Report Title:

State Tax Amnesty Program

Description:

Establishes a state tax amnesty program from 10/1/04 to 12/31/04. Provides for waivers of criminal prosecution and all civil penalties that are assessed or subject to be assessed for outstanding taxable periods ending or transactions occurring on or before 12/31/03.

HOUSE OF REPRESENTATIVES

H.B. NO.

2597

TWENTY-SECOND LEGISLATURE, 2004

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to state tax amnesty.

 

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

SECTION 1. Purpose. The purpose of this Act is to establish a state tax amnesty program to induce payments of delinquent taxes. The program provides a waiver of penalties assessed for outstanding liabilities for taxable periods or transactions on or before December 31, 2003. The tax amnesty program applies to all taxes collected and administered by the State and does not apply to any real property tax or vehicular tax. An essential part of the program includes increased enforcement activities and penalties during the post-amnesty period. Follow-up enforcement would include "collection fees" applied to any tax assessed or tax amount owing that is collected after the amnesty period which could have been paid under the amnesty program.

The legislature finds and declares that a public purpose is served by the waiver of tax penalties and criminal prosecution in return for the immediate reporting and payment of previously underreported, unreported, or unpaid tax liabilities. The legislature further finds and declares that the benefits gained through this program, include increased collection of certain currently owed taxes, permanently bringing into the tax system taxpayers who have been evading payment of taxes and providing an opportunity for taxpayers to satisfy tax obligations before stepped-up tax enforcement programs take effect. It is the intent of the legislature that the tax amnesty program provided under this Act be a one-time occurrence that shall not be offered again because taxpayers' expectations of any future amnesty programs could have a counterproductive effect on compliance under this Act.

SECTION 2. Title. This Act shall be known and may be cited as the "Tax Amnesty Program Act".

SECTION 3. Definitions. As used in this Act:

"Accounts receivable" means an amount of state tax, penalty, or interest that has been recorded as due and entered in the account records or any ledger maintained in the department or that a taxpayer should reasonably expect to become due as a direct or indirect result of any pending or completed audit or investigation that a taxpayer knows is being conducted by any federal, state, or county taxing authority.

"Department" means the department of taxation.

"Director" means the director of taxation.

"Final, due, and owing" means an assessment that has become final and is owed to the State, due to either the expiration of a taxpayer's appeal rights or the rendition of the final order by the director or by any court of this State. Assessments that have been appealed shall be final, due, and owing fifteen days after the last unappealed or unappealable order sustaining the assessment or any part thereof that has become final. Assessments that have not been appealed shall be final, due, and owing thirty days after service of notice of assessment.

"Taxpayer" means any individual, partnership, joint venture, association, corporation, receiver, trustee, guardian, executor, administrator, fiduciary, or any other entity of any kind subject to any tax set forth in title 14, Hawaii Revised Statutes, or any person required to collect any tax under title 14, Hawaii Revised Statutes.

SECTION 4. Tax amnesty program; applicable time period. (a) The director shall develop and administer a one-time tax amnesty program as provided in this Act. The director, upon the voluntary return and remission of taxes and interest owed by any taxpayer, shall waive all penalties that are assessed or subject to being assessed for outstanding liabilities for taxable periods ending or transactions occurring on or before December 31, 2003. The director shall provide by rule, pursuant to chapter 91, as necessary for the administration of this amnesty program and shall further provide for necessary forms for the filing of amnesty applications and returns.

(b) Notwithstanding any other law to the contrary, the tax amnesty program shall begin by October 31, 2004, and shall be completed no later than December 31, 2004, and shall apply to all taxpayers owing taxes, penalties, or interest administered by the director under title 14, Hawaii Revised Statutes, except that the tax amnesty shall not apply to any real property tax or any tax levied pursuant to chapter 249. The program shall apply to tax liabilities for taxable periods ending or transactions occurring on or before December 31, 2003. Amnesty tax return forms shall be in a form prescribed by the director.

SECTION 5. Eligibility requirements. (a) This Act shall apply to any eligible taxpayer who files an application for amnesty within the time prescribed by the director and does the following:

(1) Files all returns as may be required by the director for all years or tax reporting periods as stated on the application for which returns have not previously been filed and files all returns as may be required by the director for all years or tax reporting periods for which returns were filed but the tax liability was underreported; and

(2) Pays in full the taxes due for the periods and taxes applied for at the time the application or amnesty tax returns are filed within the designated amnesty program period.

In addition to the requirements set forth in paragraphs (1) and (2), the director, at the discretion of the director, may impose, by rule, the further condition that any eligible taxpayer pay in full, within the amnesty period, all taxes previously assessed by the director that are final, due, and owing at the time the application or amnesty tax returns are filed.

(b) An eligible taxpayer may participate in the amnesty program regardless of whether the taxpayer is under audit, notwithstanding the fact that the amount due is included in a proposed assessment or an assessment, bill, notice, or demand for payment issued by the director and without regard to whether the amount due is subject to a pending administrative or judicial proceeding. An eligible taxpayer may participate in the amnesty program to the extent of the uncontested portion of any assessed liability. However, participation in the program shall be conditioned upon the taxpayer's agreement that the right to protest or initiate an administrative or judicial proceeding or to claim any refund of moneys paid under the program is barred with respect to the amounts paid with the application or amnesty return.

