Report Title:

Corporate and Franchise Tax

 

Description:

Aids corporations, small businesses, and banks by lowering the franchise and corporate income tax rates.

 

HOUSE OF REPRESENTATIVES

H.B. NO.

428

TWENTY-FIRST LEGISLATURE, 2001

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to corporate income tax.

 

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

SECTION 1. The legislature finds that the last change to corporate income tax rates was in 1987 in response to the base-broadening brought about by the federal Tax Reform Act of 1986. In 1998, the governor's economic revitalization task force recommended that corporate income tax rates be reduced by fifty per cent to enhance the business climate in Hawaii. Others proposed a complete repeal as a symbolic gesture. However, the symbolism also worked against it as many lawmakers and community groups opposed a cut in a tax on corporate profits while readily accepting larger tax cuts on salary and wage income.

The net corporate income tax generated $68,200,000 in revenues during fiscal year 2000, comprising less than 2.5 per cent of total general fund tax revenues. The primary business income tax in the State remains the general excise tax, which is a tax on the gross income of businesses. The purpose of this Act is to reduce franchise and corporate income tax rates.

SECTION 2. Section 235-71, Hawaii Revised Statutes, is amended to read as follows:

"§235-71 Tax on corporations; rates; credit of shareholder of regulated investment company. (a) A tax at the rates herein provided shall be assessed, levied, collected, and paid for each taxable year on the taxable income of every corporation, including a corporation carrying on business in partnership, except that in the case of a regulated investment company the tax is as provided by subsection (b) and further that in the case of a real estate investment trust as defined in section 856 of the Internal Revenue Code of 1954 the tax is as provided in subsection (d). "Corporation" includes any professional corporation incorporated pursuant to chapter 415A.

The tax on all taxable income shall be at the rate of [4.4] 3.4 per cent if the taxable income is not over $25,000, [5.4] 4.4 per cent if over $25,000 but not over $100,000, and on all over $100,000, [6.4] 5.4 per cent.

(b) In the case of a regulated investment company there is imposed on the taxable income, computed as provided in sections 852 and 855 of the Internal Revenue Code but with the changes and adjustments made by this chapter (without prejudice to the generality of the foregoing, the deduction for dividends paid is limited to such amount of dividends as is attributable to income taxable under this chapter), a tax consisting in the sum of the following: [4.4] 3.4 per cent if the taxable income is not over $25,000, [5.4] 4.4 per cent if over $25,000 but not over $100,000, and on all over $100,000, [6.4] 5.4 per cent.

(c) In the case of a shareholder of a regulated investment company there is hereby allowed a credit in the amount of the tax imposed on the amount of capital gains which by section 852(b)(3)(D) of the Internal Revenue Code is required to be included in the shareholder's return and on which there has been paid to the State by the regulated investment company the tax at the rate imposed by subsection (b); the amount of this credit may be applied or refunded as provided in section 235-110.

(d) In the case of a real estate investment trust there is imposed on the taxable income, computed as provided in sections 857 and 858 of the Internal Revenue Code but with the changes and adjustments made by this chapter (without prejudice to the generality of the foregoing, the deduction for dividends paid is limited to such amount of dividends as is attributable to income taxable under this chapter), a tax consisting in the sum of the following: [4.4] 3.4 per cent if the taxable income is not over $25,000, [5.4] 4.4 per cent if over $25,000 but not over $100,000, and on all over $100,000, [6.4] 5.4 per cent. In addition to any other penalty provided by law any real estate investment trust whose tax liability for any taxable year is deemed to be increased pursuant to section 859(b)(2)(A) or 860(c)(1)(A) after December 31, 1978, (relating to interest and additions to tax determined with respect to the amount of the deduction for deficiency dividends allowed) of the Internal Revenue Code shall pay a penalty in an amount equal to the amount of interest for which such trust is liable that is attributable solely to such increase. The penalty payable under this subsection with respect to any determination shall not exceed one-half of the amount of the deduction allowed by section 859(a), or 860(a) after December 31, 1978, of the Internal Revenue Code for such taxable year.

(e) Any corporation acting as a business entity in more than one state and which is required by this chapter to file a return and whose only activities in this State consist of sales and which does not own or rent real estate or tangible personal property and whose annual gross sales in or into this State during the tax year are not in excess of $100,000 may elect to report and pay a tax of [.5]       per cent of such annual gross sales."

SECTION 3. Section 235-71.5, Hawaii Revised Statutes, is amended to read as follows:

"§235-71.5 Alternative tax for corporations. Section 1201 (with respect to alternative tax for corporations) of the Internal Revenue Code of 1986, as amended as of December 31, 1996, shall be operative for the purposes of this chapter and shall be applied as set forth in this section. If for any taxable year a corporation, regulated investment company, or real estate investment trust has a net capital gain, then, in lieu of the tax imposed by section 235-71, there is hereby imposed a tax (if such tax is less than the tax imposed under section 235-71) which shall consist of the sum of:

(1) A tax computed on the taxable income reduced by the amount of the net capital gain, at the rates and in the manner as if this section had not been enacted, plus

(2) The sum of:

(A) [3.08] 2.08 per cent of the lesser of:

(i) The net capital gain determined by including only the gain or loss which is properly taken into account for the portion of the taxable year before April 1, 1987 (i.e., the amount in paragraph (1)), or

(ii) The net capital gain for the taxable year, plus

(B) [4] 3.0 per cent of the excess (if any) of:

(i) The net capital gain for the taxable year, over

(ii) The amount of the net capital gain taken into account under subparagraph (A)."

SECTION 4. Section 241-4, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The measure of the tax imposed by this chapter is the entire net income from all sources for the preceding calendar year, or in the case of a taxpayer operating on a fiscal year basis, for the preceding fiscal year. The tax shall be at the rate of [seven and ninety- two one hundredths] six and ninety- two one hundredths per cent of the entire net income from all sources."

SECTION 5. Section 241-4.3, Hawaii Revised Statutes, is amended to read as follows:

"[[]§241-4.3[]] Alternative tax. Section 1201 (with respect to alternative tax for corporations) of the Internal Revenue Code shall be operative for the purposes of this chapter and shall be applied as set forth in this section. If for any taxable year a bank, building and loan association, development company, financial corporation, financial services loan company, small business investment company, mortgage loan company, financial holding company, or trust company has a net capital gain, then, in lieu of the tax imposed by section 241-4, there is hereby imposed a tax (if such tax is less than the tax imposed under section 241-4) which shall consist of the sum of:

(1) A tax computed on the taxable income reduced by the amount of the net capital gain, at the rates and in the manner as if this section had not been enacted; plus

(2) [Four] Three per cent of the net capital gain for the taxable year."

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2000.

INTRODUCED BY:

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