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THE SENATE |
S.B. NO. |
2701 |
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THIRTY-SECOND LEGISLATURE, 2024 |
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STATE OF HAWAII |
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A BILL FOR AN ACT
relating to taxation.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
Under Act 50, the entity level tax is calculated by applying the highest individual income tax rate to the taxable income to be distributed, i.e., eleven per cent, entitling pass-through entity members to receive a nonrefundable income tax credit that cannot be carried forward to a subsequent year if the credit exceeds the member's tax liability. The legislature finds that due to the high tax rate and the inability to carryforward the tax credit, many pass-through entity members remain unable to benefit from Act 50 as intended.
Accordingly, the purpose of this Act is to:
(1) Reduce the tax rate for pass-through entities electing to pay Hawaii income taxes at the entity level; and
(2) Allow certain pass-through entity members entitled to a tax credit to use the credit against the member's net income tax liability in subsequent years until exhausted.
SECTION 2. Section 235-51.5, Hawaii Revised Statutes, is amended as follows:
1. By amending subsection (b) to read:
"(b)
Notwithstanding any provision of law to the contrary, the
following tax is imposed on each electing pass-through entity: the sum of all member's distributive shares
and guaranteed payments of Hawaii taxable income as calculated under this
chapter, multiplied by [the highest rate of tax applicable to the individual
under section 235-51;] nine per cent; provided that the distributive
shares and guaranteed payments of members who are corporations,
partnerships, S Corporations, tax-exempt entities, and other taxpayers
designated by the department of taxation shall not be included in the sum
and shall not be subject to the tax under this section. If the income calculated pursuant to this
subsection reflects a net loss for the electing pass-through entity, the net
loss may be carried forward to subsequent tax years for as long as the electing
pass-through entity elects to be subject to the tax pursuant to this section
until exhausted."
2. By amending subsection (e) to read:
"(e)
Each member of an electing pass-through entity whose
distributive share or guaranteed payment of Hawaii taxable income is subject to
tax under this section shall be entitled to a nonrefundable credit equal
to the member's share of the tax paid pursuant to this section. If the amount of the credit authorized by
this subsection exceeds the member's tax liability imposed pursuant to this
chapter, [the excess amount shall not be refundable to the member.] the
excess of the credit over liability may be used as a credit against the
member's income tax liability in subsequent years until exhausted. Any member claiming a credit shall not be
entitled to deduct from the member's Hawaii state taxable income those amounts
of Hawaii state income taxes paid by the member on the member's distributive
share or guaranteed payment of income from the electing pass-through entity."
SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2023.
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INTRODUCED BY: |
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Report Title:
Department of Taxation; Income Tax Pass-Through Entity Taxation Election; S Corporations; Partnerships; Tax Credit; Carry Forward
Description:
Reduces the tax rate for pass-through entities electing to pay Hawaii income taxes at the entity level. Allows certain members of pass-through entities entitled to a tax credit to use the credit against the member's net income tax liability in subsequent years until exhausted.
The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.