Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committee on Conference on the disagreeing vote of the Senate to the amendments proposed by the House of Representatives in S.B. No. 2824, S.D. 2, H.D. 1, entitled:

having met, and after full and free discussion, has agreed to recommend and does recommend to the respective Houses the final passage of this bill in an amended form.

The purpose of this measure is to conform the Hawaii State tax laws with the Internal Revenue Code.

Your Committee on Conference finds that Hawaii's income tax law does not automatically conform to changes made by Congress to the Internal Revenue Code (IRC). Hawaii law requires the Department of Taxation (Department) to introduce legislation each year that may include changes in the IRC made by Congress in the previous year, pursuant to section 235-2.5(c), Hawaii Revised Statutes.

This measure will apply the IRC, as amended, "as of December 31, 2001." Because President Bush signed the Job Creation and Worker Assistance Act of 2002 (JCWAA) into law on March 9, 2002, the JCWAA did not amend the IRC "as of December 31, 2001." The provisions of the JCWAA, therefore, are not applicable for Hawaii income tax purposes for the 2001 taxable year and subsequent years. The JCWAA includes a bonus depreciation deduction and an expansion of the net operating loss (NOL) carryback period from two to five years for NOLs in the 2001 or 2002 taxable years.

Your Committee on Conference has made technical amendments to more accurately reflect IRC references.

As affirmed by the record of votes of the managers of your Committee on Conference that is attached to this report, your Committee on Conference is in accord with the intent and purpose of S.B. No. 2824, S.D. 2, H.D. 1, as amended herein, and recommends that it pass Final Reading in the form attached hereto as S.B. No. 2824, S.D. 2, H.D. 1, C.D. 1.