HOUSE OF REPRESENTATIVES

H.B. NO.

145

TWENTY-NINTH LEGISLATURE, 2017

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

relating to net income tax.

 

 

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

 

SECTION 1.  The legislature finds that a team of three authors, Terrance Jalbert of the University of Hawaii at Hilo, Gary Fleischmann of Texas Tech University, and Mercedes Jalbert of the Institute for Business and Finance Research published a paper in 2014 entitled "Marginal Tax Rates Around the Hawaii Itemized Deduction Cliff," Accounting and Taxation V. 6(1), pp. 25-38, 2014.  The paper points out that when a married filing joint Hawaii taxpayer reaches $200,000 in federal adjusted gross income, the confluence of a number of existing provisions, some of which still exist in current tax law, could result in a marginal tax rate of 367,100 per cent on that last dollar.  This Act addresses that issue by repealing the "cliff" disallowance of state tax as an itemized deduction and adopting a cap on overall itemized deductions that is phased in according to adjusted gross income levels.

SECTION 2.  Section 235-2.4, Hawaii Revised Statutes, is amended as follows:

1.  By amending subsection (b) to read:

"(b)  Section 68 (with respect to the overall limitation on itemized deductions) of the Internal Revenue Code shall be operative; provided that the thresholds shall be those that were operative for federal tax year 2009[.]; and provided further that the maximum amount of itemized deductions allowed to a taxpayer under this chapter shall be:

(1)  For a taxpayer filing a joint return, or as a surviving spouse, with federal adjusted gross income of $100,000 or less, an amount equal to the taxpayer's federal adjusted gross income;

(2)  For a taxpayer filing a joint return, or as a surviving spouse, with federal adjusted gross income of at least $100,000 but less than $500,000, an amount equal to $100,000 reduced by twenty-five per cent of the amount by which the taxpayer's federal adjusted gross income exceeds $100,000;

(3)  For a taxpayer filing a joint return, or as a surviving spouse, with federal adjusted gross income of at least $500,000, zero;

(4)  For a taxpayer filing a single return with federal adjusted gross income of $50,000 or less, an amount equal to the taxpayer's federal adjusted gross income;

(5)  For a taxpayer filing a single return with federal adjusted gross income of at least $50,000 but less than $250,000, an amount equal to $50,000 reduced by twenty-five per cent of the amount by which the taxpayer's federal adjusted gross income exceeds $50,000;

(6)  For a taxpayer filing a single return with federal adjusted gross income of at least $250,000, zero;

(7)  For a taxpayer filing a head of household return with federal adjusted gross income of $75,000 or less, an amount equal to the taxpayer's federal adjusted gross income;

(8)  For a taxpayer filing a head of household return with federal adjusted gross income of at least $75,000 but less than $375,000, an amount equal to $75,000 reduced by twenty-five per cent of the amount by which the taxpayer's federal adjusted gross income exceeds $75,000; and

(9)  For a taxpayer filing a head of household return with federal adjusted gross income of at least $375,000, zero."

2.  By amending subsection (i) to read:

"(i)  Section 164 (with respect to taxes) of the Internal Revenue Code shall be operative for the purposes of this chapter, except that:

(1)  Section [164(a)(6) and (b)(6)] 164(b)(5) shall not be operative for the purposes of this chapter; and

[(2) The deductions under section 164(a)(3) and (b)(5) shall not be operative for corporate taxpayers and shall be operative only for the following individual taxpayers:

(A)  A taxpayer filing a single return or a married person filing separately with a federal adjusted gross income of less than $100,000;

(B)  A taxpayer filing as a head of household with a federal adjusted gross income of less than $150,000; and

(C)  A taxpayer filing a joint return or as a surviving spouse with a federal adjusted gross income of less than $200,000; and

(3)] (2) Section 164(a)(3) shall not be operative for any amounts for which the credit under section 235-55 has been claimed."

SECTION 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect upon its approval, and shall apply to taxable years beginning after December 31, 2016.

 

INTRODUCED BY:

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Report Title:

Taxation; Deductions

 

Description:

Restores the deduction for state taxes paid for taxpayers with income above specified thresholds.  Establishes limitations on claims for itemized tax deductions, based on taxpayer's federal adjusted gross income.

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.