REPORT TITLE:
Housing Tax Credit


DESCRIPTION:
Allows a partnership, limited liability company, and S
corporation investors to claim the state low-income housing tax
credit whether or not they claim the federal low income housing
tax credit.  (SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2432
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 2000                                S.D. 1
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO LOW-INCOME HOUSING TAX CREDIT.


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

 1      SECTION 1.  The purpose of this Act is to allow partnership,
 
 2 limited liability company, and S corporation investors to claim
 
 3 the state low-income housing tax credit whether or not they
 
 4 claimed the federal low-income housing tax credit.  The Act would
 
 5 also provide entities taxed as partnerships with the flexibility
 
 6 of allocating the state low-income housing tax credit among its
 
 7 partners and members.
 
 8      SECTION 2.  Section 235-2.4, Hawaii Revised Statutes, is
 
 9 amended to read as follows:
 
10      "235-2.4  Operation of certain Internal Revenue Code
 
11 provisions[.]; sections 63 to 530.  (a)  Section 63 (with respect
 
12 to taxable income defined) of the Internal Revenue Code shall be
 
13 operative for the purposes of this chapter, except that the
 
14 standard deduction amount in section 63(c) of the Internal
 
15 Revenue Code shall instead mean:
 
16      (1)  $1,900 in the case of:
 
17           (A)  A joint return as provided by section 235-93; or
 
18           (B)  A surviving spouse (as defined in section 2(a) of
 
19                the Internal Revenue Code);
 
20      (2)  $1,650 in the case of a head of household (as defined
 

 
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 1           in section 2(b) of the Internal Revenue Code);
 
 2      (3)  $1,500 the case of an individual who is not married and
 
 3           who is not a surviving spouse or head of household; or
 
 4      (4)  $950 in the case of a married individual filing a
 
 5           separate return.
 
 6      Section 63(c)(4) shall not be operative in this State.
 
 7 Section 63(c)(5) shall be operative, except that the limitation
 
 8 on basic standard deduction in the case of certain dependents
 
 9 shall be the greater of $500 or such individual's earned income.
 
10 Section 63(f) shall not be operative in this State.
 
11      The standard deduction amount for nonresidents shall be
 
12 calculated pursuant to section 235-5.
 
13      (b)  Section 72 (with respect to annuities; certain proceeds
 
14 of endowment and life insurance contracts) of the Internal
 
15 Revenue Code shall be operative for purposes of this chapter and
 
16 be interpreted with due regard to section 235-7(a), except that
 
17 the ten per cent additional tax on early distributions from
 
18 retirement plans in section 72(t) shall not be operative for
 
19 purposes of this chapter.
 
20      (c)  Section 121 (with respect to the exclusion of gain from
 
21 sale of principal residence) of the Internal Revenue Code shall
 
22 be operative for purposes of this chapter, except that for the
 
23 election under section 121(f), a reference to section 1034
 

 
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 1 treatment means a reference to section 235-2.4(n) in effect for
 
 2 taxable year 1997.
 
 3      (d)  Section 219 (with respect to retirement savings) of the
 
 4 Internal Revenue Code shall be operative for the purpose of this
 
 5 chapter.  For the purpose of computing the limitation on the
 
 6 deduction for active participants in certain pension plans for
 
 7 state income tax purposes, adjusted gross income as used in
 
 8 section 219 as operative for this chapter means federal adjusted
 
 9 gross income.
 
10      (e)  Section 220 (with respect to medical savings accounts)
 
11 of the Internal Revenue Code shall be operative for the purpose
 
12 of this chapter, but only with respect to medical services
 
13 accounts that have been approved by the Secretary of the Treasury
 
14 of the United States.
 
15      (f)  Section 408A (with respect to Roth Individual
 
16 Retirement Accounts) of the Internal Revenue Code shall be
 
17 operative for the purposes of this chapter.  For the purposes of
 
18 determining the aggregate amount of contributions to a Roth
 
19 Individual Retirement Account or qualified rollover contribution
 
20 to a Roth Individual Retirement Account from an individual
 
21 retirement plan other than a Roth Individual Retirement Account,
 
22 adjusted gross income as used in section 408A as operative for
 
23 this chapter means federal adjusted gross income.
 

 
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 1      (g)  In administering the provisions of sections 410 to 417
 
 2 (with respect to special rules relating to pensions, profit
 
 3 sharing, stock bonus plans, etc.), sections 418 to 418E (with
 
 4 respect to special rules for multiemployer plans), and
 
 5 sections 419 and 419A (with respect to treatment of welfare
 
 6 benefit funds) of the Internal Revenue Code, the department of
 
 7 taxation shall adopt rules under chapter 91 relating to the
 
 8 specific requirements under such sections and to such other
 
 9 administrative requirements under those sections as may be
 
10 necessary for the efficient administration of sections 410 to
 
11 419A.
 
