REPORT TITLE:
Speculation Tax


DESCRIPTION:
Levies a surtax on the gain from the sale or exchange of
affected property in the State within two years of purchase.

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


                     A BILL FOR AN ACT
RELATING TO TAXATION.



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


 1      SECTION 1.  The legislature finds that the practice of
 
 2 buying and selling residential property for speculative purposes
 
 3 contributes substantially to the high cost of housing.  Not only
 
 4 are Hawaii consumers affected by sudden increases in the price of
 
 5 housing as consumers, but the rapid changes in price negatively
 
 6 affect the factors under which a steady flow of new housing is
 
 7 optimized.  For homeowners on a fixed income, rapid appreciation
 
 8 in property values fueled by speculative transfers cause property
 
 9 taxes to rise beyond tolerable limits.  As resales drive the
 
10 assessed valuations skyward, the effects on the State's elderly
 
11 population are particularly devastating.
 
12      It is intended that this Act significantly reduce the
 
13 incidence of short-term capital gain on the resale of non-owner
 
14 occupant residential property.
 
15      The purpose of this Act is to levy a surtax on the gain upon
 
16 the resale of non-owner occupied real property within two years
 
17 of purchase, thereby discouraging purely speculative
 
18 transactions.
 
19      SECTION 2.  The Hawaii Revised Statutes is amended by adding
 

 
Page 2                                         234         
                                     H.B. NO.           
                                                        
                                                        

 
 1 a new chapter to be appropriately designated and to read as
 
 2 follows:
 
 3                             "CHAPTER
 
 4                          SPECULATION TAX
 
 5        -1  Imposition of tax.  (a)  There is imposed, in
 
 6 addition to any other applicable tax, a tax on the gain from the
 
 7 sale or exchange of affected property in this State within two
 
 8 years of purchase.
 
 9      (b)  For the purposes of this chapter:
 
10      "Affected property" means all real property, including but
 
11 not limited to vacant land, single family residences, farmhouses
 
12 and condominiums, which is zoned residential or which is located
 
13 on land zoned residential by any county, and which is not resided
 
14 upon by the owner of such property as one's principal residence
 
15 for at least three hundred sixty-five days during the two-year
 
16 period after purchase.
 
17      "Director" means the director of taxation.
 
18      "Internal Revenue Code" means the Internal Revenue Code of
 
19 1986, as amended.
 
20      "Sale or exchange of property" means any transfer of title
 
21 to affected property for a consideration.  The transfer of an
 
22 option for the sale or exchange of property shall be considered a
 
23 transfer of title to property for the purposes of this chapter.
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1         -2  Rate of tax; disposition of proceeds.(a)  The tax
 
 2 shall be:
 
 3      (1)  Fifty per cent of the gain for affected property resold
 
 4           within one year of the date of purchase; and
 
 5      (2)  Twenty-five per cent of the gain for affected property
 
 6           sold between one and two years of the date of purchase.
 
 7 Gain shall be as calculated under subchapter O of the Internal
 
 8 Revenue Code.
 
 9      (b)  All proceeds collected under this chapter shall be
 
10 deposited in the general fund.
 
11       -3  Sale or exchange.(a)  Contracts for the sale of
 
12 property shall constitute sales or exchanges of property for all
 
13 purposes of this chapter.  However, contracts shall not
 
14 constitute sales or exchanges until some consideration has passed
 
15 to or for the benefit of the seller or exchanger.  The sale or
 
16 exchange is considered to take place at the time any
 
17 consideration whatsoever, of whatever nature, first passes under
 
18 the contract.  If the affected property has been held by the
 
19 seller for less than one year, the entire tax due on the sale
 
20 then shall become due as provided under this chapter, even if the
 
21 transaction between the parties involves an installment sale.  A
 
22 mere promise to purchase, and amounts paid as earnest money or
 
23 amounts paid in deposit or amounts paid in escrow to which the
 

 
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 1 seller has no immediate right, do not constitute the passing of
 
 2 consideration for the purposes of this chapter.
 
 3      (b)  Any sale or exchange of shares in a corporation or
 
 4 other entity, or of comparable rights or property interests in
 
 5 any other form of organization or legal entity, which effectively
 
 6 entitles the purchaser to the use or occupancy of affected
 
 7 property constitutes a sale or exchange of property.
 
 8        -4  Basis and holding period.(a)  The Internal Revenue
 
 9 Code shall determine the basis of affected property sold or
 
10 exchanged.
 
