STAND. COM. REP. NO. 2457

Honolulu, Hawaii

RE:    S.B. No. 2890

       S.D. 1

Honorable Donna Mercado Kim

President of the Senate

Twenty-Seventh State Legislature

Regular Session of 2014

State of Hawaii

Madam:

     Your Committee on Ways and Means, to which was referred S.B. No. 2890 entitled:

"A BILL FOR AN ACT RELATING TO APPLICATION OF THE INTERNAL REVENUE CODE TO HAWAII INCOME TAX LAW,"

begs leave to report as follows:

     The purpose and intent of this measure is to clarify that references to the term "estate taxes" in the Internal Revenue Code (IRC), when used to make certain provisions of the IRC operative for the purposes of applying state income tax, refer to both the estate and generation-skipping tax imposed by chapter 236E, Hawaii Revised Statutes (HRS), and the estate and transfer tax imposed by chapter 236D, HRS.

     The Department of Taxation submitted testimony in support of the measure.  The Tax Foundation of Hawaii submitted comments on the measure.

     Your Committee finds that under current state law that makes the IRC operative for the purposes of applying state income tax, the law specifies the terms in the IRC that are to be substituted with terms used in state law.  As currently written, section 235-3, HRS, only allows for the estate and transfer tax imposed by chapter 236D, HRS, to be substituted for the term "estate taxes" in the IRC when using the IRC provisions to apply the state version of estate taxes.  However, the Legislature established the generation-skipping transfer tax under chapter 236E, HRS, during the Regular Session of 2012.  Your Committee finds that this measure clarifies that references to estate taxes when applying IRC provisions relating to estate taxes shall include both the estate and transfer tax under chapter 236D, HRS, and the generation-skipping transfer tax under chapter 236E, HRS.

     Your Committee has amended this measure by:

     (1)  Applying the measure retroactively to January 26, 2012, when chapter 236E, HRS, became applicable; and

     (2)  Making technical nonsubstantive amendments for the purposes of clarity and consistency.

     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 S.B. No. 2890, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2890, S.D. 1, and be placed on the calendar for Third Reading.

Respectfully submitted on behalf of the members of the Committee on Ways and Means,

____________________________

DAVID Y. IGE, Chair