REPORT TITLE: 
Income tax simplification
DESCRIPTION:Establishes income tax rate as       the federal tax
liability.  Conforms standard deduction and personal exemption to
Internal Revenue Code and repeals certain exceptions to
conformity.  Retains all state deductions and credits.


 
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                                            1304        
HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO INCOME TAX SIMPLIFICATION.



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


 1      SECTION 1.  Section 235-2.3, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "235-2.3  Conformance to the federal Internal Revenue Code;
 
 4 general application.(a)  For all taxable years beginning after
 
 5 December 31, [1996,] 1998, as used in this chapter "Internal
 
 6 Revenue Code" means subtitle A, chapter 1 of the federal Internal
 
 7 Revenue Code of 1986, as amended as of December 31, [1996,] 1998,
 
 8 as it applies to the determination of gross income, adjusted
 
 9 gross income, ordinary income and loss, and taxable income except
 
10 those provisions of the Internal Revenue Code and federal public
 
11 laws which pursuant to this chapter do not apply or are otherwise
 
12 limited in application.
 
13      Sections 235-2, 235-2.1, and 235-2.2 shall continue to be
 
14 used to determine:
 
15      (1)  The basis of property, if a taxpayer first determined
 
16           the basis of property in a taxable year to which such
 
17           sections apply, and if such determination was made
 
18           before January 1, 1978; and
 
19       (2) Gross income, adjusted gross income, ordinary income
 

 
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 1           and loss, and taxable income for a taxable year to
 
 2           which such sections apply where such taxable year
 
 3           begins before January 1, 1978.
 
 4      (b)  The following Internal Revenue Code subchapters, parts
 
 5 of subchapters, sections, subsections, and parts of subsections
 
 6 shall not be operative for the purposes of this chapter, unless
 
 7 otherwise provided:
 
 8      (1)  [Subchapter A (sections 1 to 59A)] Sections 1 to 15
 
 9           (with respect to determination of tax liability)[,
 
10           except section].
 
11      (2)  Section 42 (with respect to the low-income housing
 
12           credit) and [except] sections 47 and 48, as amended, as
 
13           of December 31, 1984 (with respect to certain
 
14           depreciable tangible personal property).  For
 
15           treatment, see sections 235-110.7 and 235-110.8.
 
16     [(2)  Section 78 (with respect to dividends received from
 
17           certain foreign corporations by domestic corporations
 
18           choosing foreign tax credit).
 
19      (3)  Section 86 (with respect to social security and tier 1
 
20           railroad retirement benefits).
 
21      (4)] (3)  Section 103 (with respect to interest on state and
 
22           local bonds).  For treatment, see section 235-7(b).
 
23     [(5)] (4)  Section 120 (with respect to amounts received
 

 
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 1           under qualified group legal services plans).  For
 
 2           treatment, see section 235-7(a)(9) to (11).
 
 3     [(6)] (5)  Section 122 (with respect to certain reduced
 
 4           uniformed services retirement pay).  For treatment, see
 
 5           section 235-7(a)(3).
 
 6     [(7)] (6)  Section 135 (with respect to income from United
 
 7           States savings bonds used to pay higher education
 
 8           tuition and fees).  For treatment, see section
 
 9           235-7(a)(1).
 
10     [(8)] (7)  Subchapter B (sections 141 to 150) (with respect
 
11           to tax exemption requirements for state and local
 
12           bonds).
 
13     [(9)  Section 151 (with respect to allowance of deductions
 
14           for personal exemptions).  For treatment, see section
 
15           235-54.
 
16     (10)  Section 196 (with respect to deduction for certain
 
17           unused investment credits).
 
18     (11)] (8)  Sections 241 to 247 (with respect to special
 
19           deductions for corporations).  For treatment, see
 
20           section 235-7(c).
 
21    [(12)  Section 280C (with respect to certain expenses for
 
22           which credits are allowable).
 
23     (13)  Section 291 (with respect to special rules relating to
 

 
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 1           corporate preference items).
 
 2     (14)  Section 367 (with respect to foreign corporations).
 