11      (b)  The amount realized from the sale or exchange shall be
 
12 the full actual consideration, paid or to be paid, including the
 
13 amount of any liens or encumbrances on the affected property
 
14 existing before the sale or exchange and not removed.  The amount
 
15 realized from the sale or exchange shall be the gross amount,
 
16 reduced by any reasonable expenses of sale and commissions.  If
 
17 the seller has owned the affected property for less than one
 
18 year, the amount realized from the sale or exchange shall be the
 
19 gross amount reduced by no more than a total of twelve per cent
 
20 by any expenses of sale and commissions.
 
21      (c)  The amount of the taxable gain shall be calculated by
 
22 the party acting as escrow depositary of the real estate
 
23 transaction.  The escrow depositary shall withhold the amount of
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1 the tax at the time of sale and shall transmit the tax payment to
 
 2 the general fund.  No gain shall be recognized in cases where
 
 3 gain is not recognized under the Internal Revenue Code in
 
 4 relation to the sale or exchange of capital assets.
 
 5      (d)  The affected property sold or exchanged shall be deemed
 
 6 to have been held as determined under the Internal Revenue Code.
 
 7 If a husband and wife are tenants by the entirety there may be
 
 8 added to the holding period the amount of time the affected
 
 9 property was held by one spouse alone before that spouse created
 
10 the tenancy by the entirety.  Notwithstanding any provision to
 
11 the contrary under the Internal Revenue Code, if a tenancy by the
 
12 entirety is dissolved by reason of death or divorce, the holding
 
13 period during the tenancy by the entirety shall be added to the
 
14 holding period of the spouse subsequently owning the affected
 
15 property in the spouse's own name.  For the purposes of this
 
16 subsection affected property devised to or inherited by a
 
17 surviving spouse or affected property awarded to a spouse upon
 
18 dissolution of marriage shall be treated as though it had been
 
19 held by husband and wife as tenants by the entirety.
 
20      (e)  The taxable gain under this chapter from the sale or
 
21 exchange of property shall not be reduced by any losses incurred
 
22 in other transactions.
 
23      (f)  Notwithstanding any other provisions of this section,
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1 affected property acquired from a decedent, or an estate, or sold
 
 2 by an estate, shall have a holding period commencing as of the
 
 3 date of death of the decedent, and its basis shall be the fair
 
 4 market value of such property as of the date of death of the
 
 5 decedent, or alternative valuation date as finally determined
 
 6 under the Internal Revenue Code for the federal estate tax.
 
 7        -5  Liability for tax.  The person liable for the tax is
 
 8 the transferor of the affected property sold or exchanged.
 
 9        -6  Reports of resales.  The bureau of conveyances and
 
10 the land court shall file a monthly listing of resales occurring
 
11 within two years with the department of taxation and the housing
 
12 and community development corporation of Hawaii.
 
13        -7  Audit of escrow companies.  The housing and
 
14 community development corporation shall annually audit escrow
 
15 companies for compliance with this chapter.
 
16        -8  Administration of tax.(a)  The director shall
 
17 administer and enforce this chapter.  The director may adopt
 
18 rules under chapter 91 to assist in administration and
 
19 enforcement.
 
20      (b)  All the administrative provisions of chapter 231,
 
21 including those relating to the collection and enforcement by the
 
22 director of the withholding tax and the income tax, shall apply
 
23 to the tax imposed by this chapter.
 

 
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 1        -9  Criminal penalties.(a)  Any person who wilfully
 
 2 evades or attempts to evade the tax imposed by this chapter shall
 
 3 be guilty of a misdemeanor, but in addition to imprisonment,
 
 4 shall be subject to a fine of not more than $10,000, or five
 
 5 times the amount of the tax evaded or attempted to be evaded,
 
 6 whichever is larger.  The attorney general shall prosecute
 
 7 offenders under this chapter.
 
 8      (b)  Any officer, employee, director, trustee, or other
 
 9 responsible person of a corporation or other taxable entity, and
 
10 any other person, who counsels, aids, abets, participates in, or
 
11 conceals the evasion or attempted evasion of tax shall be subject
 
12 to the penalties of subsection (a).
 
13      (c)  The form for the payment of the tax under this chapter
 
14 shall set forth in large type the penalties provided in this
 
15 section."
 
16      SECTION 3.  Chapter 449, Hawaii Revised Statutes, is amended
 
17 by adding a new section to be appropriately designated and to
 
18 read as follows:
 
19      "449-      Additional duties.  An escrow depositary shall
 
20 comply with the withholding and transmittal requirements of
 
21 chapter    .  An escrow depositary shall cooperate with the
 
22 housing and community development corporation of Hawaii in the
 
23 auditing of its records of transactions for compliance with
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1 chapter    ."
 
 2      SECTION 4.  New statutory material is underscored.
 
 3      SECTION 5.  This Act shall take effect on July 1, 1999.
 
 4 
 
 5                           INTRODUCED BY:  _______________________