College Savings Programs
Provides an annual maximum deduction of $5,000 per individual or $10,000 for a married couple filing jointly against their taxable income for contributions made to a section 529 college savings program in calendar year 2008 and beyond. Establishes a $75,000 cap on the total tax deduction per college savings account. (SB2660 SD3)
TWENTY-FOURTH LEGISLATURE, 2008
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO COLLEGE SAVINGS PROGRAMS.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. In 1996, Congress enacted section 529 (with respect to qualified state tuition programs) of the Internal Revenue Code of 1986, as amended, authorizing tax-deferred college savings plans now referred to as "529 Plans". Section 529 authorizes states to establish these programs to assist and encourage families to set aside funds for future higher education expenses.
Most states that assess an income tax offer some kind of in-state tax deduction or credit for contributions as an incentive for their residents to participate in these college savings programs. To encourage Hawaii families to save for college in the plan of their choice and to increase their participation in these programs, the purpose of this Act is to provide a state income tax deduction for contributions to any qualified program. This income tax deduction shall apply to program contributions made in calendar year 2008 and beyond.
SECTION 2. Section 235-7, Hawaii Revised Statutes, is amended to read as follows:
"§235-7 Other provisions as to gross income, adjusted gross income, and taxable income. (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 express exemption or exclusion;
(7) Income 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, equivalent to pay received for forty-eight drills (equivalent of twelve weekends) and fifteen days of annual duty, at an:
(A) E-1 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2004;
(B) E-2 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2005;
(C) E-3 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2006;
(D) E-4 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2007; and
(E) E-5 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2008;
(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 that 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;
(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; and
(13) One hundred per cent of the gain realized by a fee simple owner from the sale of a leased fee interest in units within a condominium project, cooperative project, or planned unit development to the association of apartment owners or the residential cooperative corporation of the leasehold units.
For purposes of this paragraph:
"Fee simple owner" shall have the same meaning as provided under section 516-1; provided that it shall include legal and equitable owners;
"Legal and equitable owner"[
and "leased fee interest" shall have the same meanings as provided
under section 516-1; and
"Condominium project" and "cooperative project" shall have the same meanings as provided under section 514C-1.
(b) There shall be included in gross income, adjusted gross income, and taxable income: (1) unless excluded by this chapter relating to the uniformed services of the United States, cost-of-living allowances and other payments exempted by section 912 (with respect to exemption for certain allowances) of the Internal Revenue Code, but section 119 (with respect to meals or lodging furnished for convenience of employer) of the Internal Revenue Code nevertheless shall apply; (2) unless expressly exempted or excluded as provided by subsection (a)(6), interest on the obligations of a State or a political subdivision thereof.
(c) The deductions of or based on dividends paid or received, allowed to a corporation under chapter 1, subchapter B, Part VIII of the Internal Revenue Code, shall not be allowed. In lieu thereof there shall be allowed as a deduction the entire amount of dividends received by any corporation upon the shares of stock of a national banking association, qualifying dividends, as defined in section 243(b) (with respect to dividends received by corporations) of the Internal Revenue Code, received by members of an affiliated group, or dividends received by a small business investment company operating under the Small Business Investment Act of 1958 (Public Law 85-699) upon shares of stock qualifying under paragraph (3), seventy per cent of the amount received by any corporation as dividends:
(1) Upon the shares of stock of another corporation, if at the date of payment of the dividend at least ninety-five per cent of the other corporation's capital stock is owned by one or more corporations doing business in this State and if the other corporation is subjected to an income tax in another jurisdiction (but subjection to federal tax does not constitute subjection to income tax in another jurisdiction);
(2) Upon the shares of stock of a bank or insurance company organized and doing business under the laws of the State;
(3) Upon the shares of stock of another corporation, if at least fifteen per cent of the latter corporation's business, for the taxable year of the latter corporation preceding the payment of the dividend, has been attributed to this State.
However, except for national bank dividends, the deductions under this subsection are not allowed when they would not have been allowed under section 243 (with respect to dividends received by corporations) of the Internal Revenue Code, as amended by Public Law 85-866, by reason of subsections (b) and (c) of section 246 (with respect to rules applying to deductions for dividends received) of the Internal Revenue Code. For the purposes of this subsection fifteen per cent of a corporation's business shall be deemed to have been attributed to this State if fifteen per cent or more of the entire gross income of the corporation as defined in this chapter (which for the purposes of this subsection shall be computed without regard to source in the State and shall include income not taxable by reason of the fact that it is from property not owned in the State or from a trade or business not carried on in the State in whole or in part), under section 235-5 and the other provisions of this chapter, shall have been attributed to the State and subjected to assessment of the taxable income therefrom (including the determination of the resulting net loss, if any).