 3     (15)  Section 501(c)(12), (15), (16) (with respect to exempt
 
 4           organizations).
 
 5     (16)  Section 515 (with respect to taxes of foreign countries
 
 6           and possessions of the United States).
 
 7     (17)  Subchapter G (sections 531 to 565) (with respect to
 
 8           corporations used to avoid income tax on shareholders).
 
 9     (18)] (9)  Subchapter H (sections 581 to 597) (with respect
 
10           to banking institutions), except section 584 (with
 
11           respect to common trust funds).  For treatment, see
 
12           chapter 241.
 
13    [(19)] (10)  Section 642(a) and (b) (with respect to special
 
14           rules for credits and deductions applicable to trusts).
 
15           For treatment, see [sections 235-54(b) and] section
 
16           235-55.
 
17    [(20)  Section 668 (with respect to interest charge on
 
18           accumulation distributions from foreign trusts).
 
19     (21)] (11)  Subchapter L (sections 801 to 848) (with respect
 
20           to insurance companies).  For treatment, see sections
 
21           431:7-202 and 431:7-204.
 
22    [(22)] (12)  Section 853 (with respect to foreign tax credit
 
23           allowed to shareholders).  For treatment, see section
 

 
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 1           235-55.
 
 2    [(23)] (13)  Subchapter N (sections 861 to 999) (with respect
 
 3           to tax based on income from sources within or without
 
 4           the United States), except sections 985 to 989 (with
 
 5           respect to foreign currency transactions).  For
 
 6           treatment, see sections 235-4, 235-5, 235-7(b), and
 
 7           235-55.
 
 8    [(24)  Section 1055 (with respect to redeemable ground rents).
 
 9     (25)  Section 1057 (with respect to election to treat
 
10           transfer to foreign trust, etc., as taxable exchange).
 
11     (26)  Sections 1291 to 1297 (with respect to treatment of
 
12           passive foreign investment companies).
 
13     (27)  Subchapter Q (sections 1311 to 1351) (with respect to
 
14           readjustment of tax between years and special
 
15           limitations).
 
16     (28)] (14)  Subchapter U (sections 1391 to 1397D) (with
 
17           respect to designation and treatment of empowerment
 
18           zones, enterprise communities, and rural development
 
19           investment areas).  For treatment, see chapter 209E."
 
20      SECTION 2.  Section 235-2.4, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "235-2.4  Operation of certain Internal Revenue Code
 
23 provisions.(a)  [Section 63 (with respect to taxable income
 

 
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 1 defined) of the Internal Revenue Code shall be operative for the
 
 2 purposes of this chapter, except that the standard deduction
 
 3 amount in section 63(c) of the Internal Revenue Code shall
 
 4 instead mean:
 
 5      (1)  $1,900 in the case of:
 
 6           (A)  A joint return as provided by section 235-93, or
 
 7           (B)  A surviving spouse (as defined in section 2(a) of
 
 8                the Internal Revenue Code),
 
 9      (2)  $1,650 in the case of a head of household (as defined
 
10           in section 2(b) of the Internal Revenue Code),
 
11      (3)  $1,500 in the case of an individual who is not married
 
12           and who is not a surviving spouse or head of household,
 
13           or
 
14      (4)  $950 in the case of a married individual filing a
 
15           separate return.
 
16 Section 63(c)(4) shall not be operative in this State.  Section
 
17 63(c)(5) shall be operative, except that the limitation on basic
 
18 standard deduction in the case of certain dependents shall be the
 
19 greater of $500 or such individual's earned income.  Section
 
20 63(f) shall not be operative in this State.
 
21      (b)  Section 213 (with respect to medical, dental, etc.,
 
22 expenses) shall be operative, except that subsections (d)(1)(C)
 
23 with respect to long-term care services, (d)(1)(D) as it applies
 

 
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 1 to long-term care insurance contract premiums, (d)(7) as it
 
 2 applies to long-term care insurance contract premiums, and
 
 3 (d)(10) as it applies to eligible long-term care premiums, shall
 
 4 not be operative in this State.
 
