HOUSE OF REPRESENTATIVES

H.B. NO.

1985

TWENTY-FIFTH LEGISLATURE, 2010

S.D. 1

STATE OF HAWAII

Proposed

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO TAXATION.

 

 

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

 


PART I

     SECTION 1.  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 owners under chapter 514A or 514B, 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 of the Internal Revenue Code, but section 119 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) 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 of the Internal Revenue Code, as amended by Public Law 85-866, by reason of subsections (b) and (c) of section 246 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 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 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 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 such loss occurred.

     [(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 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 election; or

     (2)  Political contributions by any individual taxpayer in an aggregate amount not to exceed $1,000 in any year; provided that such 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.]"

PART II

     SECTION 2.  Section 245-3, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  Every wholesaler or dealer, in addition to any other taxes provided by law, shall pay for the privilege of conducting business and other activities in the State:

     (1)  An excise tax equal to 5.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer after June 30, 1998, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

     (2)  An excise tax equal to 6.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer after September 30, 2002, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

     (3)  An excise tax equal to 6.50 cents for each cigarette sold, used, or possessed by a wholesaler or dealer after June 30, 2003, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

     (4)  An excise tax equal to 7.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer after June 30, 2004, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

     (5)  An excise tax equal to 8.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer on and after September 30, 2006, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

     (6)  An excise tax equal to 9.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer on and after September 30, 2007, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

     (7)  An excise tax equal to 10.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer on and after September 30, 2008, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

     (8)  An excise tax equal to 13.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer on and after July 1, 2009, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

     (9)  An excise tax equal to 11.00 cents for each little cigar sold, used, or possessed by a wholesaler or dealer on and after October 1, 2009, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

    (10)  An excise tax equal to [14.00] 15.00 cents for each cigarette or little cigar sold, used, or possessed by a wholesaler or dealer on and after July 1, 2010, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

    (11)  An excise tax equal to [15.00] 16.00 cents for each cigarette or little cigar sold, used, or possessed by a wholesaler or dealer on and after July 1, 2011, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

    (12)  Except as provided in paragraph (13), an excise tax equal to seventy per cent of the wholesale price of each article or item of tobacco products sold by the wholesaler or dealer on and after September 30, 2009, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer; and

    (13)  An excise tax equal to fifty per cent of the wholesale price of each cigar with a ring gauge of thirty or more (.467 inches in diameter or more), of any length, sold, used, or possessed by a wholesaler or dealer on and after September 30, 2009, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer.

Where the tax imposed has been paid on cigarettes, little cigars, or tobacco products that thereafter become the subject of a casualty loss deduction allowable under chapter 235, the tax paid shall be refunded or credited to the account of the wholesaler or dealer.  The tax shall be applied to cigarettes through the use of stamps."

PART III

     SECTION 3.  Section 431:7-101, Hawaii Revised Statutes, is amended as follows:

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

     "(a)  The commissioner shall collect in advance the following fees:

     (1)  Certificate of authority:  Issuance......[$900] $1,800

     (2)  Organization of domestic insurers and affiliated corporations:

         (A)  Application and all other papers required for issuance of solicitation permit, filing........................... [$1,500] $3,000

         (B)  Issuance of solicitation permit.....[$150] $  300

     (3)  Producer's license:

         (A)  Issuance, regular license............[$50] $  100

         (B)  Issuance, temporary license..........[$50] $  100

     (4)  Nonresident producer's license:  Issuance..................................[$75] $  150

     (5)  Independent adjuster's license:  Issuance.[$75] $  150

     (6)  Public adjuster's license: Issuance...... [$75] $  150

     (7)  Workers' compensation claim adjuster's limited

          license:  Issuance........................[$75] $  150

     (8)  Independent bill reviewer's license: 

          Issuance..................................[$80] $  160

     (9)  Limited producer's license:  Issuance.....[$60] $  120

    (10)  Managing general agent's license: 

Issuance...................................[75] $  150

    (11)  Reinsurance intermediary's license:

          Issuance..................................[$75] $  150

    (12)  Surplus lines broker's license: 

Issuance.................................[$150] $  300

    (13)  Service contract provider's registration:

          Issuance.................................[$75]  $  150

    (14)  Approved course provider certificate: 

          Issuance................................[$100]  $  200

    (15)  Approved continuing education course certificate:  Issuance.................................[$30]  $   60

    (16)  Vehicle protection product warrantor's registration: Issuance.................................[$75]  $  150

    (17)  Criminal history record check; fingerprinting:  For each criminal history record check and fingerprinting check, a fee to be established by the commissioner.

