Report Title:

County Excise and Use Tax

Description:

Repeals time and designated use restrictions on county general excise and use tax surcharge to authorize counties to enact ordinances for county general excise and use tax at their discretion at a rate of 1/2%.

HOUSE OF REPRESENTATIVES

H.B. NO.

713

TWENTY-SECOND LEGISLATURE, 2003

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO COUNTY TAXES.

 

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

SECTION 1. Section 46-16.7, Hawaii Revised Statutes, is amended to read as follows:

"§46-16.7 County general excise and use tax [surcharge]. (a) Each county, except the county of Kalawao, may establish a general excise and use tax [surcharge] of one-half per cent. Each county shall establish the general excise and use tax [surcharge] by ordinance [adopted before October 1, 1992, which shall take effect on January 1, 1993, and remain in effect for ten years through December 31, 2002, unless earlier repealed, pursuant to subsection (c)]. No ordinance shall be adopted until the county has conducted a public hearing on the proposed ordinance. Notice of the public hearing shall be published in a newspaper of general circulation within the county at least twice within a period of thirty days immediately preceding the date of the hearing. [If a county fails to adopt a county general excise and use tax surcharge ordinance by October 1, 1992, the county shall not be covered by this section.]

(b) Each county shall notify the director of taxation within ten days after the county has adopted a general excise and use tax [surcharge] ordinance, and the director of taxation shall levy, assess, collect, and otherwise administer the general excise and use tax [surcharge] for the next taxable year beginning January 1, [1993,] and for taxable years thereafter [through December 31, 2002,] as provided by chapters 237 and 238.

(c) The general excise and use tax [surcharges] received from the State by each county shall be used [as follows:

(1) The city and county of Honolulu shall use the surcharges to develop a fixed rail rapid transit system. All private source revenues generated or pledged to develop a fixed rail rapid transit system that are received prior to the operation of the system shall be used as county matching funds for moneys requested from the transit capital development fund, pursuant to chapter 51D, before surcharges may be used. The director of finance shall determine whether or not private sources are adequate to meet county matching requirements. The director of finance shall submit a report of the findings to the legislature. Upon legislative acceptance of the findings, within sixty days of the first regular legislative session convened following the submittal of the findings, no additional moneys may be expended from the transit fund; provided that:

(A) Such limitation on the expenditure of moneys from the transit fund shall not occur prior to December 31, 1992; and

(B) Private source revenues received prior to the operation of the system or received in each year that the surcharge is in effect shall be committed to the funding of the capital costs of the fixed rail rapid transit system prior to any determination regarding the duration of the surcharge.

(2) All surcharges collected by the State for the city and county of Honolulu but not used for the purpose of developing a fixed rail rapid transit system shall be deposited into the state treasury to be returned to the taxpayers who resided in the city and county of Honolulu for more than two hundred days of the taxable year in the aggregate during the time that the surcharges were collected, in the form of an income tax credit, the amount of the credit to be determined by law.

(3) The general excise and use tax surcharge shall be repealed upon the determination by the director of finance that all authorized capital costs of the fixed rail rapid transit system or county projects under paragraph (4) have been collected and distributed pursuant to chapter 248.

(4) The counties of Hawaii, Kauai, and Maui shall use the surcharges for public transportation systems, including mass transportation, sewage, or water development, and parks, including park operation, maintenance, infrastructure, or purchase.

(d) As used in this section:

"Capital costs" means nonrecurring costs required to construct a transit facility or system, including debt service, costs of land acquisition and development, acquiring of rights-of-way, planning, design, and construction, including equipping and furnishing the facility or system.

"Private source revenue" means all funds, concessions, development rights, or those assets of value contractually agreed upon with the county from sources other than state, county, or federal governments as a result of, or for the purposes of, developing mass transportation.] as each respective county authorizes by ordinance."

SECTION 2. Section 235-110.7, Hawaii Revised Statutes, is amended as follows:

1. By amending subsections (a) and (b) to read:

"(a) There shall be allowed to each taxpayer subject to the tax imposed by this chapter a capital goods excise tax credit which shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed.

