Report Title:

Taxation; Income Tax Conformity

Description:

Conforms the state income tax law to the federal income tax law.

HOUSE OF REPRESENTATIVES

H.B. NO.

1545

TWENTY-SECOND LEGISLATURE, 2003

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO STATE INCOME TAX CONFORMITY.

 

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 the 1970s state net income tax conformity to the federal net income tax law was so great that a complicated federal net income tax return with schedules A, B, C, D, and E could be submitted as the state tax return with a one page cover sheet reconciling the small differences between the state and federal net income tax laws. This one page reconciliation could not be done today due to the large number of special provisions that have crept into the Hawaii net income tax law. Different provisions add complexity and tend to decrease equity. In essence, if the State were to simply readopt federal conformity, without the special provisions that have been added over the past twenty years, the state net income tax system would be significantly more efficient and simpler to administer.

The purpose of this Act is to adopt the recommendation of the tax review commission to increase federal conformity by requiring the director of taxation to conduct a study to determine which, if any, state tax laws should be repealed to better conform to federal tax law and to provide a more efficient and simpler state tax system.

SECTION 2. The director of taxation shall conduct a study to identify state tax laws that should be repealed to:

(1) Better conform to federal tax law; and

(2) Provide a more efficient and simpler state tax system.

The director shall submit the report to the legislature twenty days prior to the convening of the 2004 regular session.

SECTION 3. This Act shall take effect upon its approval.

INTRODUCED BY:

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