Report Title:

National Guard and Reservists; Active Duty; Income Tax Deduction


Changes the income tax deduction for national guard members and reservists from $1,750 to a blank amount. (SD2)


H.B. NO.



H.D. 1


S.D. 2




relating to taxation.



SECTION 1. The terrorist attacks of September 11, 2001, continue to have repercussions today. Thousands of military service members and their families are grappling with the news of upcoming deployments to dangerous, volatile, and unstable areas of the world, such as Iraq and Afghanistan. In addition, many of those who have already completed one tour of duty face re-deployment in what the United States Department of Defense describes as the largest series of troop rotations since World War II. For instance, approximately eighty-five thousand regular, United States reserves, and national guard troops will be deployed to Iraq. Such a massive mobilization and deployment of United States forces has not left Hawaii untouched.

Furthermore, four thousand five hundred soldiers from the 25th Infantry Division (Light) based at Schofield Barracks have been ordered to deploy to Iraq by February 2004. In addition, the division is sending three thousand five hundred soldiers to Afghanistan by April 2004. Each of the missions will last at least twelve months--twice as long as previous deployments.

The assigned strength of the Hawaii army national guard and Hawaii air national guard stands at around three thousand and two thousand five hundred, respectively. Since September 11, 2001, more than one thousand two hundred national guard members have been activated, though not necessarily deployed overseas. More than four hundred national guard members have been deployed to areas like Iraq and Afghanistan.

Approximately two thousand five hundred Army reservists are based in Hawaii. About three hundred ninety of the reservists with the 411th engineer battalion are being mobilized for duty in Iraq. It would be the first deployment for the five hundred forty-soldier battalion (which includes companies in Alaska and Guam), since World War II.

Many national guard members and United States reserve troops are presently serving in Iraq. Nationwide, there are approximately two hundred thousand reservists, about sixty thousand of whom have been called up to serve in Iraq and Afghanistan.

Even beyond the sheer numbers, however, the effects of the call-up of national guard and reserve forces are substantial. Although national guard members and reservists recognize their duty and are willing to serve their nation, the disruption to their personal and professional lives cannot be denied. Individuals from all walks of life--from college students and engineers to physicians and public servants--are plucked from their daily routines and sent overseas under hostile conditions.

For many, active service in the national guard or the United States reserve entails a significant loss of income. While some financial institutions and lenders are agreeable to working with service members to craft financial arrangements that take into account the reduction in income, the reality remains that rents and mortgages, car payments, child care costs, tuition fees, and a host of other expenses must still be met.

To send national guard members and reservists into harm's way while expecting them to suffer a sharp drop in pay is unduly onerous and highly unfair. Rather, they should be provided as much support as possible and the impact on their lives should be minimized to the greatest extent feasible so that they can focus on accomplishing their mission without needing to worry about matters back at home.

As a beneficiary of their courageous and dedicated service, the State bears a special responsibility toward United States forces, particularly its citizen-soldiers in the national guard. Among such citizen-soldiers are also individuals who hold or desire to hold elected office in state government.

The purpose of this Act is to alleviate, as much as practicable, the burden on citizen-soldiers in the national guard as they serve and protect the nation against its enemies. These patriotic men and women deserve the support of the State.

SECTION 2. 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; and

(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."

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

SECTION 4. This Act shall take effect upon its approval and shall apply to taxable years beginning after December 31, 2003.