SB2998.DOC

THE SENATE	S.B. NO.	2998
TWENTY-SIXTH LEGISLATURE, 2012
STATE OF HAWAII

A BILL FOR AN ACT

RELATING TO TAX PENALTIES.

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

SECTION 1. Act 166, Session Laws of Hawaii 2009, enacted new tax penalties that are similar to penalties imposed under federal law. However, unlike federal law, Act 166 did not prohibit the stacking of tax underpayment penalties. Consequently, in Hawaii a taxpayer is potentially subject to penalties of sixty per cent or more.

In comparison, under federal law a twenty per cent penalty generally applies to the portion of any tax underpayment that is attributable to any of the following:

(1) Negligence or disregard of Internal Revenue Code rules and regulations;

(2) Substantial understatement of tax liability;

(3) Overvaluation of property; or

(4) Undervaluation of property that is subject to a gift or estate tax return.

Federal law also provides that only a single twenty per cent penalty may be imposed on a portion of an underpayment, even if that portion is attributable to more than one type of prohibited conduct. The legislature finds that Hawaii should have fairness provisions in state tax laws that are similar to federal law.

The purpose of this Act is to incorporate fairness provisions into Hawaii tax laws that are similar to those used in the Internal Revenue Code for the calculation of tax penalties.

SECTION 2. Section 231-36.4, Hawaii Revised Statutes, is amended to read as follows:

"[[]§231-36.4[]] Wilful failure to collect and pay over tax. (a) Any person required to collect, account for, and pay over any tax imposed by title 14, who wilfully fails to collect or truthfully account for and pay over such tax shall be guilty of a class C felony, in addition to other penalties provided by law and, upon conviction, shall be subject to one or any combination of the following:

(1) A fine of not more than $100,000;

(2) Imprisonment of not more than five years; or

(3) Probation;

provided that a corporation shall be fined not more than $500,000.

(b) This section shall not apply to any portion of an underpayment on which a penalty is imposed under section 231-36, 231-36.6, or 231-36.8."

SECTION 3. Section 231-36.6, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) There shall be added to the tax an amount equal to twenty per cent of the portion of any underpayment that is attributable to any substantial understatement of any tax in a taxable year. [~~The penalty under this section shall be in addition to any other penalty assessable by law.~~] This section shall not apply to any portion of an underpayment on which a penalty is imposed under section 231-36, 231-36.4, or 231-36.8."

SECTION 4. Section 231-36.8, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) If a claim for refund or credit with respect to tax is made for an excessive amount, the person making the claim shall be liable for a penalty in an amount equal to twenty per cent of the excessive amount; provided that there shall be no penalty assessed where the penalty calculation under this section results in an amount of less than $400. This section shall not apply to any portion of an underpayment on which a penalty is imposed under section 231-36, 231-36.4, or 231-36.6."

SECTION 5. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

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

SECTION 7. This Act shall take effect upon approval, and shall apply to taxable years beginning after December 31, 2011.

INTRODUCED BY:	_____________________________