REPORT TITLE:
Tax Deduction; Meals and Dues


DESCRIPTION:
Provides a tax deduction for business meals and dues for certain
organizations.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           726
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO BUSINESS TAX DEDUCTIONS.



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

 1      SECTION 1.  Section 235-2.4, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "235-2.4  Operation of certain Internal Revenue Code
 
 4 provisions.(a)  Section 63 (with respect to taxable income
 
 5 defined) of the Internal Revenue Code shall be operative for the
 
 6 purposes of this chapter, except that the standard deduction
 
 7 amount in section 63(c) of the Internal Revenue Code shall
 
 8 instead mean:
 
 9      (1)  $1,900 in the case of:
 
10           (A)  A joint return as provided by section 235-93, or
 
11           (B)  A surviving spouse (as defined in section 2(a) of
 
12                the Internal Revenue Code),
 
13      (2)  $1,650 in the case of a head of household (as defined
 
14           in section 2(b) of the Internal Revenue Code),
 
15      (3)  $1,500 in the case of an individual who is not married
 
16           and who is not a surviving spouse or head of household,
 
17           or
 
18      (4)  $950 in the case of a married individual filing a
 
19           separate return. 
 

 
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 1 Section 63(c)(4) shall not be operative in this State.  Section
 
 2 63(c)(5) shall be operative, except that the limitation on basic
 
 3 standard deduction in the case of certain dependents shall be the
 
 4 greater of $500 or such individual's earned income.  Section
 
 5 63(f) shall not be operative in this State.
 
 6      (b)  Section 72 (with respect to annuities; certain proceeds
 
 7 of endowment and life insurance contracts) of the Internal
 
 8 Revenue Code shall be operative for purposes of this chapter and
 
 9 be interpreted with due regard to section 235-7(a), except that
 
10 the ten per cent additional tax on early distributions from
 
11 retirement plans in section 72(t) shall not be operative for
 
12 purposes of this chapter.
 
13      (c)  Section 121 (with respect to exclusion of gain from
 
14 sale of principal residence) of the Internal Revenue Code shall
 
15 be operative for purposes of this chapter, except that for the
 
16 election under section 121(f), a reference to section 1034
 
17 treatment means a reference to section 235-2.4(n) in effect for
 
18 taxable year 1997.
 
19      (d)  Section 213 (with respect to medical, dental, etc.,
 
20 expenses) of the Internal Revenue Code shall be operative, except
 
21 that subsections (d)(1)(C) with respect to long-term care
 
22 services, (d)(1)(D) as it applies to long-term care insurance
 
23 contract premiums, (d)(7) as it applies to long-term care
 

 
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                                     S.B. NO.           726
                                                        
                                                        

 
 1 insurance contract premiums, and (d)(10) as it applies to
 
 2 eligible long-term care premiums shall not be operative in this
 
 3 State.
 
 4      (e)  Section 219 (with respect to retirement savings) of the
 
 5 Internal Revenue Code shall be operative for the purpose of this
 
 6 chapter.  For the purpose of computing the limitation on the
 
 7 deduction for active participants in certain pension plans for
 
 8 state income tax purposes, adjusted gross income as used in
 
 9 section 219 as operative for this chapter means federal adjusted
 
10 gross income.
 
11      (f)  Section 220 (with respect to medical savings accounts)
 
12 of the Internal Revenue Code shall be operative for the purpose
 
13 of this chapter, but only with respect to medical services
 
14 accounts that have been approved by the secretary of the Treasury
 
15 of the United States.
 
16      (g)  Section 274 (with respect to disallowance of certain
 
17 entertainment and other expenses) of the Internal Revenue Code
 
18 shall be operative except for full deduction of expenses for meal
 
19 and entertainment expenses and for dues or fees paid to any
 
20 social, athletic, or sporting club or organization that does not
 
21 discriminate in its membership procedures.
 
22      [(g)] (h)  In administering the provisions of sections 410
 
23 to 417 (with respect to special rules relating to pensions,
 

 
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                                     S.B. NO.           726
                                                        
                                                        

 
 1 profit sharing, stock bonus plans, etc.), sections 418 to 418E
 
 2 (with respect to special rules for multiemployer plans), and
 
 3 sections 419 and 419A (with respect to treatment of welfare
 
 4 benefit funds) of the Internal Revenue Code, the department of
 
 5 taxation shall adopt rules under chapter 91 relating to the
 
 6 specific requirements under such sections and to such other
 
 7 administrative requirements under those sections as may be
 
 8 necessary for the efficient administration of sections 410 to
 
 9 419A.
 
