Report Title:

Taxation; Standard Deduction; Conformance

Description:

Conforms the state standard deduction amount to the federal standard deduction amount.

HOUSE OF REPRESENTATIVES

H.B. NO.

1541

TWENTY-SECOND LEGISLATURE, 2003

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO CONFORMANCE OF STATE STANDARD DEDUCTION TO FEDERAL STANDARD DEDUCTION.

 

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

SECTION 1. The legislature finds that pursuant to article VII, section 3 of the state constitution, the state tax review commission is charged with evaluating the State's tax structure and recommending revenue and tax policy.

At its most recent meeting, the tax review commission published its evaluations and recommendations on December 6, 2002. The commission focused on several areas including net income tax. The commission reported that Hawaii's net income tax rates are very high for both the rich and the poor and recommended phasing in a higher standard deduction, and personal exemption, widening the income tax brackets, increasing federal conformity generally and conforming to federal filing deadlines.

The commission also reported that in 1984, when the standard deduction was $1,000 for a joint return, the tax review commission recommended increasing the state standard deduction to $3,400 for a joint return to match the federal standard deduction. The state standard deduction had not been adjusted in twenty years, had not kept up with inflation, and no longer provided equity to the poor. In 2001, the state standard deduction was $1,900, and the federal standard deduction was $7,600. This is the major reason why the State unnecessarily continues to tax persons with income levels that qualify for public assistance.

The purpose of this Act is to adopt the recommendation of the tax review commission to raise the standard deduction by conforming the state standard deduction amount to the federal standard deduction amount.

SECTION 2. Section 235-2.4, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Section 63 (with respect to taxable income defined) of the Internal Revenue Code shall be operative for the purposes of this chapter[, except that the standard deduction amount in section 63(c) of the Internal Revenue Code shall instead mean:

(1) $1,900 in the case of:

(A) A joint return as provided by section 235-93; or

(B) A surviving spouse (as defined in section 2(a) of the Internal Revenue Code);

(2) $1,650 in the case of a head of household (as defined in section 2(b) of the Internal Revenue Code);

(3) $1,500 in the case of an individual who is not married and who is not a surviving spouse or head of household; or

(4) $950 in the case of a married individual filing a separate return.

Section 63(c)(4) shall not be operative in this State. Section 63(c)(5) shall be operative, except that the limitation on basic standard deduction in the case of certain dependents shall be the greater of $500 or such individual's earned income. Section 63(f) shall not be operative in this State.

The standard deduction amount for nonresidents shall be calculated pursuant to section 235-5]."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2003 and shall apply to taxable years beginning after December 31, 2002.

INTRODUCED BY:

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