incurred in other transactions.

(f) Notwithstanding any other provisions of this section, affected property acquired from a decedent, or an estate, or sold by an estate, shall have a holding period commencing as of the date of death of the decedent, and its basis shall be the fair market value of such property as of the date of death of the decedent, or alternative valuation date as finally determined under the Internal Revenue Code for the federal estate tax.

§ -5 Liability for tax. The person liable for the tax is the transferor of the affected property sold or exchanged.

§ -6 Reports of resales. The bureau of conveyances and the land court shall file a monthly listing of resales occurring within two years with the department of taxation and the housing and community development corporation of Hawaii.

§ -7 Audit of escrow companies. The housing and community development corporation shall annually audit escrow companies for compliance with this chapter.

§ -8 Administration of tax. (a) The director shall administer and enforce this chapter. The director may adopt rules under chapter 91 to assist in administration and enforcement.

(b) All the administrative provisions of chapter 231, including those relating to the collection and enforcement by the director of the withholding tax and the income tax, shall apply to the tax imposed by this chapter.

§ -9 Criminal penalties. (a) Any person who wilfully evades or attempts to evade the tax imposed by this chapter shall be guilty of a misdemeanor, but in addition to imprisonment, shall be subject to a fine of not more than $10,000, or five times the amount of the tax evaded or attempted to be evaded, whichever is larger. The attorney general shall prosecute offenders under this chapter.

(b) Any officer, employee, director, trustee, or other responsible person of a corporation or other taxable entity, and any other person, who counsels, aids, abets, participates in, or conceals the evasion or attempted evasion of tax shall be subject to the penalties of subsection (a).

(c) The form for the payment of the tax under this chapter shall set forth in large type the penalties provided in this section."

SECTION 3. Chapter 449, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§449- Additional duties. An escrow depositary shall comply with the withholding and transmittal requirements of chapter . An escrow depositary shall cooperate with the housing and community development corporation of Hawaii in the auditing of its records of transactions for compliance with chapter ."

SECTION 4. New statutory material is underscored.

SECTION 5. This Act shall take effect on July 1, 2001.