SB3062

SECTION 1. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- College savings accounts. (a) There shall be allowed as a deduction from gross income the amount of contribution made, not to exceed $5,000, during the taxable year by an individual taxpayer to a college savings account established in the Hawaii college savings program pursuant to chapter 256. A deduction from gross income not to exceed $10,000 shall be allowed for a married couple filing a joint return. No deduction from gross income shall be allowed on any amounts distributed less than three hundred sixty-five days from the date on which a contribution is made to the account. Any deduction claimed for a previous taxable year for amounts distributed less than three hundred sixty-five days from the date on which a contribution was made shall be disallowed and the amount deducted shall be included in the previous taxable year's gross income and the tax reassessed. The interest paid or accrued within the taxable year on the account shall not be included in the individual's gross income.

In the case of a married couple filing separate returns, the sum of the deductions allowable to each of them for the taxable year shall not exceed $5,000, or $10,000 for a joint return, for amounts contributed, excluding interest paid or accrued thereon.

The amounts allowable as a deduction from gross income under this section to an individual for all taxable years shall not exceed $ , excluding interest paid or accrued. In the case of married individuals having separate college savings accounts, the sum of the separate accounts and the deduction under this section shall not exceed $ , excluding interest paid or accrued thereon.

Only a Hawaii taxpayer who is an account owner in the Hawaii college savings program shall be allowed to claim the above applicable deduction for contributions made by the taxpayer into the taxpayer's account in the Hawaii college savings program.

(b) In order to be deductible for a particular taxable year, a contribution shall be credited to the account of the Hawaii taxpayer on or before the last day of that taxable year; provided that if a contribution is mailed in, it shall be postmarked on or before the last day of that taxable year.

(c) Rollovers from another state's college savings program into Hawaii's college saving program shall not be considered to be contributions eligible for the tax deduction under this section.

(d) If the amount of the tax deduction exceeds the Hawaii taxpayer's taxable income for the taxable year the contribution is made, the excess deduction may be used as a deduction against the taxpayer's taxable income in subsequent tax years until the excess deduction is exhausted.

(e) Contributions to the Hawaii college savings program that have been deducted from the Hawaii taxpayer's adjusted gross income for prior tax years shall be subject to recapture if the taxpayer:

(1) Makes a subsequent nonqualified withdrawal from the Hawaii college savings program; or

(2) Rolls the Hawaii college savings program account into another state's college savings program.

The contribution shall be recaptured by adding the amount previously deducted, not to exceed the amount of the nonqualified withdrawal or rollover, to the taxpayer's adjusted gross income for the tax year in which the nonqualified withdrawal or rollover occurred.

(f) The transfer of an individual's interest in a college savings account to a spouse under a dissolution of marriage decree or under a written instrument incident to a dissolution of marriage shall not be considered a taxable transfer made by the individual, and the interest, at the time of the transfer, shall be treated as part of a college savings account of the transferee, and not of the transferor. After the transfer, the account shall be treated, for purposes of this section, as maintained for the benefit of the transferee.

(g) The trustee of a college savings account shall make reports regarding the account to the director and to the individual for whom the account is maintained with respect to contributions, distributions, and other matters as the director may require under rules. The reports shall be filed at a time and in a manner as may be required by rules adopted under chapter 91. A person who fails to file a required report shall be subject to a penalty of $10 to be paid to the director for each instance of failure to file."

SECTION 2. Section 23-95, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) This section shall apply to the following:

(1) Section 235-5.5--Deduction for individual housing account deposit;

(2) Section 235-7(f)--Deduction of property loss due to a natural disaster;

(3) Section 235-16.5--Credit for cesspool upgrade, conversion, or connection;

(4) Section 235-19--Deduction for maintenance of an exceptional tree;

(5) Section 235-55.91--Credit for the employment of a vocational rehabilitation referral;

(6) Section 235-110.2--Credit for in-kind services contribution for public school repair and maintenance; [~~and~~]

(7) Sections 235-110.8 and 241-4.7--Credit for ownership of a qualified low-income housing building[.]; and

(8) Section 235- --Deduction for contributions to an account in the Hawaii college savings program."

SECTION 3. Section 256-1, Hawaii Revised Statutes, is amended by adding two new definitions to be appropriately inserted and to read as follows:

""Contribution" means:

(1) Any payment directly allocated to a Hawaii college savings program account for the benefit of a designated beneficiary, or used to pay administrative fees associated with the account; and

(2) That portion of any rollover amount treated as a contribution under section 529 of the Internal Revenue Code of 1986, as amended, or successor legislation.

"Rollover" means a distribution or transfer from an account that is transferred to or deposited within sixty calendar days of the distribution into an account of the same person for the benefit of the same designated beneficiary or another person who is a member of the family of the designated beneficiary if the transferee account was created under chapter 256 or another college savings program maintained in accordance with section 529 of the Internal Revenue Code of 1986, as amended, or successor legislation."

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect upon its approval and apply to taxable years beginning after December 31, 2017.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	3062
TWENTY-NINTH LEGISLATURE, 2018
STATE OF HAWAII