The amount of the tax credit shall be determined by the application of the following rates against the cost of the eligible depreciable tangible personal property used by the taxpayer in a trade or business and placed in service within Hawaii after December 31, 1987. For calendar years beginning after: December 31, 1987, the applicable rate shall be three per cent; December 31, 1988, and thereafter, the applicable rate shall be four per cent, except that [for the period January 1, 1993, through December 31, 2002, and] for eligible depreciable tangible personal property used in a trade or business that is purchased in a county in which the county general excise and use tax [surcharge] is in effect and placed in service in any county the applicable rate shall be four and one-half per cent. For taxpayers with fiscal taxable years, the applicable rate shall be the rate for the calendar year in which the eligible depreciable tangible personal property used in the trade or business is placed in service within Hawaii.

In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for eligible depreciable tangible personal property which is placed in service by the entity. The cost upon which the tax credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined by rules.

In the case of eligible depreciable tangible personal property for which a credit for sales or use taxes paid to another state is allowable under section 238-3(i), the amount of the tax credit allowed under this section shall not exceed the amount of use tax[,] and [for the period January 1, 1993, through December 31, 2002,] the amount of the county general excise and use tax [surcharge], if any, actually paid under chapter 238 relating to such tangible personal property.

If a deduction is taken under section 179 (with respect to election to expense certain depreciable business assets) of the Internal Revenue Code of 1954, as amended, no tax credit shall be allowed for that portion of the cost of property for which the deduction was taken.

(b) If the tax credit is claimed by a taxpayer at the rate of four and one-half per cent, and the tangible personal property is purchased in a county in which the county general excise and use tax [surcharge] is not in effect, there shall be added to and become part of the tax liability of the taxpayer:

(1) The amount of the tax credit claimed under this section multiplied by three; or

(2) Ten per cent of the income tax liability for the taxable year for which the income tax return is being filed,

whichever is greater.

If the capital goods excise tax credit allowed under subsection (a) exceeds the taxpayer's net income tax liability, the excess of credit over liability shall be refunded to the taxpayer; provided that no refunds or payment on account of the tax credit allowed by this section shall be made for amounts less than $1.

All claims for tax credits under this section, including any amended claims, must be filed on or before the end of the twelfth month following the close of the taxable year for which the credits may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit."

2. By amending subsection (e) to read:

"(e) As used in this section, the definition of section 38 property (with respect to investment in depreciable tangible personal property) as defined by section 48(a)(1)(A), (a)(1)(B), (a)(3), (a)(4), (a)(7), (a)(8), (a)(10)(A), (b), (c), (f), (l), (m), and (s) of the Internal Revenue Code of 1954, as amended as of December 31, 1984, is operative for the purposes of this section only.

As used in this section:

"Cost" means (1) the actual invoice price of the tangible personal property, or (2) the basis from which depreciation is taken under section 167 (with respect to depreciation) or from which a deduction may be taken under section 168 (with respect to accelerated cost recovery system) of the Internal Revenue Code of 1954, as amended, whichever is less.

"Eligible depreciable tangible personal property" is section 38 property as defined by the operative provisions of section 48 and having a depreciable life under section 167 or for which a deduction may be taken under section 168 of the federal Internal Revenue Code of 1954, as amended.

"Placed in service" means the earliest of the following taxable years:

(1) The taxable year in which, under the:

(A) Taxpayer's depreciation practice, the period for depreciation; or

(B) Accelerated cost recovery system, a claim for recovery allowances; with respect to such property begins; or

(2) The taxable year in which the property is placed in a condition or state of readiness and availability for a specifically assigned function.

"Purchase" means an acquisition of property.

"Tangible personal property" means tangible personal property which is placed in service within Hawaii after December 31, 1987, and the purchase or importation of which resulted in a transaction which was subject to the imposition and payment of tax at the rate of four per cent, except that [for the period January 1, 1993, through December 31, 2002, and] if the county general excise and use tax [surcharge] is in effect, the tax rate shall be four and one-half per cent, under chapter 237 or 238. "Tangible personal property" does not include tangible personal property which is an integral part of a building or structure or tangible personal property used in a foreign trade zone, as defined under chapter 212."