12      In administering sections 401 to 419A (with respect to
 
13 deferred compensation) of the Internal Revenue Code, Public Law
 
14 93-406, section 1017(i), shall be operative for the purposes of
 
15 this chapter.
 
16      In administering section 402 (with respect to the taxability
 
17 of beneficiary of employees' trust) of the Internal Revenue Code,
 
18 the tax imposed on lump sum distributions by section 402(e) of
 
19 the Internal Revenue Code shall be operative for the purposes of
 
20 this chapter and the tax imposed therein is hereby imposed by
 
21 this chapter at the rate determined under this chapter.
 
22      (h)  Section 468B (with respect to special rules for
 
23 designated settlement funds) of the Internal Revenue Code shall
 

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

 
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 1 Revenue Code, as modified by section 235-2.3, the tax imposed by
 
 2 section 235-51 or 235-71 shall be imposed upon the person's
 
 3 unrelated business taxable income.
 
 4      (k)  Section 521 (with respect to cooperatives) and
 
 5 subchapter T (sections 1381 to 1388, with respect to cooperatives
 
 6 and their patrons) of the Internal Revenue Code shall be
 
 7 operative for the purposes of this chapter as to any cooperative
 
 8 fully meeting the requirements of section 421-23, except that
 
 9 Internal Revenue Code section 521 cooperatives need not be
 
10 organized in Hawaii.
 
11      (l)  Sections 527 (with respect to political organizations)
 
12 and 528 (with respect to certain homeowners associations) of the
 
13 Internal Revenue Code shall be operative for the purposes of this
 
14 chapter and the taxes imposed in each such section are hereby
 
15 imposed by this chapter at the rates determined under section
 
16 235-71.
 
17      (m)  Section 530 (with respect to education individual
 
18 retirement accounts) of the Internal Revenue Code shall be
 
19 operative for the purposes of this chapter.  For the purpose of
 
20 determining the maximum amount that a contributor could make to
 
21 an education individual retirement account for state income tax
 
22 purposes, modified adjusted gross income as used in section 530
 
23 for this chapter means federal modified adjusted gross income as
 

 
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 1 defined in section 530.
 
 2      [(n)]  235-2.45  Operation of certain Internal Revenue Code
 
 3 provisions; sections 641 to 7518.  (a)  Section 641 (with respect
 
 4 to imposition of tax) of the Internal Revenue Code shall be
 
 5 operative for the purposes of this chapter subject to the
 
 6 following:
 
 7      (1)  The deduction for exemptions shall be allowed as
 
 8           provided in section 235-54(b).
 
 9      (2)  The deduction for contributions and gifts in
 
10           determining taxable income shall be limited to the
 
11           amount allowed in the case of an individual, unless the
 
12           contributions and gifts are to be used exclusively in
 
13           the State.
 
14      (3)  The tax imposed by section 1(e) of the Internal Revenue
 
15           Code as applied by section 641 of the Internal Revenue
 
16           Code is hereby imposed by this chapter at the rate and
 
17           amount as determined under section 235-51 on estates
 
18           and trusts.
 
19      [(o)] (b)  Section 667 (with respect to treatment of amounts
 
20 deemed distributed by trusts in preceding years) of the Internal
 
21 Revenue Code shall be operative for the purposes of this chapter
 
22 and the tax imposed therein is hereby imposed by this chapter at
 
23 the rate determined under this chapter; except that the reference
 

 
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 1 to tax-exempt interest to which section 103 of the Internal
 
 2 Revenue Code applies in section 667(a) of the Internal Revenue
 
 3 Code shall instead be a reference to tax-exempt interest to which
 
 4 section 235-7(b) applies.
 
 5      [(p)] (c)  Section 685 (with respect to treatment of
 
 6 qualified funeral trusts) of the Internal Revenue Code shall be
 
 7 operative for purposes of this chapter, except that the tax
 
 8 imposed under this chapter shall be computed at the tax rates
 
 9 provided under section 235-51, and no deduction for the exemption
 
10 amount provided in section 235-54(b) shall be allowed.  The cost-
 
11 of-living adjustment determined under section 1(f)(3) of the
 
12 Internal Revenue Code shall be operative for the purpose of
 
13 applying section 685(c)(3) under this chapter.
 
14      (d)  Section 704 of the Internal Revenue Code (with respect
 
15 to a partner's distributive share) shall be operative for
 
16 purposes of this chapter; except that, section 704(b)(2) shall
 
17 not apply to allocations of low-income housing tax credits among
 
18 partners under section 235-110.8.
 
