Capital Gains; Long-Term Investment
Exempts capital gains tax on investments made in Hawaii and held for two years.
HOUSE OF REPRESENTATIVES
TWENTY-SECOND LEGISLATURE, 2003
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO CAPITAL GAINS.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. Section 235-7, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
"(a) There shall be excluded from gross income, adjusted gross income, and taxable income:
(1) Income not subject to taxation by the State under the Constitution and laws of the United States;
(2) Rights, benefits, and other income exempted from taxation by section 88-91, having to do with the state retirement system, and the rights, benefits, and other income, comparable to the rights, benefits, and other income exempted by section 88-91, under any other public retirement system;
(3) Any compensation received in the form of a pension for past services;
(4) Compensation paid to a patient affected with Hansen's disease employed by the State or the United States in any hospital, settlement, or place for the treatment of Hansen's disease;
(5) Except as otherwise expressly provided, payments made by the United States or this State, under an act of Congress or a law of this State, which by express provision or administrative regulation or interpretation are exempt from both the normal and surtaxes of the United States, even though not so exempted by the Internal Revenue Code itself;
(6) Any income expressly exempted or excluded from the measure of the tax imposed by this chapter by any other law of the State, it being the intent of this chapter not to repeal or supersede any such express exemption or exclusion;
(7) The first $1,750 received by each member of the reserve components of the Army, Navy, Air Force, Marine Corps, or Coast Guard of the United States of America, and the Hawaii national guard as compensation for performance of duty;
(8) Income derived from the operation of ships or aircraft if the income is exempt under the Internal Revenue Code pursuant to the provisions of an income tax treaty or agreement entered into by and between the United States and a foreign country, provided that the tax laws of the local governments of that country reciprocally exempt from the application of all of their net income taxes, the income derived from the operation of ships or aircraft which are documented or registered under the laws of the United States;
(9) The value of legal services provided by a prepaid legal service plan to a taxpayer, the taxpayer's spouse, and the taxpayer's dependents;
(10) Amounts paid, directly or indirectly, by a prepaid legal service plan to a taxpayer as payment or reimbursement for the provision of legal services to the taxpayer, the taxpayer's spouse, and the taxpayer's dependents;
(11) Contributions by an employer to a prepaid legal service plan for compensation (through insurance or otherwise) to the employer's employees for the costs of legal services incurred by the employer's employees, their spouses, and their dependents; [
(12) Amounts received in the form of a monthly surcharge by a utility acting on behalf of an affected utility under section 269-16.3 shall not be gross income, adjusted gross income, or taxable income for the acting utility under this chapter. Any amounts retained by the acting utility for collection or other costs shall not be included in this exemption[
(13) Amounts received as capital gains from the sale of any investment that was:
(A) Made in Hawaii;
(B) Subject to this chapter; and
(C) Held for at least two consecutive years after the effective date of this Act.
These excluded capital gains shall not be included in the computations in sections 235-51(f) and 235-71.5. For the purposes of this paragraph "made in Hawaii" means or refers to an investment that involves a security, property, or other revenue-generating asset that is based in Hawaii such that the owners of the asset are liable under and subject to this chapter."
SECTION 3. Section 235-51, Hawaii Revised Statutes, is amended by amending subsection (f) to read as follows:
"(f) If a taxpayer has a net capital gain for any taxable year to which this subsection applies, then the tax imposed by this section shall not exceed the sum of:
(1) The tax computed at the rates and in the same manner as if this subsection had not been enacted on the greater of:
(A) The taxable income reduced by the amount of net capital gain, or
(B) The amount of taxable income taxed at a rate below 7.25 per cent, plus
(2) A tax of 7.25 per cent of the amount of taxable income in excess of the amount determined under paragraph (1).
This subsection shall apply to individuals, estates, and trusts for taxable years beginning after December 31, 1986. This section shall not apply to capital gains from the sale of investments subject to this chapter as provided in section 235-7(a)(13)."
SECTION 4. Section 235-71.5, Hawaii Revised Statutes, is amended to read as follows:
"§235-71.5 Alternative tax for corporations. (a) 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 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 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).
(b) This section shall not apply to capital gains from the sale of investments subject to this chapter as provided in section 235-7(a)(13)."
SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 6. This Act shall take effect upon its approval and shall apply to taxable years beginning after December 31, 2002.