10      In administering sections 401 to 419A (with respect to
 
11 deferred compensation) of the Internal Revenue Code, Public Law
 
12 93-406, section 1017(i), shall be operative for the purposes of
 
13 this chapter.
 
14      In administering section 402 (with respect to the taxability
 
15 of beneficiary of employees' trust) of the Internal Revenue Code,
 
16 the tax imposed on lump sum distributions by section 402(e) of
 
17 the Internal Revenue Code shall be operative for the purposes of
 
18 this chapter and the tax imposed therein is hereby imposed by
 
19 this chapter at the rate determined under this chapter.
 
20      [(h)] (i)  Section 468B (with respect to special rules for
 
21 designated settlement funds) of the Internal Revenue Code shall
 
22 be operative for the purposes of this chapter and the tax imposed
 
23 therein is hereby imposed by this chapter at a rate equal to the
 

 
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                                     S.B. NO.           726
                                                        
                                                        

 
 1 maximum rate in effect for the taxable year imposed on estates
 
 2 and trusts under section 235-51.
 
 3      [(i)] (j)  Section 469 (with respect to passive activities
 
 4 and credits limited) of the Internal Revenue Code shall be
 
 5 operative for the purposes of this chapter.  For the purpose of
 
 6 computing the offset for rental real estate activities for state
 
 7 income tax purposes, adjusted gross income as used in section 469
 
 8 as operative for this chapter means federal adjusted gross
 
 9 income.
 
10      [(j)] (k)  Sections 512 to 514 (with respect to taxation of
 
11 business income of certain exempt organizations) of the Internal
 
12 Revenue Code shall be operative for the purposes of this chapter
 
13 as provided in this subsection.
 
14      "Unrelated business taxable income" means the same as in the
 
15 Internal Revenue Code, except that in the computation thereof
 
16 sections 235-3 to 235-5, and 235-7 (except subsection (c)), shall
 
17 apply, and in the determination of the net operating loss
 
18 deduction there shall not be taken into account any amount of
 
19 income or deduction which is excluded in computing the unrelated
 
20 business taxable income.  Unrelated business taxable income shall
 
21 not include any income from a prepaid legal service plan.
 
22      For a person described in section 401 or 501 of the Internal
 
23 Revenue Code, as modified by section 235-2.3, the tax imposed by
 

 
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                                     S.B. NO.           726
                                                        
                                                        

 
 1 section 235-51 or 235-71 shall be imposed upon the person's
 
 2 unrelated business taxable income.
 
 3      [(k)] (l)  Section 521 (with respect to cooperatives) and
 
 4 subchapter T (sections 1381 to 1388, with respect to cooperatives
 
 5 and their patrons) of the Internal Revenue Code shall be
 
 6 operative for the purposes of this chapter as to any cooperative
 
 7 fully meeting the requirements of section 421-23, except that
 
 8 Internal Revenue Code section 521 cooperatives need not be
 
 9 organized in Hawaii.
 
10      [(l)] (m)  Sections 527 (with respect to political
 
11 organizations) and 528 (with respect to certain homeowners
 
12 associations) of the Internal Revenue Code shall be operative for
 
13 the purposes of this chapter and the taxes imposed in each such
 
14 section are hereby imposed by this chapter at the rates
 
15 determined under section 235-71.
 
16      [(m)] (n)  Section 641 (with respect to imposition of tax)
 
17 of the Internal Revenue Code shall be operative for the purposes
 
18 of this chapter subject to the following:
 
19      (1)  The deduction for exemptions shall be allowed as
 
20           provided in section 235-54(b).
 
21      (2)  The deduction for contributions and gifts in
 
22           determining taxable income shall be limited to the
 
23           amount allowed in the case of an individual, unless the
 

 
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                                     S.B. NO.           726
                                                        
                                                        

 
 1           contributions and gifts are to be used exclusively in
 
 2           the State.
 
