REPORT TITLE:
Corporations; tax rates


DESCRIPTION:
Provides income tax rate reductions for corporations, regulated
investment companies, and real estate investment trusts.
Provides franchise tax rate reductions for banks and financial
corporations.

 
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                                                        1173
THE SENATE                              S.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.  Section 235-71, Hawaii Revised Statutes, is
 
 2 amended by amending subsections (a) and (b) to read as follows:
 
 3      "(a)  A tax at the rates herein provided shall be assessed,
 
 4 levied, collected, and paid for each taxable year on the taxable
 
 5 income of every corporation, including a corporation carrying on
 
 6 business in partnership, except that in the case of a regulated
 
 7 investment company the tax is as provided by subsection (b) and
 
 8 further that in the case of a real estate investment trust as
 
 9 defined in section 856 of the Internal Revenue Code of [1954]
 
10 1986, as amended, the tax is as provided in subsection (d).
 
11 "Corporation" includes any professional corporation incorporated
 
12 pursuant to chapter 415A.
 
13      The tax on all taxable income shall [be at the rate] consist
 
14 of the sum of [4.4] 2.2 per cent if the taxable income is not
 
15 over $25,000, [5.4] 2.7 per cent if over $25,000 but not over
 
16 $100,000, and on all over $100,000, [6.4] 3.2 per cent.
 
17      (b)  In the case of a regulated investment company there is
 
18 imposed on the taxable income, computed as provided in sections
 
19 852 and 855 of the Internal Revenue Code but with the changes and
 

 
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 1 adjustments made by this chapter (without prejudice to the
 
 2 generality of the foregoing, the deduction for dividends paid is
 
 3 limited to such amount of dividends as is attributable to income
 
 4 taxable under this chapter), a tax consisting in the sum of the
 
 5 following:  [4.4] 2.2 per cent if the taxable income is not over
 
 6 $25,000, [5.4] 2.7 per cent if over $25,000 but not over
 
 7 $100,000, and on all over $100,000, [6.4] 3.2 per cent."
 
 8      SECTION 2.  Section 235-71, Hawaii Revised Statutes, is
 
 9 amended by amending subsection (d) to read as follows:
 
10      "(d)  In the case of a real estate investment trust there is
 
11 imposed on the taxable income, computed as provided in sections
 
12 857 and 858 of the Internal Revenue Code but with the changes and
 
13 adjustments made by this chapter (without prejudice to the
 
14 generality of the foregoing, the deduction for dividends paid is
 
15 limited to such amount of dividends as is attributable to income
 
16 taxable under this chapter), a tax consisting in the sum of the
 
17 following:  [4.4] 2.2 per cent if the taxable income is not over
 
18 $25,000, [5.4] 2.7 per cent if over $25,000 but not over
 
19 $100,000, and on all over $100,000, [6.4] 3.2 per cent.  In
 
20 addition to any other penalty provided by law any real estate
 
21 investment trust whose tax liability for any taxable year is
 
22 deemed to be increased pursuant to section 859(b)(2)(A) or
 
23 860(c)(1)(A) after December 31, 1978, (relating to interest and
 

 
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 1 additions to tax determined with respect to the amount of the
 
 2 deduction for deficiency dividends allowed) of the Internal
 
 3 Revenue Code shall pay a penalty in an amount equal to the amount
 
 4 of interest for which such trust is liable that is attributable
 
 5 solely to such increase.  The penalty payable under this
 
 6 subsection with respect to any determination shall not exceed
 
 7 one-half of the amount of the deduction allowed by section
 
 8 859(a), or 860(a) after December 31, 1978, of the Internal
 
 9 Revenue Code for such taxable year."
 
10      SECTION 3.  Section 235-71.5, Hawaii Revised Statutes, is
 
11 amended to read as follows:
 
12      "235-71.5  Alternative tax for corporations.  Section 1201
 
13 (with respect to alternative tax for corporations) of the
 
14 Internal Revenue Code of 1986, as amended as of December 31,
 
15 1996, shall be operative for the purposes of this chapter and
 
16 shall be applied as set forth in this section.  If for any
 
17 taxable year a corporation, regulated investment company, or real
 
18 estate investment trust has a net capital gain, then, in lieu of
 
19 the tax imposed by section 235-71, there is hereby imposed a tax
 
20 (if such tax is less than the tax imposed under section 235-71)
 
