REPORT TITLE:
Corporate Taxes


DESCRIPTION:
Provides corporate tax relief to corporations, regulated
investment companies, real estate investment trusts, and
franchise taxpayers.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           639
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO TAXATION.



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

 1      SECTION 1.  Purpose.  The legislature finds that the State
 
 2 needs to reverse the negative perception that Hawaii is a very
 
 3 expensive place to do business.  A logical way would be to lower
 
 4 Hawaii's corporate taxes.  A reduction in corporate taxes would
 
 5 attract more capital-intensive firms, that in turn would create
 
 6 full-time jobs, pay higher wages, and benefit those with more
 
 7 education and job skills.  The purpose of this Act is to lower
 
 8 corporate tax rates to simulate Hawaii's economy and to encourage
 
 9 capital investment in the State.  Specifically, this Act provides
 
10 corporate tax relief to corporations, regulated investment
 
11 companies, real estate investment trusts, and franchise
 
12 taxpayers.
 
13      SECTION 2.  Section 235-71, Hawaii Revised Statutes, is
 
14 amended as follows:
 
15      1.  By amending subsections (a) and (b) to read as follows:
 
16      "(a)  A tax at the rates [herein provided] as set forth in
 
17 this section shall be assessed, levied, collected, and paid for
 
18 each taxable year on the taxable income of every corporation,
 
19 including a corporation carrying on business in partnership,
 

 
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 1 except that [in]:
 
 2      (1)  In the case of a regulated investment company the tax
 
 3           [is as provided by] shall be set forth in subsection
 
 4           (b); and [further that in]
 
 5      (2)  In the case of a real estate investment trust, as
 
 6           defined in section 856 of the Internal Revenue Code of
 
 7           1954, the tax [is as provided] shall be as set forth in
 
 8           subsection (d).
 
 9      "Corporation" includes any professional corporation
 
10 incorporated pursuant to chapter 415A.
 
11      The tax on all taxable income shall be at the rate of [4.4]
 
12 2.2 per cent if the taxable income is not over [$25,000, 5.4]
 
13 $50,000, 2.7 per cent if over [$25,000] $50,000 but not over
 
14 $100,000, and on all over $100,000, [6.4] 3.2 per cent.
 
15      (b)  In the case of a regulated investment company, there
 
16 [is] shall be imposed on the taxable income, computed as provided
 
17 in sections 852 and 855 of the Internal Revenue Code but with the
 
18 changes and adjustments made by this chapter [(without prejudice
 
19 to the generality of the foregoing, the deduction for dividends
 
20 paid is limited to such amount of dividends as is attributable to
 
21 income taxable under this chapter)], a tax consisting in the sum
 
22 of the following:  [4.4] 2.2 per cent if the taxable income is
 
23 not over [$25,000, 5.4] $50,000, 2.7 per cent if over [$25,000]
 

 
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 1 $50,000 but not over $100,000, and on all over $100,000, [6.4]
 
 2 3.2 per cent[.]; provided that without prejudice to the
 
 3 generality of the foregoing, the deduction for dividends paid
 
 4 shall be limited to the amount of dividends attributable to
 
 5 income taxable under this chapter."
 
 6      2.  By amending subsection (d) to read as follows:
 
 7      "(d)  In the case of a real estate investment trust, there
 
 8 [is] shall be imposed on the taxable income, computed as provided
 
 9 in sections 857 and 858 of the Internal Revenue Code but with the
 
10 changes and adjustments made by this chapter [(without prejudice
 
11 to the generality of the foregoing, the deduction for dividends
 
12 paid is limited to such amount of dividends as is attributable to
 
13 income taxable under this chapter)], a tax consisting in the sum
 
14 of the following:  [4.4] 2.2 per cent if the taxable income is
 
15 not over [$25,000, 5.4] $50,000, 2.7 per cent if over [$25,000]
 
16 $50,000 but not over $100,000, and on all over $100,000, [6.4]
 
17 3.2 per cent[.]; provided that without prejudice to the
 
18 generality of the foregoing, the deduction for dividends paid
 
19 shall be limited to the amount of dividends attributable to
 
20 income taxable under this chapter.
 
21      In addition to any other penalty provided by law any real
 
22 estate investment trust whose tax liability for any taxable year
 
23 is deemed to be increased pursuant to section 859(b)(2)(A) or
 

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

 
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 1           amount of the net capital gain, at the rates and in the
 
 2           manner as if this section had not been enacted[,]; plus
 
 3      (2)  The sum of:
 
 4           (A)  [3.08] 1.54 per cent of the lesser of[:] either:
 
 5                (i)  The net capital gain determined by including
 
 6                     only the gain or loss [which] that is
 
 7                     properly taken into account for the portion
 
 8                     of the taxable year before April 1, 1987
 
 9                     (i.e., the amount in paragraph (1))[,]; or
 
10               (ii)  The net capital gain for the taxable year[,];
 
11                     plus,
 
12           (B)  [4] 2.0 per cent of the excess (if any) of[:
 
13                (i)  The] the net capital gain for the taxable
 
14                     year[,] over
 
15              [(ii)  The] the amount of the net capital gain taken
 
16                     into account under subparagraph (A)."
 
17      SECTION 4.  Section 241-4, Hawaii Revised Statutes, is
 
18 amended by amending subsection (a) to read as follows:
 
19      "(a)  The measure of the tax imposed by this chapter is the
 
20 entire net income from all sources for the preceding calendar
 
21 year, or in the case of a taxpayer operating on a fiscal year
 
22 basis, for the preceding fiscal year.  The tax shall be at the
 
23 rate of [seven and ninety-two one hundredths] three and ninety-
 

 
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 1 six one hundredths per cent of the entire net income from all
 
 2 sources."
 
 3      SECTION 5.  Section 241-4.3, Hawaii Revised Statutes, is
 
 4 amended to read as follows:
 
 5      "[[]241-4.3[]]  Alternative tax.  Section 1201 (with
 
 6 respect to alternative tax for corporations) of the Internal
 
 7 Revenue Code shall be operative for the purposes of this chapter
 
 8 and shall be applied as set forth in this section.  If for any
 
 9 taxable year a bank, building and loan association, development
 
10 company, financial corporation, financial services loan company,
 
11 small business investment company, mortgage loan company,
 
12 financial holding company, or trust company has a net capital
 
13 gain, then, in lieu of the tax imposed by section 241-4, there
 
14 [is hereby] shall be imposed a tax (if [such] the tax is less
 
15 than the tax imposed under section 241-4) [which] that shall
 
16 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)  [Four] Two per cent of the net capital gain for the
 
21           taxable year."
 
22      SECTION 6.  Statutory material to be repealed is bracketed.
 
23 New statutory material is underscored.
 

 
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 1      SECTION 7.  This Act, upon its approval, shall apply to
 
 2 taxable years beginning after December 31, 1999, except section 3
 
 3 shall take effect on January 1, 2000.
 
 4 
 
 5                           INTRODUCED BY:  _______________________