Provides corporate tax relief to corporations, regulated investment companies, real estate investment trusts, and franchise taxpayers.

A BILL FOR AN ACT

SECTION 1. Purpose. The legislature finds that the State needs to reverse the negative perception that Hawaii is a very expensive place in which to do business. A logical way would be to lower Hawaii's corporate taxes. A reduction in corporate taxes would attract more capital-intensive firms, that in turn would create full-time jobs, pay higher wages, and benefit those with more education and job skills. The purpose of this Act is to lower corporate tax rates to stimulate Hawaii's economy and to encourage capital investment in the State. Specifically, this Act provides corporate tax relief to corporations, regulated investment companies, real estate investment trusts, and franchise taxpayers.

SECTION 2. Section 235-71, Hawaii Revised Statutes, is amended as follows:

1. By amending subsections (a) and (b) to read:

"(a) A tax at the rates [herein provided] as set forth in this section shall be assessed, levied, collected, and paid for each taxable year on the taxable income of every corporation, including a corporation carrying on business in partnership, except that [in]:

"Corporation" includes any professional corporation incorporated pursuant to chapter 415A.

The tax on all taxable income shall be at the rate of [4.4] 2.2 per cent if the taxable income is not over [$25,000, 5.4] $50,000, 2.7 per cent if over [$25,000] $50,000 but not over $100,000, and on all over $100,000, [6.4] 3.2 per cent.

(b) In the case of a regulated investment company, there [is] shall be imposed on the taxable income, computed as provided in sections 852 and 855 of the Internal Revenue Code but with the changes and adjustments made by this chapter [(without prejudice to the generality of the foregoing, the deduction for dividends paid is limited to such amount of dividends as is attributable to income taxable under this chapter)], a tax consisting in the sum of the following: [4.4] 2.2 per cent if the taxable income is not over [$25,000, 5.4] $50,000, 2.7 per cent if over [$25,000] $50,000 but not over $100,000, and on all over $100,000, [6.4] 3.2 per cent[.]; provided that without prejudice to the generality of the foregoing, the deduction for dividends paid shall be limited to the amount of dividends attributable to income taxable under this chapter."

2. By amending subsection (d) to read:

"(d) In the case of a real estate investment trust, there [is] shall be imposed on the taxable income, computed as provided in sections 857 and 858 of the Internal Revenue Code but with the changes and adjustments made by this chapter [(without prejudice to the generality of the foregoing, the deduction for dividends paid is limited to such amount of dividends as is attributable to income taxable under this chapter)], a tax consisting in the sum of the following: [4.4] 2.2 per cent if the taxable income is not over [$25,000, 5.4] $50,000, 2.7 per cent if over [$25,000] $50,000 but not over $100,000, and on all over $100,000, [6.4] 3.2 per cent[.]; provided that without prejudice to the generality of the foregoing, the deduction for dividends paid shall be limited to the amount of dividends attributable to income taxable under this chapter.

In addition to any other penalty provided by law any real estate investment trust whose tax liability for any taxable year is deemed to be increased pursuant to section 859(b)(2)(A) or 860(c)(1)(A) after December 31, 1978[,] (relating to interest and additions to tax determined with respect to the amount of the deduction for deficiency dividends allowed), of the Internal Revenue Code shall pay a penalty in an amount equal to the amount of interest for which [such] the trust is liable that is attributable solely to [such] the increase. The penalty payable under this subsection with respect to any determination shall not exceed one-half of the amount of the deduction allowed by section 859(a), or 860(a) after December 31, 1978, of the Internal Revenue Code for [such] that taxable year."

SECTION 3. Section 235-71.5, Hawaii Revised Statutes, is amended to read as follows:

"§235-71.5 Alternative tax for corporations. Section 1201 (with respect to alternative tax for corporations) of the Internal Revenue Code of 1986, as amended as of December 31, 1996, shall be operative for the purposes of this chapter and shall be applied as set forth in this section. If for any taxable year a corporation, regulated investment company, or real estate investment trust has a net capital gain, then, in lieu of the tax imposed by section 235-71, there [is hereby] shall be imposed a tax (if [such] the tax is less than the tax imposed under section 235-71) [which] that shall consist of the sum of:

SECTION 4. Section 241-4, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The measure of the tax imposed by this chapter is the entire net income from all sources for the preceding calendar year, or in the case of a taxpayer operating on a fiscal year basis, for the preceding fiscal year. The tax shall be at the rate of [seven and ninety-two one hundredths] three and ninety- six one hundredths per cent of the entire net income from all sources."

SECTION 5. Section 241-4.3, Hawaii Revised Statutes, is amended to read as follows:

"[[]§241-4.3[]] Alternative tax. Section 1201 (with respect to alternative tax for corporations) of the Internal Revenue Code shall be operative for the purposes of this chapter and shall be applied as set forth in this section. If for any taxable year a bank, building and loan association, development company, financial corporation, financial services loan company, small business investment company, mortgage loan company, financial holding company, or trust company has a net capital gain, then, in lieu of the tax imposed by section 241-4, there [is hereby] shall be imposed a tax (if [such] the tax is less than the tax imposed under section 241-4) [which] that shall consist of the sum of:

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act, upon its approval, shall apply to taxable years beginning after December 31, 1999, except section 3 shall take effect on January 1, 2000.