(c) The director may enter into an installment payment agreement in cases of severe hardship in lieu of the complete payment required under subsection (a). In those cases, twenty- five per cent of the amount due shall be paid with the application or amnesty return, with the balance to be paid in monthly installments of not less than twenty-five per cent of the original amount, nor to exceed three months following the expiration of the amnesty period. Failure of the taxpayer to make timely payments shall void the terms of the amnesty program. All agreements and payments shall include interest due and accruing during the installment agreement.

(d) If, following the termination of the tax amnesty period, the director issues a deficiency assessment based upon information independent of that shown on a return filed pursuant to subsection (a), the director shall have the authority to impose penalties and criminal action may be brought where authorized by law only with respect to the difference between the amount shown on the amnesty tax return and the correct amount of tax due. The imposition of penalties or criminal action shall not invalidate any waiver granted under section 6.

SECTION 6. Amnesty provisions. (a) Amnesty shall be granted for any taxpayer who meets the requirements of section 5 in accordance with the following:

(1) For taxes that are owed as a result of the nonreporting or underreporting of tax liabilities or the nonpayment of any accounts receivable owed by an eligible taxpayer, the State shall waive criminal prosecution and all civil penalties that may be assessed under any provision of this title for the taxable years or periods for which tax amnesty is requested; and

(2) With the exception of instances in which the taxpayer and director enter into an installment payment agreement authorized under section 5(c), the failure to pay all taxes and interest as shown on the taxpayer's amnesty tax return shall invalidate any amnesty granted pursuant to this chapter.

(b) This Act shall not apply to any taxpayer who is on notice, written or otherwise, of a criminal investigation being conducted by an agency of the State or any county or the United States, nor shall this Act apply to any taxpayer who is the subject of any criminal litigation that is pending on the date of the taxpayer's application in any court of this State or the United States for nonpayment, delinquency, evasion, or fraud in relation to any federal taxes or to any of the taxes to which this amnesty program is applicable.

(c) No refund or credit shall be granted for any interest or penalty paid prior to the time the taxpayer requests amnesty pursuant to section 5.

(d) Unless the director, in the director's own discretion, redetermines the amount of taxes and interest due, no refund or credit shall be granted for any taxes or interest paid under the amnesty program.

SECTION 7. Interest. (a) All installment agreements authorized under section 5(c) shall bear interest on the outstanding amount of tax due during the installment period at the rate prescribed under section 231-39, Hawaii Revised Statutes, as underpayments.

(b) Notwithstanding the provisions of title 14, Hawaii Revised Statutes, if any overpayment of tax under this Act is refunded or credited within one hundred eighty days after the return is filed, no interest shall be allowed.

SECTION 8. Public awareness. The director shall adopt rules under chapter 91, Hawaii Revised Statutes, as necessary, issue forms and instructions, and take all actions necessary to implement this Act. The director shall publicize the tax amnesty program in order to maximize the public awareness of and participation in the program. The director, for the purpose of publicizing the tax amnesty program, may contract with any advertising agency within or outside this State.

SECTION 9. Separate accounting. For purposes of accounting for the revenues received pursuant to this chapter, the director shall maintain an accounting and reporting of funds collected under the amnesty program. All funds collected shall be remitted to the general fund.

SECTION 10. Collection fees. (a) In addition to all other penalties provided under this Act or any other law, the director, by rule, may impose, after the expiration of the tax amnesty period, the cost of a collection fee of not more than fifty per cent of any deficiency assessed for any taxable period ending or transactions occurring on or before December 31, 1999 regardless of when due. This fee shall be in addition to all other applicable penalties, fees, or costs. The director may waive any collection fee when it is demonstrated that any deficiency of the taxpayer was not due to negligence, intentional disregard of administrative rules, or fraud.

(b) Subsection (a) shall not apply to any account that has been protested pursuant to section 40-35, Hawaii Revised Statutes, as of the expiration of the amnesty period and that does not become final, due, and owing, or to any account on which the taxpayer is remitting timely payments under a payment agreement negotiated with the director prior to or during the amnesty period.

(c) The fee levied under subsection (a) shall not apply to taxes paid pursuant to the terms of the amnesty program.

SECTION 11. Collection agencies. The commissioner, for the purpose of collecting any delinquent taxes due from a taxpayer, may contract with any debt collection agency or attorney doing business within or outside this State for the collection of any delinquent taxes, including penalties and interest thereon.

SECTION 12. Penalties. (a) As used in this section, the term "return" means and includes any return, declaration, or form prescribed by the director with respect to the taxes covered by the amnesty program.

(b) In addition to all other penalties provided under this Act and any other law, any person who wilfully fails to make a return or wilfully makes a false return or conspires to do so, or who wilfully fails to pay taxes owing, withheld, or collected, with intent to evade payment of the tax owed or the amount withheld or collected, or any part thereof, or who conspires to do so shall be guilty of a class C felony.

(c) Any person who fails to obey a subpoena or order of the director issued pursuant to section 231-7, Hawaii Revised Statutes, for purposes of enforcing this Act, shall be guilty of a misdemeanor, but shall be subject to the following maximum penalties:

(1) For a first offense, a fine of $25 to $100 or imprisonment for not more than three months, or both;

(2) For any subsequent offense, a fine of not more than $1,000 or imprisonment for not more than one year, or both.

SECTION 13. There is appropriated out of the general revenues of the State of Hawaii the sum of $ , or so much thereof as may be necessary for fiscal year 2004-2005, to provide a public campaign to maximize public awareness of the amnesty program.

SECTION 14. The sum appropriated shall be expended by the department of taxation for the purposes of this Act.

SECTION 15. This Act shall take effect upon approval; provided that section 13 shall take effect on July 1, 2004.

INTRODUCED BY:

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