Report Title:

Taxation; Personal Exemption; Conformance

Description:

Conforms the state personal exemption amount to the federal personal exemption amount.

HOUSE OF REPRESENTATIVES

H.B. NO.

1544

TWENTY-SECOND LEGISLATURE, 2003

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO CONFORMANCE OF STATE PERSONAL EXEMPTION TO FEDERAL PERSONAL EXEMPTION.

 

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 state tax brackets, increasing federal conformity generally and conforming to federal filing deadlines.

The commission also reported that in 1984, the state personal exemption had recently been raised to $1,000 to match the federal personal exemption. In 2001, the state personal exemption was $1,040 and the federal exemption was $2,900. This inability to update the personal exemption amount is why the State continues to unnecessarily tax families 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 state personal exemption amount by conforming the state personal exemption amount to the federal personal exemption amount.

SECTION 2. Section 235-2.45, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Section 641 (with respect to imposition of tax) of the Internal Revenue Code shall be operative for the purposes of this chapter subject to the following:

[(1) The deduction for exemptions shall be allowed as provided in section 235-54(b);

(2)] (1) The deduction for contributions and gifts in determining taxable income shall be limited to the amount allowed in the case of an individual, unless the contributions and gifts are to be used exclusively in the State; and

[(3)] (2) The tax imposed by section 1(e) of the Internal Revenue Code as applied by section 641 of the Internal Revenue Code is hereby imposed by this chapter at the rate and amount as determined under section 235-51 on estates and trusts."

SECTION 3. Section 235-54, Hawaii Revised Statutes, is repealed.

["§235-54 Exemptions. (a) In computing the taxable income of any individual, there shall be deducted, in lieu of the personal exemptions allowed by the Internal Revenue Code, personal exemptions computed as follows: Ascertain the number of exemptions which the individual can lawfully claim under the Internal Revenue Code, add an additional exemption for the taxpayer or the taxpayer's spouse who is sixty-five years of age or older within the taxable year, and multiply that number by $1,040, for taxable years beginning after December 31, 1984. A nonresident shall prorate the personal exemptions on account of income from sources outside the State as provided in section 235-5. In the case of an individual with respect to whom an exemption under this section is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual's taxable year begins, the personal exemption amount applicable to such individual under this subsection for such individual's taxable year shall be zero.

(b) In computing the taxable income of an estate or trust there shall be allowed, in lieu of the deductions allowed under subsection (a), the following:

(1) An estate shall be allowed a deduction of $400.

(2) A trust which, under its governing instrument, is required to distribute all of its income currently shall be allowed a deduction of $200.

(3) All other trusts shall be allowed a deduction of $80.

(c) A blind person, a deaf person and any person totally disabled, in lieu of the personal exemptions allowed by the Internal Revenue Code, shall be allowed, and there shall be deducted in computing the taxable income of a blind person, a deaf person, or a totally disabled person, instead of the exemptions provided by subsection (a), the amount of $7,000."]

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. 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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