SECTION 3. Section 237-8.5, Hawaii Revised Statutes, is amended to read as follows:

"§237-8.5 County general excise and use tax [surcharge]; administration. (a) The county general excise and use tax [surcharge], upon the adoption of county ordinances under section 46-16.7, shall be levied, assessed, and collected as provided in this section on all gross proceeds and gross income taxable under this chapter at the four per cent tax rate in such manner that the combined state general excise tax and the county general excise and use tax [surcharge tax] shall be four and one-half per cent in those counties adopting the [surcharge.] tax. All provisions of this chapter shall apply to the county general excise and use tax [surcharge]; and with respect to the [surcharge,] tax, the director shall have all the rights and powers provided under this chapter. In addition, the director of taxation shall have the exclusive rights and power to determine the county or counties in which a person is engaged in business and, in the case of a person engaged in business in more than one county, the director shall determine through apportionment or other means, that portion of the general excise and use tax [surcharge] attributable to business conducted in each county.

(b) Each county general excise and use tax [surcharge] adopted pursuant to section 46-16.7(a) shall be levied as of January 1, [1993,] of the next taxable year following the enactment of the ordinance and shall continue [for a period of ten years through December 31, 2002, or] until [earlier] repealed.

(c) The county general excise and use tax [surcharge] shall be imposed on the gross proceeds or gross income of all written contracts that require the passing on of the taxes imposed under this chapter; provided that if the gross proceeds or gross income are received as payments after December 31, [1992,] of the year preceding the first year of imposition of the county general excise and use tax on contracts entered into before [June 19, 1990,] the effective date of the ordinance and the written contracts do not provide for the passing on of increased rates of taxes, the county general excise and use tax [surcharge] shall not be imposed on the gross proceeds or gross income covered under the written contracts. The county general excise and use tax [surcharge] shall be imposed on the gross proceeds or gross income from all contracts entered into on or after [June 19, 1990,] the effective date of the ordinance, whether or not the contract allows for the passing on of any tax or any tax increases.

(d) No county general excise and use tax [surcharge] shall be established on any:

(1) Gross income or gross proceeds taxable under this chapter at the one-half per cent tax rate;

(2) Gross income or gross proceeds taxable under this chapter at the 0.15 per cent tax rate; or

(3) Transactions, amounts, persons, gross income, or gross proceeds exempt from tax under this chapter.

(e) The director of taxation shall revise the general excise tax forms to provide for the clear and separate designation of the imposition and payment of the county general excise and use tax [surcharge].

The taxpayer shall designate the taxation district to which the county general excise and use tax [surcharge] is assigned in accordance with rules adopted by the director of taxation under chapter 91. The taxpayer shall file a schedule with the taxpayer's periodic and annual general excise and use tax returns summarizing the amount of taxes assigned to each taxation district.

The penalties provided by section 231-39 for failure to file a tax return shall be imposed on the amount of [surcharge] county general excise and use tax due on the return being filed for the failure to file the schedule required to accompany the return. In addition, there shall be added to the tax an amount equal to ten per cent of the amount of the [surcharge] county general excise and use tax and the state tax due on the return being filed for the failure to file the schedule or the failure to correctly report the assignment of the county general excise and use tax and general excise tax by taxation district on the schedule required under this subsection.

(f) All taxpayers who file on a fiscal year basis [whose fiscal year ends after December 31, 1992, or after December 31, 2002,] shall file a short period annual return for the period preceding January 1, [1993, or preceding January 1, 2003. Each fiscal year taxpayer shall also file a short period annual return for the period starting after December 31, 1992, and ending before January 1, 1994, and for the period starting after December 31, 2002, and ending before January 1, 2004.

All monthly, annual, and amended returns due under this chapter for any period preceding January 1, 2003, which are submitted to the department after December 31, 2002, shall include in payments submitted with the return any county general excise and use tax surcharge that may be due for the period preceding January 1, 2003.] of the first year the county excise and use tax is imposed."

SECTION 4. Section 238-2.5, Hawaii Revised Statutes, is amended to read as follows:

"§238-2.5 County general excise and use tax [surcharge]; administration. (a) The county general excise and use tax [surcharge], upon the adoption of a county ordinance under section 46-16.7, shall be levied, assessed, and collected as provided in this section on the value of property taxable under this chapter at the four per cent tax rate under section 238-2(3) in a manner that the combined state use tax and the county general excise and use tax [surcharge] shall be four and one-half per cent in those counties adopting the [surcharge.] county general excise and use tax. All provisions of this chapter shall apply to the county general excise and use tax [surcharge]. With respect to the [surcharge,] county general excise and use tax, the director shall have all the rights and powers provided under this chapter. In addition, the director of taxation shall have the exclusive rights and power to determine the county or counties in which a person imports or purchases tangible personal property and, in the case of a person importing or purchasing tangible property in more than one county, the director shall determine through apportionment or other means, that portion of the county general excise and use tax [surcharge] attributable to the importation or purchase in each county.