(d) (1) For taxable years ending before January 1, 1967, the net operating loss deductions allowed as carrybacks and carryovers by the Internal Revenue Code shall not be allowed. In lieu thereof the net operating loss deduction shall consist of the excess of the deductions allowed by this chapter over the gross income, computed with the modifications specified in paragraphs (1) to (4) of section 172(d) of the Internal Revenue Code, and with the further modification stated in paragraph (3) hereof; and shall be allowed as a deduction in computing the taxable income of the taxpayer for the succeeding taxable year;
(2) (A) With respect to net operating loss deductions resulting from net operating losses for taxable years ending after December 31, 1966, the net operating loss deduction provisions of the Internal Revenue Code shall apply; provided that there shall be no net operating loss deduction carried back to any taxable year ending prior to January 1, 1967;
(B) In the case of a taxable year beginning in
1966 and ending in 1967, the entire amount of all net operating loss deductions
carried back to the taxable year shall be limited to that portion of taxable
income for [
such] the taxable year which the number of days in
1967 bears to the total days in the taxable year ending in 1967; and
(C) The computation of any net operating loss deduction for a taxable year covered by this subsection shall require the further modifications stated in paragraphs (3), (4), and (5) of this subsection;
(3) In computing the net operating loss deduction
allowed by this subsection, there shall be included in gross income the amount
of interest which is excluded from gross income by subsection (a), decreased by
the amount of interest paid or accrued which is disallowed as a deduction by
subsection (e). In determining the amount of the net operating loss deduction
under this subsection of any corporation, there shall be disregarded the net
operating loss of [
such] the corporation for any taxable year for
which the corporation is an electing small business corporation;
(4) No net operating loss carryback or carryover shall be allowed by this chapter if not allowed under section 172 of the Internal Revenue Code;
(5) The election to relinquish the entire carryback
period with respect to a net operating loss allowed under section 172(b)(3)(C)
of the Internal Revenue Code shall be operative for the purposes of this
chapter; provided that no taxpayer shall make such an election as to a net
operating loss of a business where [
such] the net operating loss
occurred in the taxpayer's business prior to the taxpayer entering business in
this State; and
(6) The five-year carryback period for net operating losses for any taxable year ending during 2001 and 2002 in section 172(b)(1)(H) of the Internal Revenue Code shall not be operative for purposes of this chapter.
(e) There shall be disallowed as a deduction the amount of interest paid or accrued within the taxable year on indebtedness incurred or continued, (1) to purchase or carry bonds the interest upon which is excluded from gross income by subsection (a); or (2) to purchase or carry property owned without the State, or to carry on trade or business without the State, if the taxpayer is a person taxable only upon income from sources in the State.
(f) Losses of property as the result of tidal
wave, hurricane, earthquake, or volcanic eruption, or as a result of flood
waters overflowing the banks or walls of a river or stream, or from any other
natural disaster, to the extent of the amount deductible, under this chapter,
not compensated for by insurance or otherwise, may be deducted in the taxable
year in which sustained, or at the option of the taxpayer may be deducted in
equal installments over a period of five years, the first such year to be the
calendar year or fiscal year of the taxpayer in which [
(g) In computing taxable income there shall be allowed as a deduction:
(1) Political contributions by any taxpayer not in
excess of $250 in any year; provided that [
such] the contributions
are made to a central or county committee of a political party whose candidates
shall have qualified by law to be voted for at the immediately previous general
(2) Political contributions by any individual
taxpayer in an aggregate amount not to exceed $1,000 in any year; provided that
such] the contributions are made to candidates as defined in
section 11-191, who have agreed to abide by the campaign expenditure limits as
set forth in section 11-209; and provided further that not more than $250 of an
individual's total contribution to any single candidate shall be deductible for
purposes of this section.
(h) The following annual deductions from gross income shall be allowed for contributions to a qualified tuition program established pursuant to section 529 (with respect to qualified state tuition programs) of the Internal Revenue Code:
(1) Up to $5,000 for individual taxpayers, but not more than the amount contributed during the taxable year;
(2) Up to $5,000 for married couples filing separate returns, but not more than the amount contributed during the taxable year; provided that each spouse may claim a deduction of up to $5,000; and
(3) Up to $10,000 for married couples filing joint returns, individuals filing as the head of the household, or individuals filing as surviving spouses, but not more than the amount contributed during the taxable year;
provided that the aggregate deduction amount shall not exceed $75,000 per college savings account. If the amount of the deduction exceeds the taxpayer's taxable income for the taxable year the contribution is made, the excess deduction may be used as a deduction against the taxpayer's taxable income in subsequent tax years until the excess deduction is exhausted."
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 apply to taxable years beginning after December 31, 2050; provided that amendments made to section 235-7, Hawaii Revised Statutes, by this Act shall not be repealed when that section is reenacted on January 1, 2013, pursuant to section 3 of Act 166, Session Laws of Hawaii 2007.