REPORT TITLE: 
Capital gains tax; repeal

DESCRIPTION:
Repeals the Capital Gains Tax on profits arising out of
investments made or conducted in the State of Hawaii.  Requires
that the investment be held by the taxpayer for a minimum of 5
years.


 
HB HMIA 99-282
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
HOUSE OF REPRESENTATIVES                H.B. NO.456        
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO THE REPEAL OF THE CAPITAL GAINS TAX.



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


 1      SECTION 1.  The purpose of this Act is to repeal the capital
 
 2 gains tax on profits arising out of long term investments made in
 
 3 Hawaii.  The legislature finds that capital gains taxes, the tax
 
 4 on profits from investments, are detrimental to capital
 
 5 investment and economic growth, particularly in Hawaii.  High
 
 6 capital gains taxes have devastated industries such as banking,
 
 7 housing, and real estate.  Because of high taxes, heavy
 
 8 regulation, and the high cost of living, businesses have closed
 
 9 or left the state. The result has been lower revenues for the
 
10 state and reduced employment opportunities for all Hawaiians.  
 
11      The legislature further finds that it must do everything in
 
12 its power to maximize its competitive position vis-a-vis other
 
13 states.  Repealing the capital gains tax on profits from long
 
14 term investments in Hawaii encourages investment in Hawaii's
 
15 future and levels the playing field for business.  Instead of
 
16 raising taxes, new business must be encouraged.
 
17      The legislature hereby repeals all state income taxation on
 
18 capital gains arising out of long term investments made,
 
19 operated, or conducted in Hawaii.
 

 
HB HMIA 99-282
Page 2                                                     
                                     H.B. NO.456        
                                                        
                                                        

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

 
HB HMIA 99-282
Page 3                                                     
                                     H.B. NO.456        
                                                        
                                                        

 
 1 Over $41,000   $3,175.00 plus 10% of
 
 2                excess over $41,000
 
 3      (b)  There is hereby imposed on the taxable income of every
 
 4 head of a household a tax determined in accordance with the
 
 5 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 3% of
 
11      not over $2,500                          excess over  $1,500
 
12 Over $2,500 but     $60.00 plus 4.5% of
 
13      not over $3,500                          excess over  $2,500
 
14 Over $3,500 but     $105.00 plus 5.9% of
 
15      not over $5,500                          excess over  $3,500
 
16 Over $5,500 but     $223.00 plus 7.25% of
 
17      not over $11,000                         excess over  $5,500
 
18 Over $11,000 but    $621.75 plus 8.6% of
 
19      not over $21,000                         excess over $11,000
 
20 Over $21,000 but    $1,481.75 plus 9.6% of
 
21      not over $41,000                         excess over $21,000
 
22 Over $41,000   $3,401.75 plus 10% of
 
23                excess over $41,000
 

 
HB HMIA 99-282
Page 4                                                     
                                     H.B. NO.456        
                                                        
                                                        

 
 1      (c)  There is hereby imposed on the taxable income of (1)
 
 2 every unmarried individual (other than a surviving spouse, or the
 
 3 head of a household) and (2) on the taxable income of every
 
 4 married individual who does not make a single return jointly with
 
 5 the individual's spouse under section 235-93 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 $1,500     2% of taxable income
 
11 Over $1,500 but     $30.00 plus 4% of
 
12      not over $2,500                          excess over  $1,500
 
13 Over $2,500 but     $70.00 plus 6% of
 
14      not over $3,500                          excess over  $2,500
 
15 Over $3,500 but     $130.00 plus 7.25% of
 
16      not over $5,500                          excess over  $3,500
 
17 Over $5,500 but     $275.00 plus 8% of
 
18      not over $10,500                         excess over  $5,500
 
19 Over $10,500 but    $675.00 plus 8.75% of
 
20      not over $15,500                         excess over $10,500
 
21 Over $15,500 but    $1,112.50 plus 9.5% of
 
22      not over $20,500                         excess over $15,500
 
23 Over $20,500   $1,587.50 plus 10% of
 

 
HB HMIA 99-282
Page 5                                                     
                                     H.B. NO.456        
                                                        
                                                        

 
 1                excess over $20,500
 
 2      (d)  The tax imposed by section 235-2.4 on estates and
 
 3 trusts shall be determined in accordance with the following
 
 4 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 4% of
 
10      not over $2,500                          excess over  $1,500
 
11 Over $2,500 but     $70.00 plus 6% of
 
12      not over $3,500                          excess over  $2,500
 
13 Over $3,500 but     $130.00 plus 7.25% of
 
14      not over $5,500                          excess over  $3,500
 
15 Over $5,500 but     $275.00 plus 8% of
 
16      not over $10,500                         excess over  $5,500
 
17 Over $10,500 but    $675.00 plus 8.75% of
 
18      not over $15,500                         excess over $10,500
 
19 Over $15,500 but    $1,112.50 plus 9.5% of
 
20      not over $20,500                         excess over $15,500
 
21 Over $20,500   $1,587.50 plus 10% of
 
22                excess over $20,500
 
23      (e)  Any taxpayer, other than a corporation, acting as a
 

 
HB HMIA 99-282
Page 6                                                     
                                     H.B. NO.456        
                                                        