 5      (c)]  Section 219 (with respect to retirement savings) of
 
 6 the Internal Revenue Code shall be operative for the purpose of
 
 7 this chapter.  For the purpose of computing the limitation on the
 
 8 deduction for active participants in certain pension plans for
 
 9 state income tax purposes, adjusted gross income as used in
 
10 section 219 as operative for this chapter means federal adjusted
 
11 gross income.
 
12      [(d)  Section 220 (with respect to medical savings accounts)
 
13 shall be operative for the purposes of this chapter, but only
 
14 with respect to medical services accounts that have been approved
 
15 by the secretary of the Treasury of the United States.
 
16      (e)] (b)  In administering the provisions of sections 410 to
 
17 417 (with respect to special rules relating to pensions, profit
 
18 sharing, stock bonus plans, etc.), sections 418 to 418E (with
 
19 respect to special rules for multiemployer plans), and sections
 
20 419 and 419A (with respect to treatment of welfare benefit funds)
 
21 of the Internal Revenue Code, the department of taxation shall
 
22 adopt rules under chapter 91 relating to the specific
 
23 requirements under such sections and to such other administrative
 

 
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 1 requirements under those sections as may be necessary for the
 
 2 efficient administration of sections 410 to 419A.
 
 3      In administering sections 401 to 419A (with respect to
 
 4 deferred compensation) of the Internal Revenue Code, Public Law
 
 5 93-406, section 1017(i), shall be operative for the purposes of
 
 6 this chapter.
 
 7      In administering section 402 (with respect to the taxability
 
 8 of beneficiary of employees' trust) of the Internal Revenue Code,
 
 9 the tax imposed on lump sum distributions by section 402(e) of
 
10 the Internal Revenue Code shall be operative for the purposes of
 
11 this chapter and the tax imposed therein is hereby imposed by
 
12 this chapter at the rate determined under this chapter.
 
13      [(f)  Section 468B (with respect to special rules for
 
14 designated settlement funds) shall be operative for the purposes
 
15 of this chapter and the tax imposed therein is hereby imposed by
 
16 this chapter at a rate equal to the maximum rate in effect for
 
17 the taxable year imposed on estates and trusts under section
 
18 235-51.
 
19      (g)] (c)  Section 469 (with respect to passive activities
 
20 and credits limited) shall be operative for the purposes of this
 
21 chapter.  For the purpose of computing the offset for rental real
 
22 estate activities for state income tax purposes, adjusted gross
 
23 income as used in section 469 as operative for this chapter means
 

 
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 1 federal adjusted gross income.
 
 2      [(h)] (d)  Sections 512 to 514 (with respect to taxation of
 
 3 business income of certain exempt organizations) of the Internal
 
 4 Revenue Code shall be operative for the purposes of this chapter
 
 5 as provided in this subsection.
 
 6      "Unrelated business taxable income" means the same as in the
 
 7 Internal Revenue Code, except that in the computation thereof
 
 8 sections 235-3 to 235-5, and 235-7 (except subsection (c)), shall
 
 9 apply, and in the determination of the net operating loss
 
10 deduction there shall not be taken into account any amount of
 
11 income or deduction which is excluded in computing the unrelated
 
12 business taxable income.  Unrelated business taxable income shall
 
13 not include any income from a prepaid legal service plan.
 
14      For a person described in section 401 or 501 of the Internal
 
15 Revenue Code, as modified by section 235-2.3, the tax imposed by
 
16 section 235-51 or 235-71 shall be imposed upon the person's
 
17 unrelated business taxable income.
 
18      [(i)] (e)  Section 521 (with respect to cooperatives) and
 
19 subchapter T (sections 1381 to 1388, with respect to cooperatives
 
20 and their patrons) shall be operative for the purposes of this
 
21 chapter as to any cooperative fully meeting the requirements of
 
22 section 421-23, except that Internal Revenue Code section 521
 
23 cooperatives need not be organized in Hawaii.
 

 
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 1      [(j)] (f)  Sections 527 (with respect to political
 
 2 organizations) and 528 (with respect to certain homeowners
 
 3 associations) shall be operative for the purposes of this chapter
 
 4 and the taxes imposed in each such section are hereby imposed by
 
 5 this chapter at the rates determined under section 235-71.
 
