Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2006

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred H.B. No. 1800, H.D. 1, entitled:

begs leave to report as follows:

The purpose of this measure is to increase the income tax withheld from nonresidents who sell real property in Hawaii.

Presently, nonresident sellers of real property are required to withhold five per cent of the selling price of the property to ensure that the taxes owed to the State are paid.

Your Committee finds, however, that the State's maximum individual income tax rate of eight and one-quarter per cent and the State's maximum capital gains rate of seven and one-quarter per cent are higher than the five per cent withheld on real property sold to non-residents. Additionally, with the skyrocketing prices of real estate in Hawaii, the withholding of only five per cent of a real property's selling price may be insufficient to cover the taxes due to the State.

To address this concern, this measure provides a modest increase in the amount of the taxes withheld from five per cent to eight and one-quarter per cent to ensure the proper payment of income taxes by nonresident real property sellers.

Your Committee has amended the measure by:

As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1800, H.D. 1, as amended herein, and recommends that it pass Third Reading in the form attached hereto as H.B. No. 1800, H.D. 1, S.D. 1.