 3      (3)  The tax imposed by section 1(e) of the Internal Revenue
 
 4           Code as applied by section 641 of the Internal Revenue
 
 5           Code is hereby imposed by this chapter at the rate and
 
 6           amount as determined under section 235-51 on estates
 
 7           and trusts.
 
 8      [(n)] (o)  Section 644 (with respect to special rule for
 
 9 gain on property transferred to trust at less than fair market
 
10 value) of the Internal Revenue Code shall be operative for the
 
11 purposes of this chapter and the tax imposed therein is hereby
 
12 imposed by this chapter at the rate determined under this
 
13 chapter; except that the determination of the interest rate
 
14 established under section 6621 of the Internal Revenue Code
 
15 referred to in section 644(a)(2) of the Internal Revenue Code
 
16 shall instead be the interest rate established under section 231-
 
17 39(b)(4).
 
18      [(o)] (p)  Section 667 (with respect to treatment of amounts
 
19 deemed distributed by trusts in preceding years) of the Internal
 
20 Revenue Code shall be operative for the purposes of this chapter
 
21 and the tax imposed therein is hereby imposed by this chapter at
 
22 the rate determined under this chapter; except that the reference
 
23 to tax-exempt interest to which section 103 of the Internal
 

 
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                                     S.B. NO.           726
                                                        
                                                        

 
 1 Revenue Code applies in section 667(a) of the Internal Revenue
 
 2 Code shall instead be a reference to tax-exempt interest to which
 
 3 section 235-7(b) applies.
 
 4      [(p)] (q)  Section 685 (with respect to treatment of
 
 5 qualified funeral trusts) of the Internal Revenue Code shall be
 
 6 operative for purposes of this chapter, except that the tax
 
 7 imposed under this chapter shall be computed at the tax rates
 
 8 provided under section 235-51, and no deduction for the exemption
 
 9 amount provided in section 235-54(b) shall be allowed.  The cost-
 
10 of-living adjustment determined under section 1(f)(3) of the
 
11 Internal Revenue Code shall be operative for the purpose of
 
12 applying section 685(c)(3) under this chapter.
 
13      [(q)] (r)  Section 1212 (with respect to capital loss
 
14 carrybacks and carryforwards) of the Internal Revenue Code shall
 
15 be operative for the purposes of this chapter; except that for
 
16 the purposes of this chapter the capital loss carryback
 
17 provisions of section 1212 shall not be operative and the capital
 
18 loss carryforward allowed by section 1212(a) shall be limited to
 
19 five years.
 
20      [(r)] (s)  Subchapter S (sections 1361 to 1379) (with
 
21 respect to tax treatment of S corporations and their
 
22 shareholders) of chapter 1 of the Internal Revenue Code shall be
 
23 operative for the purposes of this chapter as provided in part
 

 
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                                     S.B. NO.           726
                                                        
                                                        

 
 1 VII.
 
 2      [(s)] (t)  Subchapter C (sections 6221 to 6233) (with
 
 3 respect to tax treatment of partnership items) of chapter 63 of
 
 4 the Internal Revenue Code shall be operative for the purposes of
 
 5 this chapter.
 
 6      [(t)] (u)  Subchapter D (sections 6240 to 6255) (with
 
 7 respect to simplified audit procedures for electing large
 
 8 partnerships) of the Internal Revenue Code shall be operative for
 
 9 the purposes of this chapter, with due regard to chapter 232
 
10 relating to tax appeals.
 
11      [(u)] (v)  Section 7518 (with respect to capital
 
12 construction fund for commercial fishers) of the Internal Revenue
 
13 Code shall be operative for the purposes of this chapter.
 
14 Qualified withdrawals for the acquisition, construction, or
 
15 reconstruction of any qualified asset which is attributable to
 
16 deposits made before the effective date of this section shall not
 
17 reduce the basis of the asset when withdrawn.  Qualified
 
18 withdrawals shall be treated on a first-in-first-out basis."
 
19      SECTION 2.  Statutory material to be repealed is bracketed.
 
20 New statutory material is underscored.
 

 
 
 
 
 
 
 
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                                     S.B. NO.           726
                                                        
                                                        

 
 1      SECTION 3.  This Act, upon its approval, shall apply to
 
 2 taxable years beginning after December 31, 1999.
 
 3 
 
 4                           INTRODUCED BY:  _______________________