 6      [(k)] (g)  Section 641 (with respect to imposition of tax)
 
 7 of the Internal Revenue Code shall be operative for the purposes
 
 8 of this chapter subject to the following:
 
 9     [(1)  The deduction for exemptions shall be allowed as
 
10           provided in section 235-54(b).
 
11      (2)] (1)  The deduction for contributions and gifts in
 
12           determining taxable income shall be limited to the
 
13           amount allowed in the case of an individual, unless the
 
14           contributions and gifts are to be used exclusively in
 
15           the State.
 
16     [(3)] (2)  The tax imposed by section 1(e) of the Internal
 
17           Revenue Code as applied by section 641 of the Internal
 
18           Revenue Code is hereby imposed by this chapter at the
 
19           rate and amount as determined under section 235-51 on
 
20           estates and trusts.
 
21      [(l)] (h)  Section 644 (with respect to special rule for
 
22 gain on property transferred to trust at less than fair market
 
23 value) of the Internal Revenue Code shall be operative for the
 

 
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 1 purposes of this chapter and the tax imposed therein is hereby
 
 2 imposed by this chapter at the rate determined under this
 
 3 chapter; except that the determination of the interest rate
 
 4 established under section 6621 of the Internal Revenue Code
 
 5 referred to in section 644(a)(2) of the Internal Revenue Code
 
 6 shall instead be the interest rate established under section
 
 7 231-39(b)(4).
 
 8      [(m)] (i)  Section 667 (with respect to treatment of amounts
 
 9 deemed distributed by trusts in preceding years) of the Internal
 
10 Revenue Code shall be operative for the purposes of this chapter
 
11 and the tax imposed therein is hereby imposed by this chapter at
 
12 the rate determined under this chapter; except that the reference
 
13 to tax-exempt interest to which section 103 of the Internal
 
14 Revenue Code applies in section 667(a) of the Internal Revenue
 
15 Code shall instead be a reference to tax-exempt interest to which
 
16 section 235-7(b) applies.
 
17      [(n)  Section 1034 (with respect to rollover of gain on sale
 
18 of principal residence) of the Internal Revenue Code shall be
 
19 operative for the purpose of this chapter; provided section
 
20 1034(a) (with respect to nonrecognition of gain) of the Internal
 
21 Revenue Code shall apply only to:
 
22      (1)  A taxpayer who purchases a replacement residence which
 
23           is located within the State;
 
24      (2)  A taxpayer who is a resident of the State, taxable upon
 

 
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 1           the taxpayer's entire income, computed without regard
 
 2           to source within the State; or
 
 3      (3)  A taxpayer (or the taxpayer's spouse if the old
 
 4           residence and the new residence are each used by the
 
 5           taxpayer and the taxpayer's spouse as their principal
 
 6           residence) who, while serving on extended active duty
 
 7           with the armed forces of the United States, purchased a
 
 8           residence in Hawaii and later sold the residence.
 
 9      (o)  Section 1212 (with respect to capital loss carrybacks
 
10 and carryforwards) of the Internal Revenue Code shall be
 
11 operative for the purposes of this chapter; except that for the
 
12 purposes of this chapter the capital loss carryback provisions of
 
13 section 1212 shall not be operative and the capital loss
 
14 carryforward allowed by section 1212(a), shall be limited to five
 
15 years.
 
16      (p)] (j)  Subchapter S (sections 1361 to 1379) (with respect
 
17 to tax treatment of S corporations and their shareholders) of
 
18 chapter 1 of the Internal Revenue Code shall be operative for the
 
19 purposes of this chapter as provided in part VII.
 
20      [(q)] (k)  Subchapter C (sections 6221 to 6233) (with
 
21 respect to tax treatment of partnership items) of chapter 63 of
 
22 the Internal Revenue Code shall be operative for the purposes of
 
23 this chapter.
 

