REPORT TITLE:
Income Tax Credit


DESCRIPTION:
Increases the capital goods investment tax credit   % for taxable
years beginning after December 31, 1998,    % for taxable years
beginning after December 31, 2001, and    % for taxable years
beginning after December 31, 2003. (HB119 HD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        119
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 2
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT
RELATING TO INCOME TAXATION.



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

 1      SECTION 1.  Section 235-110.7, Hawaii Revised Statutes, is
 
 2 amended as follows:
 
 3      1.  By amending the title to read:
 
 4      "235-110.7  Capital goods [excise tax] investment credit."
 
 5      2.  By amending subsections (a), (b), and (c) to read:
 
 6      "(a)  There shall be allowed to each resident taxpayer
 
 7 subject to the tax imposed by this chapter a capital goods
 
 8 [excise tax] investment credit which shall be deductible from the
 
 9 resident taxpayer's net income tax liability, if any, imposed by
 
10 this chapter for the taxable year in which the credit is properly
 
11 claimed.
 
12      The amount of the [tax] credit shall be determined by the
 
13 application of the following rates against the cost of the
 
14 eligible depreciable tangible personal property used by the
 
15 taxpayer in a trade or business and placed in service within
 
16 Hawaii after December 31, [1987.] 1998.  For calendar years
 
17 beginning after:  [December 31, 1987, the applicable rate shall
 
18 be three per cent; December 31, 1988, and thereafter, the
 
19 applicable rate shall be four per cent, except that for the
 
20 period January 1, 1993, through December 31, 2002, and for
 

 
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                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 eligible depreciable tangible personal property used in a trade
 
 2 or business that is purchased in a county in which the county
 
 3 general excise and use tax surcharge is in effect and placed in
 
 4 service in any county the applicable rate shall be four and one-
 
 5 half per cent.]
 
 6      (1)  December 31, 1998, the applicable rate shall be    per
 
 7           cent;
 
 8      (2)  December 31, 2001, the applicable rate shall be    per
 
 9           cent; and
 
10      (3)  December 31, 2003, and thereafter, the applicable rate
 
11           shall be    per cent.
 
12 For resident taxpayers with fiscal taxable years, the applicable
 
13 rate shall be the rate for the calendar year in which the
 
14 eligible depreciable tangible personal property used in the trade
 
15 or business is placed in service within Hawaii.
 
16      In the case of a partnership, S corporation, estate, or
 
17 trust, the tax credit allowable is for eligible depreciable
 
18 tangible personal property which is placed in service by the
 
19 entity.  The cost upon which the tax credit is computed shall be
 
20 determined at the entity level.  Distribution and share of credit
 
21 shall be determined by rules.
 
22      [In the case of eligible depreciable tangible personal
 
23 property for which a credit for sales or use taxes paid to
 

 
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                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 another state is allowable under section 238-3(i), the amount of
 
 2 the tax credit allowed under this section shall not exceed the
 
 3 amount of use tax, and for the period January 1, 1993, through
 
 4 December 31, 2002, the amount of the county general excise and
 
 5 use tax surcharge, actually paid under chapter 238 relating to
 
 6 such tangible personal property.]
 
 7      If a deduction is taken under section 179 (with respect to
 
 8 election to expense certain depreciable business assets) of the
 
 9 Internal Revenue Code of 1954, as amended, no [tax] credit shall
 
10 be allowed for that portion of the cost of property for which the
 
11 deduction was taken.
 
12      (b)  [If the tax credit is claimed by a taxpayer at the rate
 
13 of four and one-half per cent, and the tangible personal property
 
14 is purchased in a county in which the county general excise and
 
15 use tax surcharge is not in effect, there shall be added to and
 
16 become part of the tax liability of the taxpayer:
 
17      (1)  The amount of the tax credit claimed under this section
 
18           multiplied by three; or
 
19      (2)  Ten per cent of the income tax liability for the
 
20           taxable year for which the income tax return is being
 
21           filed,
 
22 whichever is greater.]
 

 
 
 
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                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      If the capital goods [excise tax] investment credit allowed
 
 2 under subsection (a) exceeds the resident taxpayer's net income
 
 3 tax liability, the excess [of] credit [over liability shall be
 
 4 refunded to the taxpayer; provided that no refunds or payment on
 
 5 account of the tax credit allowed by this section shall be made
 
 6 for amounts less than $1.] shall be carried over until exhausted.
 
 7      All claims for [tax] credits under this section, including
 
 8 any amended claims, must be filed on or before the end of the
 
 9 twelfth month following the close of the taxable year for which
 
10 the credits may be claimed.  Failure to comply with the foregoing
 
11 provision shall constitute a waiver of the right to claim the
 
12 credit.
 
13      (c)  Application for the capital goods [excise tax]
 
14 investment credit shall be upon forms provided by the department
 
15 of taxation."
 
16      SECTION 2.  Section 237-24.8, Hawaii Revised Statutes, is
 
17 amended by amending subsection (b) to read as follows:
 
18      "(b)  As used in this section:
 
19      "Activities relating to the general servicing of
 
20 fiduciary/custodial accounts" means those activities performed by
 
21 trust companies which are directly or indirectly performed within
 
22 the fiduciary/custodial relationship between the trust company or
 
23 trust department of a financial institution and its client and
 

 
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                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 which are not offered to any person outside of the
 
 2 fiduciary/custodial relationship.
 