                                                        

 
 1 business entity in more than one state who is required by this
 
 2 chapter to file a return may elect to report and pay a tax of .5
 
 3 per cent of its annual gross sales (1) where the taxpayer's only
 
 4 activities in this State consist of sales; and (2) who does not
 
 5 own or rent real estate or tangible personal property; and (3)
 
 6 whose annual gross sales in or into this State during the tax
 
 7 year is not in excess of $100,000.
 
 8      (f)  If a taxpayer has a net capital gain for any taxable
 
 9 year to which this subsection applies, then the tax imposed by
 
10 this section shall not exceed the sum of:
 
11      (1)  The tax computed at the rates and in the same manner as
 
12           if this subsection had not been enacted on the greater
 
13           of:
 
14           (A)  The taxable income reduced by the amount of net
 
15                capital gain, or
 
16           (B)  The amount of taxable income taxed at a rate below
 
17                7.25 per cent, plus
 
18      (2)  A tax of 7.25 per cent of the amount of taxable income
 
19           in excess of the amount determined under paragraph (1).
 
20      This subsection shall apply to individuals, estates, and
 
21 trusts for taxable years beginning after December 31, 1986.
 
22 Notwithstanding any other provision to the contrary, the
 
23 definition of "taxable income" for purposes of the individual
 

 
HB HMIA 99-282
Page 7                                                     
                                     H.B. NO.456        
                                                        
                                                        

 
 1 income tax under this section shall not include any income
 
 2 derived from a capital gain arising out of a long term investment
 
 3 made, operated, or conducted in the State of Hawaii.  As used in
 
 4 this section, "long term investment" means an investment held by
 
 5 the taxpayer for a period of five or more years."
 
 6      SECTION 3.  Section 235-71.5, Hawaii Revised Statutes, is
 
 7 amended to read as follows:
 
 8      "[235-71.5]  [Alternative tax for corporations.  Section
 
 9 1201(with respect to alternative tax for corporations) of the
 
10 Internal Revenue Code shall be operative for the purposes of this
 
11 chapter and shall be applied as set forth in this section. If for
 
12 any taxable year a corporation, regulated investment company, or
 
13 real estate investment trust has a net capital gain, then, in
 
14 lieu of the tax imposed by section 235-71, there is hereby
 
15 imposed a tax (if such tax is less than the tax imposed under
 
16 section 235-71) which shall consist of the sum of:
 
17      (1)  A tax computed on the taxable income reduced by the
 
18           amount of the net capital gain, at the rates and in the
 
19           manner as if this section had not been enacted, plus
 
20      (2)  The sum of:
 
21           (A)  3.08 per cent of the lesser of:
 
22                (i)  The net capital gain determined by including
 
23                     only the gain or loss which is properly taken
 

 
HB HMIA 99-282
Page 8                                                     
                                     H.B. NO.456        
                                                        
                                                        

 
 1                     into account for the portion of the taxable
 
 2                     year before April 1, 1987 (i.e., the amount
 
 3                     in paragraph (1)), or
 
 4               (ii)  The net capital gain for the taxable year,
 
 5                     plus
 
 6           (B)  4 per cent of the excess (if any) of:
 
 7                (i)  The net capital gain for the taxable year,
 
 8                     over
 
 9               (ii)  The amount of the net capital gain taken into
 
10                     account under subparagraph (A).]
 
11 Capital gains exemption.  Notwithstanding any other provision to
 
12 the contrary, the definition of "taxable income" for purposes of
 
13 the corporation income tax under this section shall not include
 
14 any income derived from a capital gain arising out of a long term
 
15 investment made, operated, or conducted in the State of Hawaii.
 
16 As used in this section, "long term investment" means an
 
17 investment held by the taxpayer for five or more years."
 
18      SECTION 3.  Statutory material to be repealed is bracketed.
 
19 New statutory material is underscored.
 

 
HB HMIA 99-282
 
 
 
 
 
 
 
Page 9                                                     
                                     H.B. NO.456        
                                                        
                                                        

 
 1      SECTION 4.  This Act shall take effect upon its approval,
 
 2 but shall apply to capital gains realized on long term
 
 3 investments entered into after December 31, 1999.
 
 4 
 
 5 
 
 6                         INTRODUCED BY:___________________________
 
 7 

 
HB HMIA 99-282