 
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 1      [(r)] (l)  Subchapter D (sections 6241 to 6245) (with
 
 2 respect to tax treatment of subchapter S items) of chapter 63 of
 
 3 the Internal Revenue Code shall be operative for the purposes of
 
 4 this chapter, and shall be interpreted with due regard to part
 
 5 VII.
 
 6      [(s)] (m)  Section 7518 (with respect to capital
 
 7 construction fund for commercial fishers) of the Internal Revenue
 
 8 Code shall be operative for the purposes of this chapter.
 
 9 Qualified withdrawals for the acquisition, construction, or
 
10 reconstruction of any qualified asset which is attributable to
 
11 deposits made before the effective date of this section shall not
 
12 reduce the basis of the asset when withdrawn.  Qualified
 
13 withdrawals shall be treated on a first-in-first-out basis."
 
14      SECTION 3.  Section 235-3, Hawaii Revised Statutes, is
 
15 amended by amending subsection (b) to read as follows:
 
16      "(b)  The Internal Revenue Code, so far as made operative by
 
17 this chapter, is a statute adopted and incorporated by reference.
 
18 The Internal Revenue Code shall be applied using changes in
 
19 nomenclature and other language, including the omission of
 
20 inapplicable language, where necessary to effectuate the intent
 
21 of this section.  In the Internal Revenue Code, references to
 
22 terms such as:
 
23      (1)  "Secretary or his delegate" shall refer to the director
 

 
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 1           of taxation and the director's duly authorized
 
 2           subordinates;
 
 3      (2)  "Estate taxes" shall refer to the estate and transfer
 
 4           tax imposed by chapter 236D;
 
 5     [(3)  "The highest rate of tax imposed upon individuals" or
 
 6           "39.6 per cent" shall refer to the highest rate imposed
 
 7           upon individuals under section 235-51; 
 
 8      (4)] (3)  "The highest rate of tax imposed upon
 
 9           corporations" shall refer to the highest rate imposed
 
10           upon corporations under section 235-71; and
 
11     [(5)] (4)  "Interest at the underpayment rate" or "interest
 
12           at the overpayment rate" shall refer to the interest
 
13           rate set forth in section 231-39(b)(4) or section
 
14           231-23(d)(1), as the case may be."
 
15      SECTION 4.  Section 235-4, Hawaii Revised Statutes, is
 
16 amended by amending subsection (c) to read as follows:
 
17      "(c)  Change of status.  Except where a joint return is
 
18 filed, when the status of a taxpayer changes during the taxable
 
19 year from resident to nonresident, or from nonresident to
 
20 resident, the tax imposed by this chapter applies to the entire
 
21 income earned during the period of residence in the manner
 
22 provided in subsection (a) of this section and during the period
 
23 of nonresidence the tax shall apply upon the income received or
 

 
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 1 derived as a nonresident in the manner provided in subsection (b)
 
 2 of this section; provided that if it cannot be determined whether
 
 3 income was received or derived during the period of residence or
 
 4 during the period of nonresidence, there shall be attributed to
 
 5 the State such portion of the income as is determined by applying
 
 6 to such income for the whole taxable year the ratio which the
 
 7 period of residence in the State bears to the whole taxable year,
 
 8 unless the taxpayer shows to the satisfaction of the department
 
 9 of taxation that the result is to attribute to the state income,
 
10 dependent upon residence, received or derived during the period
 
11 of nonresidence, in which event the amount of income as to which
 
12 such showing is made shall be excluded. 
 
13      The apportionment of income provided by this subsection
 
14 shall not apply where one spouse is a resident of this State and
 
15 a joint return is filed with the nonresident spouse in which
 
16 event the tax shall be computed on their aggregate income [in the
 
17 manner provided in section 235-52] without regard to source in
 
18 the State.  Where, however, both spouses change their status from
 
19 resident to nonresident or from nonresident to resident, their
 
20 income shall be apportioned in the manner provided in this
 
21 subsection." 
 