19      [(q)] (e)  Section 1212 (with respect to capital loss
 
20 carrybacks and carryforwards) of the Internal Revenue Code shall
 
21 be operative for the purposes of this chapter; except that for
 
22 the purposes of this chapter the capital loss carryback
 
23 provisions of section 1212 shall not be operative and the capital
 

 
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 1 loss carryforward allowed by section 1212(a) shall be limited to
 
 2 five years.
 
 3      [(r)] (f)  Subchapter S (sections 1361 to 1379) (with
 
 4 respect to tax treatment of S corporations and their
 
 5 shareholders) of chapter 1 of the Internal Revenue Code shall be
 
 6 operative for the purposes of this chapter as provided in part
 
 7 VII.
 
 8      [(s)] (g)  Section 6015 (with respect to relief from joint
 
 9 and several liability on joint return) of the Internal Revenue
 
10 Code is operative for purposes of this chapter.
 
11      [(t)] (h)  Subchapter C (sections 6221 to 6233) (with
 
12 respect to tax treatment of partnership items) of chapter 63 of
 
13 the Internal Revenue Code shall be operative for the purposes of
 
14 this chapter.
 
15      [(u)] (i)  Subchapter D (sections 6240 to 6255) (with
 
16 respect to simplified audit procedures for electing large
 
17 partnerships) of the Internal Revenue Code shall be operative for
 
18 the purposes of this chapter, with due regard to chapter 232
 
19 relating to tax appeals.
 
20      [(v)] (j)  Section 6511(h) (with respect to running of
 
21 periods of limitation suspended while taxpayer is unable to
 
22 manage financial affairs due to disability) of the Internal
 
23 Revenue Code shall be operative for purposes of this chapter,
 

 
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 1 with due regard to section 235-111 relating to the limitation
 
 2 period for assessment, levy, collection, or credit.
 
 3      [(w)](k)  Section 7518 (with respect to capital construction
 
 4 fund for commercial fishers) of the Internal Revenue Code shall
 
 5 be operative for the purposes of this chapter.  Qualified
 
 6 withdrawals for the acquisition, construction, or reconstruction
 
 7 of any qualified asset which is attributable to deposits made
 
 8 before the effective date of this section shall not reduce the
 
 9 basis of the asset when withdrawn.  Qualified withdrawals shall
 
10 be treated on a first-in-first-out basis."
 
11      SECTION 3.  Section 235-110.8, Hawaii Revised Statutes, is
 
12 amended as follows:
 
13      (1)  By amending subsection (b) to read:
 
14      "(b)  [There shall be allowed to each resident] Each
 
15 taxpayer subject to the tax imposed by this chapter, who has
 
16 filed net income tax return for a taxable year may claim a low-
 
17 income housing tax credit [which] against the taxpayer's net
 
18 income tax liability.  The amount of the credit shall be
 
19 deductible from the taxpayer's net income tax liability, if any,
 
20 imposed by this chapter for the taxable year in which the credit
 
21 is properly claimed[.] on a timely basis.  A credit under this
 
22 section may be claimed whether or not the taxpayer claims a
 
23 federal low-income housing tax credit pursuant to section 42 of
 

 
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 1 the Internal Revenue Code."
 
 2      (2)  By amending subsection (g) to read:
 
 3      "(g)  The credit allowed under this section shall be
 
 4 claimed against net income tax liability for the taxable year.
 
 5 For the purpose of deducting this tax credit, net income tax
 
 6 liability means net income tax liability reduced by all other
 
 7 credits allowed the taxpayer under this chapter.
 
 8      A tax credit under this section which exceeds the taxpayer's
 
 9 income tax liability may be used as a credit against the
 
10 taxpayer's income tax liability in subsequent years until
 
11 exhausted.  All claims for a tax credit under this section must
 
12 be filed on or before the end of the twelfth month following the
 
13 close of the taxable year for which the credit may be claimed.
 
14 Failure to properly and timely claim the credit shall constitute
 
15 a waiver of the right to claim the credit.  [In order to] A
 
16 taxpayer may claim a credit under this section[, a taxpayer must
 
17 claim a credit] only if the building or project is a qualified
 
18 low-income housing building or a qualified low-income housing
 
19 project under section 42 of the Internal Revenue Code.
 
20      Section 469 (with respect to passive activity losses and
 
21 credits limited) of the Internal Revenue Code shall be applied in
 
22 claiming the credit under this section."
 

 
 
 
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 1      SECTION 4.  Statutory material to be repealed is bracketed.
 
 2 New statutory material is underscored.
 
 3      SECTION 5.  This Act, upon its approval, shall apply to
 
 4 taxable years beginning after December 31, 1999.