(b) Each county general excise and use tax [surcharge] shall be levied as of January 1, [1993,] of the first taxable year after the effective date of the ordinance and shall continue [for a period of ten years through December 31, 2002, or] until [earlier] repealed.

(c) No county general excise and use tax [surcharge] shall be established upon any use taxable under this chapter at the one- half per cent tax rate or upon any use that is not subject to taxation or that is exempt from taxation under this chapter.

(d) The director of taxation shall revise the use tax forms to provide for the clear and separate designation of the imposition and payment of the county general excise and use tax [surcharge].

The taxpayer shall designate the taxation district to which the county general excise and use tax [surcharge] is assigned in accordance with rules adopted by the director of taxation under chapter 91. The taxpayer shall file a schedule with the taxpayer's periodic and annual general excise and use tax returns summarizing the amount of taxes assigned to each taxation district.

The penalties provided by section 231-39 for failure to file a tax return shall be imposed on the amount of [surcharge] county general excise and use tax due on the return being filed for the failure to file the schedule required to accompany the return. In addition, there shall be added to the tax an amount equal to ten per cent of the amount of the [surcharge] county general excise and use tax and state tax due on the return being filed for the failure to file the schedule or the failure to correctly report the assignment of the use tax by taxation district on the schedule required under this subsection.

(e) All taxpayers who file on a fiscal year basis [whose fiscal year ends after December 31, 1992, or after December 31, 2002,] shall file a short period annual return for the period preceding January 1, [1993, or preceding January 1, 2003. Each fiscal year taxpayer shall also file a short period annual return for the period starting after December 31, 1992, and ending before January 1, 1994, and for the period starting after December 31, 2002, and ending before January 1, 2004.

All monthly, annual, and amended returns due under this chapter for any period preceding January 1, 2003, which are submitted to the department after December 31, 2002, shall include in payments submitted with the return any county general excise and use tax surcharge that may be due for the period preceding January 1, 2003.] of the first year the county general excise and use tax is imposed."

SECTION 5. Section 248-2.5, Hawaii Revised Statutes, is amended to read as follows:

"[[]§248-2.5[]] County general excise and use tax [surcharge]; disposition of proceeds. (a) All county general excise and use [tax surcharges] taxes collected by the director of taxation shall be paid into the state treasury each month within ten working days after collection, and shall be kept by the state director of finance in special accounts. Out of the county general excise and use [tax surcharges] taxes paid into the state treasury special accounts, the state director of finance shall retain, from time to time, sufficient amounts to reimburse the State for the costs of assessment, collection, and disposition of the county general excise and use tax [surcharge] incurred by the State. Amounts retained shall be general fund realizations of the State.

(b) The costs of assessment, collection, and disposition of county general excise and use [tax surcharges] taxes shall be withheld from payment to the several counties by the State out of the county general excise and use [tax surcharges] taxes collected for the current calendar year.

The costs of assessment, collection, and disposition of the county general excise and use [tax surcharges] taxes shall be borne by each of the several counties in an amount proportional to the total amount of [surcharges] county general excise and use taxes allocated to that county divided by the total amount of [surcharges] county general excise and use taxes collected for the entire State for the preceding calendar year.

For the purpose of this section, the costs of assessment, collection, and disposition of the county general excise and use [tax surcharges] taxes shall include any and all costs, direct or indirect, which are deemed necessary and proper to effectively administer this section and sections 237-8.5 and 238-2.5. Costs include refunds or reductions of income taxes under section 235-110.7 attributable to the county general excise and use tax [surcharge].

(c) After the deduction of the costs under subsection (b), the state director of finance shall pay the remaining balance on a monthly or quarterly basis to the director of finance for each county which has adopted a county general excise and use tax [surcharge] under section 46-16.7. The payments shall be made as soon as possible after the county general excise and use [tax surcharges] taxes have been paid into the state treasury special accounts, or after the disposition of any tax appeal, as the case may be. All county general excise and use [tax surcharges] taxes collected shall be distributed by the state director of finance to the county in which the county general excise tax [surcharge] is generated and shall be a general fund realization of the county [to be used for the purposes specified in section 46-16.7 by each of the several counties]."