22      SECTION 5.  Section 235-51, Hawaii Revised Statutes, is
 
23 amended to read as follows:
 

 
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 1      "235-51  Tax imposed on individuals; rates.(a)  There is
 
 2 hereby imposed on the taxable income of every: 
 
 3      (1)  [every taxpayer] Taxpayer who files a joint return
 
 4           under section 235-93; [and]
 
 5       (2) [every surviving] Surviving spouse [a tax determined in
 
 6           accordance with the following table:
 
 7      In the case of any taxable year beginning after December 31,
 
 8 1988:
 
 9 If the taxable income is:                       The tax shall be:
 
10 Not over $3,000     2% of taxable income
 
11 Over $3,000 but     $60.00 plus 4% of
 
12      not over $5,000                          excess over  $3,000
 
13 Over $5,000 but     $140.00 plus 6% of
 
14      not over $7,000                          excess over  $5,000
 
15 Over $7,000 but     $260.00 plus 7.25% of
 
16      not over $11,000                         excess over  $7,000
 
17 Over $11,000 but    $550.00 plus 8% of
 
18      not over $21,000                         excess over $11,000
 
19 Over $21,000 but    $1,350.00 plus 8.75% of
 
20      not over $31,000                         excess over $21,000
 
21 Over $31,000 but    $2,225.00 plus 9.5% of
 
22      not over $41,000                         excess over $31,000
 
23 Over $41,000   $3,175.00 plus 10% of
 

 
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 1                excess over $41,000
 
 2      (b)  There is hereby imposed on the taxable income of every
 
 3 head of a household a tax determined in accordance with the
 
 4 following table:
 
 5      In the case of any taxable year beginning after December 31,
 
 6 1988:
 
 7 If the taxable income is:                       The tax shall be:
 
 8 Not over $1,500     2% of taxable income
 
 9 Over $1,500 but     $30.00 plus 3% of
 
10      not over $2,500                          excess over  $1,500
 
11 Over $2,500 but     $60.00 plus 4.5% of
 
12      not over $3,500                          excess over  $2,500
 
13 Over $3,500 but     $105.00 plus 5.9% of
 
14      not over $5,500                          excess over  $3,500
 
15 Over $5,500 but     $223.00 plus 7.25% of
 
16      not over $11,000                         excess over  $5,500
 
17 Over $11,000 but    $621.75 plus 8.6% of
 
18      not over $21,000                         excess over $11,000
 
19 Over $21,000 but    $1,481.75 plus 9.6% of
 
20      not over $41,000                         excess over $21,000
 
21 Over $41,000   $3,401.75 plus 10% of
 
22                excess over $41,000
 
23      (c)  There is hereby imposed on the taxable income of (1)
 

 
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 1 every unmarried individual (other than a surviving spouse, or the
 
 2 head of a household) and (2) on the taxable income of every
 
 3 married individual who does not make a single return jointly with
 
 4 the individual's spouse under section 235-93 a tax determined in
 
 5 accordance with the following table:
 
 6      In the case of any taxable year beginning after December 31,
 
 7 1988:
 
 8 If the taxable income is:                       The tax shall be:
 
 9 Not over $1,500     2% of taxable income
 
10 Over $1,500 but     $30.00 plus 4% of
 
11      not over $2,500                          excess over  $1,500
 
12 Over $2,500 but     $70.00 plus 6% of
 
13      not over $3,500                          excess over  $2,500
 
14 Over $3,500 but     $130.00 plus 7.25% of
 
15      not over $5,500                          excess over  $3,500
 
16 Over $5,500 but     $275.00 plus 8% of
 
17      not over $10,500                         excess over  $5,500
 
18 Over $10,500 but    $675.00 plus 8.75% of
 
19      not over $15,500                         excess over $10,500
 
20 Over $15,500 but    $1,112.50 plus 9.5% of
 
21      not over $20,500                         excess over $15,500
 
22 Over $20,500   $1,587.50 plus 10% of
 
23                excess over $20,500];
 

 
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 1      (3)  Head of a household;
 
 2      (4)  Unmarried individual (other than a surviving spouse, or
 
 3           the head of a household); or
 
 4      (5)  Married individual who does not make a single return
 
 5           jointly with the individual's spouse under section
 
 6           235-93;
 
 7 for the taxable year, a tax equal to      of the federal income
 
 8 tax liability of twenty-eight per cent or below, plus     per
 
 9 cent of the federal taxable income taxed at the federal rate of
 
10 thirty-one per cent or higher.
 