 3      "Annual percentage rate" and "finance charge" have the same
 
 4 meaning as defined in the federal Truth in Lending Act (15 U.S.C.
 
 5 sections 1605(a) to (c) and 1606).
 
 6      "Deposit" means:
 
 7      (1)  Money or its equivalent received or held by a financial
 
 8           institution in the usual course of business and for
 
 9           which it has given or is obligated to give credit to:
 
10           (A)  A commercial (including public deposits),
 
11                checking, savings, time, or thrift account;
 
12           (B)  A check or draft drawn against a deposit account
 
13                and certified by the financial institution;
 
14           (C)  A letter of credit; or
 
15           (D)  A traveler's check, on which the financial
 
16                institution is primarily liable;
 
17      (2)  Trust funds received or held by a financial
 
18           institution, whether held in the trust department or
 
19           held or deposited in any other department of the
 
20           financial institution;
 
21      (3)  Money received or held by a financial institution, or
 
22           the credit given for money or its equivalent received
 
23           or held by a financial institution in the usual course
 

 
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                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1           of business for a special or specific purpose,
 
 2           regardless of the legal relationship thereby
 
 3           established, including, without being limited to,
 
 4           escrow funds, funds held as security for an obligation
 
 5           due the financial institution or others (including
 
 6           funds held as dealers' reserves) or for securities
 
 7           loaned by the financial institution, funds deposited by
 
 8           a debtor to meet maturing obligations, funds deposited
 
 9           as advance payment on subscriptions to United States
 
10           government securities, funds held for distribution or
 
11           purchase of securities, funds held to meet the
 
12           financial institution's acceptances or letters of
 
13           credit, and withheld taxes;
 
14      (4)  Outstanding drafts, cashier's checks, money orders, or
 
15           other officer's checks issued in the usual course of
 
16           business for any purpose; or
 
17      (5)  Money or its equivalent held as a credit balance by a
 
18           financial institution on behalf of its customer if the
 
19           financial institution is engaged in soliciting and
 
20           holding the balances in the regular course of its
 
21           business.
 
22      "Financial institution" means banks, building and loan
 
23 associations, development companies, financial corporations,
 

 
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                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 financial services loan companies, small business investment
 
 2 companies, financial holding companies, mortgage loan companies,
 
 3 and trust companies all as defined in chapter 241.
 
 4      "Leasing of personal property" occurs if:
 
 5      (1)  The lease is to serve as the functional equivalent of
 
 6           an extension of credit to the lessee of the property;
 
 7      (2)  The property to be leased is acquired specifically for
 
 8           the leasing transaction under consideration, or was
 
 9           acquired specifically for an earlier leasing
 
10           transaction;
 
11      (3)  The lease is on a nonoperating basis, i.e., the
 
12           financial institution may not, directly or indirectly:
 
13           (A)  Provide for the maintenance, repair, replacement,
 
14                or servicing of the leased property during the
 
15                lease term;
 
16           (B)  Purchase parts and accessories in bulk or for an
 
17                individual property after the lessee has taken
 
18                delivery of the property; or
 
19           (C)  Purchase insurance for the lessee;
 
20      (4)  At the inception of the lease the effect of the
 
21           transaction will yield a return that will compensate
 
22           the lessor financial institution for not less than the
 
23           lessor's full investment in the property plus the
 

 
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                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1           estimated total cost of financing the property over the
 
 2           term of the lease, from:
 
 3           (A)  Rentals;
 
 4           (B)  Estimated tax benefits (capital goods [excise tax]
 
 5                investment credit, net economic gain from tax
 
 6                deferral from accelerated depreciation, and other
 
 7                tax benefits with a substantially similar effect);
 
 8                and
 
 9           (C)  The estimated residual value of the property at
 
10                the expiration of the initial term of the lease;
 
11      (5)  The maximum lease term during which the lessor
 
12           financial institution must recover the lessor's full
 
13           investment in the property, plus the estimated total
 
14           cost of financing the property, shall be forty years;
 
15           and
 
16      (6)  At the expiration of the lease (including any renewals
 
17           or extensions with the same lessee), all interest in
 
18           the property shall be either liquidated or leased again
 
19           on a nonoperating basis as soon as practicable (in no
 
20           event later than two years from the expiration of the
 
21           lease), but in no case shall the lessor retain any
 
22           interest in the property beyond fifty years after the
 
23           lessor's acquisition of the property."
 

 
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                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      SECTION 3.  Section 241-4.5, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "[[]241-4.5[]]  Capital goods [excise tax] investment
 
 4 credit.  The capital goods [excise tax] investment credit
 
 5 provided under section 235-110.7 shall be operative for this
 
 6 chapter after December 31, 1987."
 
 7      SECTION 4.  Statutory material to be repealed is bracketed.
 
 8 New statutory material is underscored.
 
 9      SECTION 5.  This Act, upon its approval, shall apply to
 
10 taxable years beginning after December 31, 1998.