SECTION 6. Section 235-16, Hawaii Revised Statutes, is repealed.

["§235-16 County surcharge excise tax credit. (a) If the collection of the county general excise and use tax surcharge starts on January 1, 1993, as provided in sections 46-16.7, 237-8.5, and 238-2.5, then for taxable years, in each year that the surcharge is in effect, beginning after December 31, 1992, and ending before January 1, 2003, each resident individual taxpayer, who files an individual income tax return for a taxable year, and who is not claimed or is not otherwise eligible to be claimed as a dependent by another taxpayer for federal or Hawaii state individual income tax purposes, may claim a county surcharge excise tax credit in the amount computed under this section against the resident taxpayer's individual income tax liability for the taxable year for which the individual income tax return is being filed; provided that a resident individual who has no income or no income taxable under this chapter and who is not claimed or is not otherwise eligible to be claimed as a dependent by a taxpayer for federal or Hawaii state individual income tax purposes may claim this credit.

(1) Each resident individual taxpayer who resides for more than two hundred days of the taxable year in the aggregate in a county in which the county general excise and use tax surcharge is in effect may claim the tax credit according to the adjusted gross income bracket shown in the following schedule:

TAX CREDIT SCHEDULE

Adjusted Gross Income Tax Credit

Under $5,000 $ 25

$5,000 under $10,000 45

$10,000 under $15,000 65

$15,000 under $20,000 90

$20,000 under $30,000 110

$30,000 under $40,000 125

$40,000 under $50,000 145

$50,000 under $75,000 185

$75,000 under $100,000 205

$100,000 and over 210

(2) Each resident individual taxpayer who resides for more than two hundred days of the taxable year in the aggregate in a county which has not adopted the county general excise and use tax surcharge may claim a tax credit according to the adjusted gross income bracket shown in the schedule below:

TAX CREDIT SCHEDULE

Adjusted Gross Income Tax Credit

Under $5,000 $ 5

$5,000 under $10,000 10

$10,000 under $20,000 15

$20,000 under $30,000 20

$30,000 under $40,000 25

$40,000 under $50,000 30

$50,000 under $75,000 35

$75,000 and over 40

A husband and wife filing separate returns for a taxable year for which a joint return could have been filed by them shall claim only the tax credit to which they would have been entitled had a joint return been filed.

(b) The tax credit under this section shall not be available to (1) any person who has been convicted of a felony and who has been committed to prison and has been physically confined for the full taxable year; (2) any person who would otherwise be eligible to be claimed as a dependent but who has been committed to a youth correctional facility and has resided at the facility for the full taxable year; or (3) any misdemeanant who has been committed to jail and has been physically confined for the full taxable year.

(c) The tax credits claimed by a resident taxpayer pursuant to this section shall be deductible from the resident taxpayer's individual income tax liability, if any, for the tax year in which they are properly claimed. If the tax credits claimed by a resident taxpayer exceed the amount of income tax payment due from the resident taxpayer, the excess of credits over payments due shall be refunded to the resident taxpayer; provided that tax credits properly claimed by a resident individual who has no income tax liability shall be paid to the resident individual.

(d) If the tax credit is claimed by an individual who does not reside in the appropriate county as set forth in subsection (a)(1) or (a)(2), there shall be added to and become a part of the tax liability of the individual:

(1) The amount of the tax credit claimed under this section multiplied by three; or

(2) Ten per cent of the income tax liability for the taxable year for which the individual income tax return is being filed,

whichever is greater.

All claims for tax credits under this section, including any amended claims, must be filed on or before the end of the twelfth month following the close of the taxable year for which the credits may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit."]

SECTION 7. Statutory material to be repealed is bracketed. New statutory material is underscored.

SECTION 8. This Act shall take effect upon its approval; provided that:

(1) Sections 3 and 4 of this Act shall take effect on July 1, 2003; and

(2) Sections 2 and 6 of this Act shall apply to taxable years beginning after December 31, 2004.

INTRODUCED BY:

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