11      [(d)] (b)  The tax imposed by section 235-2.4 on estates and
 
12 trusts shall be determined in accordance with the following
 
13 table:
 
14      In the case of any taxable year beginning after December 31,
 
15 1988:
 
16 If the taxable income is:                       The tax shall be:
 
17 Not over $1,500     2% of taxable income
 
18 Over $1,500 but     $30.00 plus 4% of
 
19      not over $2,500                          excess over  $1,500
 
20 Over $2,500 but     $70.00 plus 6% of
 
21      not over $3,500                          excess over  $2,500
 
22 Over $3,500 but     $130.00 plus 7.25% of
 
23      not over $5,500                          excess over  $3,500
 

 
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 1 Over $5,500 but     $275.00 plus 8% of
 
 2      not over $10,500                         excess over  $5,500
 
 3 Over $10,500 but    $675.00 plus 8.75% of
 
 4      not over $15,500                         excess over $10,500
 
 5 Over $15,500 but    $1,112.50 plus 9.5% of
 
 6      not over $20,500                         excess over $15,500
 
 7 Over $20,500   $1,587.50 plus 10% of
 
 8                excess over $20,500
 
 9      [(e)  Any taxpayer, other than a corporation, acting as a
 
10 business entity in more than one state who is required by this
 
11 chapter to file a return may elect to report and pay a tax of .5
 
12 per cent of its annual gross sales (1) where the taxpayer's only
 
13 activities in this State consist of sales; and (2) who does not
 
14 own or rent real estate or tangible personal property; and (3)
 
15 whose annual gross sales in or into this State during the tax
 
16 year is not in excess of $100,000.
 
17      (f)  If a taxpayer has a net capital gain for any taxable
 
18 year to which this subsection applies, then the tax imposed by
 
19 this section shall not exceed the sum of:
 
20      (1)  The tax computed at the rates and in the same manner as
 
21           if this subsection had not been enacted on the greater
 
22           of:
 
23           (A)  The taxable income reduced by the amount of net
 

 
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 1                capital gain, or
 
 2           (B)  The amount of taxable income taxed at a rate below
 
 3                7.25 per cent, plus
 
 4      (2)  A tax of 7.25 per cent of the amount of taxable income
 
 5           in excess of the amount determined under paragraph (1).
 
 6      This subsection shall apply to individuals, estates, and
 
 7 trusts for taxable years beginning after December 31, 1986.]"
 
 8      SECTION 6.  Section 235-93, Hawaii Revised Statutes, is
 
 9 amended by amending subsection (a) to read as follows:
 
10      "(a)  A husband and wife, having that status for purposes of
 
11 the Internal Revenue Code and entitled to make a joint federal
 
12 return for the taxable year, may make a single return jointly of
 
13 taxes under this chapter for the taxable year.  In that case the
 
14 tax shall be computed on their aggregate income [as provided in
 
15 section 235-52,] and the liability with respect to the tax shall
 
16 be joint and several.  For purposes of this chapter "aggregate
 
17 income" means the income of both spouses without regard to source
 
18 in the State."
 
19      SECTION 7.  Section 235-52, Hawaii Revised Statutes, is
 
20 repealed.
 
21      ["235-52  Tax in case of joint return or return of
 
22 surviving spouse.  In the case of a joint return of a husband and
 
23 wife under section 235-93, the tax imposed, as near as may be, by
 

 
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 1 this chapter shall be twice the tax which would be imposed if the
 
 2 taxable income were cut in half.  For purposes of this section
 
 3 and section 235-53, a return of a surviving spouse, as defined in
 
 4 the Internal Revenue Code, shall be treated as a joint return of
 
 5 a husband and wife under section 235-93."]
 
 6      SECTION 8.  Section 235-53, Hawaii Revised Statutes, is
 
 7 repealed.
 