21 which shall consist of the sum of:
 
22      (1)  A tax computed on the taxable income reduced by the
 
23           amount of the net capital gain, at the rates and in the
 

 
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 1           manner as if this section had not been enacted, plus
 
 2      (2)  The sum of:
 
 3           (A)  [3.08] 4 per cent of the lesser of:
 
 4                (i)  The net capital gain determined by including
 
 5                     only the gain or loss which is properly taken
 
 6                     into account for the portion of the taxable
 
 7                     year before [April 1, 1987] January 1, 2000
 
 8                     (i.e., the amount in paragraph (1)), or
 
 9               (ii)  The net capital gain for the taxable year,
 
10                     plus,
 
11           (B)  [4] 2 per cent of the excess (if any) of:
 
12                (i)  The net capital gain for the taxable year,
 
13                     over
 
14               (ii)  The amount of the net capital gain taken into
 
15                     account under subparagraph (A)."
 
16      SECTION 4.  Section 241-4, Hawaii Revised Statutes, is
 
17 amended by amending subsection (a) to read as follows:
 
18      "(a)  The measure of the tax imposed by this chapter is the
 
19 entire net income from all sources for the preceding calendar
 
20 year, or in the case of a taxpayer operating on a fiscal year
 
21 basis, for the preceding fiscal year. The tax shall be at the
 
22 rate of [seven and ninety-two one hundredths] 3.96 per cent of
 
23 the entire net income from all sources."
 

 
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 1      SECTION 5.  Section 241-4.3, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "241-4.3  Alternative tax.  Section 1201 (with respect to
 
 4 alternative tax for corporations) of the Internal Revenue Code of
 
 5 1986, as amended as of December 31, 1996, shall be operative for
 
 6 the purposes of this chapter and shall be applied as set forth in
 
 7 this section. If for any taxable year a bank, building and loan
 
 8 association, development company, financial corporation,
 
 9 financial services loan company, small business investment
 
10 company, mortgage loan company, financial holding company, or
 
11 trust company has a net capital gain, then, in lieu of the tax
 
12 imposed by section 241-4, there is hereby imposed a tax (if such
 
13 tax is less than the tax imposed under section 241-4) which shall
 
14 consist of the sum of:
 
15      (1)  A tax computed on the taxable income reduced by the
 
16           amount of the net capital gain, at the rates and in the
 
17           manner as if this section had not been enacted; plus
 
18      (2)  [Four] 2 per cent of the net capital gain for the
 
19           taxable year."
 
20      SECTION 6.  Statutory material to be repealed is bracketed.
 
21 New statutory material is underscored.
 
22      SECTION 7.  This Act, upon its approval, provided that
 
23 sections 1, 2, and 3 shall apply to taxable years beginning after
 

 
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 1 December 31, 1999; provided that if a taxpayer's taxable year
 
 2 includes the effective date of the tax rate changes (unless that
 
 3 date is the first day of the taxable year), then, (1) the
 
 4 tentative taxes shall be computed by applying the rate for the
 
 5 period before the effective date change, and the rate for the
 
 6 period on and after that date, to the taxable income for the
 
 7 entire year; and (2) the tax for the taxable year shall be the
 
 8 sum of that proportion of each tentative tax which the number of
 
 9 days in each period bears to the number of days in the entire
 
10 taxable year and provided that sections 4 and 5 shall take effect
 
11 on January 1, 2001, so that the amendments apply to the entire
 
12 net income received in the calendar year preceding January 1,
 
13 2001, and for calendar years thereafter.  In the case of a
 
14 taxpayer operating on a fiscal year basis, sections 4 and 5 shall
 
15 apply to the entire net income received for the fiscal year in
 
16 which January 1, 2001, occurs and for fiscal years thereafter.
 
17 
 
18                           INTRODUCED BY:  _______________________
 

 
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