 8      ["235-53  Tax tables for individuals.(a)  Imposition of
 
 9 tax table tax: 
 
10      (1)  In general.  In lieu of the tax imposed by section
 
11           235-51, there is hereby imposed for each taxable year
 
12           on the taxable income of every individual: 
 
13           (A)  Who does not itemize the individual's deductions
 
14                for the taxable year; and 
 
15           (B)  Whose taxable income for such taxable year does
 
16                not exceed the ceiling amount, 
 
17           a tax determined under tables, applicable to such
 
18           taxable year, which shall be prescribed by the
 
19           director.  In the tables so prescribed, the amounts of
 
20           tax shall be computed on the basis of the rates
 
21           prescribed by section 235-51. 
 
22      (2)  Ceiling amount defined.  For purposes of paragraph (1),
 
23           the term "ceiling amount" means, with respect to any
 

 
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 1           taxpayer, the amount (not less than $20,000) determined
 
 2           by the director for the tax rate category in which such
 
 3           taxpayer falls. 
 
 4      (3)  Authority to prescribe tables for taxpayers who itemize
 
 5           deductions.  The director may provide that this section
 
 6           shall apply also for any taxable year to individuals
 
 7           who itemize their deductions.  Any tables prescribed
 
 8           under the preceding sentence shall be on the basis of
 
 9           taxable income. 
 
10      (b)  Section inapplicable to certain individuals.  This
 
11 section shall not apply to: 
 
12      (1)  An individual making a return for a period of less than
 
13           twelve months on account of a change in annual
 
14           accounting period, and 
 
15      (2)  An estate or trust. 
 
16      (c)  Tax treated as imposed by section 235-51.  For purposes
 
17 of this chapter, the tax imposed by this section shall be treated
 
18 as tax imposed by section 235-51. 
 
19      (d)  Taxable income.  Whenever it is necessary to determine
 
20 the taxable income of an individual to whom this section applies,
 
21 the taxable income shall be determined under section
 
22 235-2.4(a)."]
 
23      SECTION 9.  Section 235-54, Hawaii Revised Statutes, is
 

 
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 1 repealed.
 
 2      ["235-54  Exemptions.(a)  In computing the taxable income
 
 3 of any individual, there shall be deducted, in lieu of the
 
 4 personal exemptions allowed by the Internal Revenue Code,
 
 5 personal exemptions computed as follows: Ascertain the number of
 
 6 exemptions which the individual can lawfully claim under the
 
 7 Internal Revenue Code, add an additional exemption for the
 
 8 taxpayer or the taxpayer's spouse who is sixty-five years of age
 
 9 or older within the taxable year, and multiply that number by
 
10 $1,040, for taxable years beginning after December 31, 1984.  A
 
11 nonresident shall be entitled to the same personal exemptions as
 
12 a resident, without proration of the personal exemptions on
 
13 account of income from sources outside the State.  In the case of
 
14 an individual with respect to whom an exemption under this
 
15 section is allowable to another taxpayer for a taxable year
 
16 beginning in the calendar year in which the individual's taxable
 
17 year begins, the personal exemption amount applicable to such
 
18 individual under this subsection for such individual's taxable
 
19 year shall be zero. 
 
20      (b)  In computing the taxable income of an estate or trust
 
21 there shall be allowed, in lieu of the deductions allowed under
 
22 subsection (a), the following: 
 
23      (1)  An estate shall be allowed a deduction of $400. 
 

 
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 1      (2)  A trust which, under its governing instrument, is
 
 2           required to distribute all of its income currently
 
 3           shall be allowed a deduction of $200. 
 
 4      (3)  All other trusts shall be allowed a deduction of $80.
 
 5      (c)  A blind person, a deaf person and any person totally
 
 6 disabled, in lieu of the personal exemptions allowed by the
 
 7 Internal Revenue Code, shall be allowed, and there shall be
 
 8 deducted in computing the taxable income of a blind person, a
 
 9 deaf person, or a totally disabled person, instead of the
 
10 exemptions provided by subsection (a), the amount of $7,000."]
 
11      SECTION 10.  Statutory material to be repealed is bracketed.
 
12 New statutory material is underscored.
 
13      SECTION 11.  This Act, upon its approval, shall apply to
 
14 taxable years beginning after December 31, 1999.
 
15 
 
16 
 
17                         INTRODUCED BY:___________________________
 
18 
 
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22 
 
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