    (18)  Limited line motor vehicle rental company producer's license:  Issuance....................[$1,000]  $2,000

    (19)  Life settlement contract provider's license:

          Issuance.................................[$75]  $  150

    (20)  Life settlement contract broker's license:

          Issuance.................................[$75]  $  150

    (21)  Examination for license:  For each examination, a fee to be established by the commissioner.

     (b)  The fees for services of the department of commerce and consumer affairs subsequent to the issuance of a certificate of authority, license, or other certificate are as follows:

     (1)  [$600] $1,200 per year for all services (including extension of the certificate of authority) for an authorized insurer;

     (2)  [$50] $100 per year for all services (including extension of the license) for a regularly licensed producer;

     (3)  [$75] $150 per year for all services (including extension of the license) for a regularly licensed nonresident producer;

     (4)  [$45] $90 per year for all services (including extension of the license) for a regularly licensed independent adjuster;

     (5)  [$45] $90 per year for all services (including extension of the license) for a regularly licensed public adjuster;

     (6)  [$45] $90 per year for all services (including extension of the license) for a workers' compensation claims adjuster's limited license;

     (7)  [$60] $120 per year for all services (including extension of the license) for a regularly licensed independent bill reviewer;

     (8)  [$45] $90 per year for all services (including extension of the license) for a producer's limited license;

     (9)  [$75] $150 per year for all services (including extension of the license) for a regularly licensed managing general agent;

    (10)  [$75] $150 per year for all services (including extension of the license) for a regularly licensed reinsurance intermediary;

    (11)  [$45] $90 per year for all services (including extension of the license) for a licensed surplus lines broker;

    (12)  [$75] $150 per year for all services (including renewal of registration) for a service contract provider;

    (13)  [$65] $130 per year for all services (including extension of the certificate) for an approved course provider;

    (14)  [$20] $40 per year for all services (including extension of the certificate) for an approved continuing education course;

    (15)  [$75] $150 per year for all services (including renewal of registration) for a vehicle protection product warrantor;

    (16)  [$20] $40 for a criminal history record check;

    (17)  [$600] $1,200 per year for all services (including extension of the license) for a regularly licensed limited line motor vehicle rental company producer;

    (18)  [$75] $150 per year for all services (including extension of the license) for a regularly licensed life settlement contract provider; and

    (19)  [$75] $150 per year for all services (including extension of the license) for a regularly licensed life settlement contract broker.

     The services referred to in paragraphs (1) to (19) shall not include services in connection with examinations, investigations, hearings, appeals, and deposits with a depository other than the department of commerce and consumer affairs."

     2.  By amending subsection (e) to read as follows:

     "(e)  All fees and penalties shall be deposited to the credit of the compliance resolution fund[.]; provided that beginning July 1, 2010, the statutory fees collected pursuant to subsections (a) and (b), not including administratively set fees and assessments as may be authorized under this section, shall be deposited as follows:

     (1)  Fifty per cent shall be deposited into the compliance resolution fund; and

     (2)  Fifty per cent shall constitute an insurance license and service tax, which shall be deposited into the general fund."

PART IV

     SECTION 4.  Section 431:7-202, Hawaii Revised Statutes, is amended by amending subsections (a), (b), (c), and (d) to read as follows:

     "(a)  Each authorized insurer, except with respect to all life insurance contracts, ocean marine insurance contracts, and real property title insurance contracts, shall pay to the director of finance through the commissioner a tax of [4.265]       per cent on the gross premiums written from all risks or property resident, situated, or located within this State, during the year ending on the preceding December 31, less return premiums (but not including dividends paid or credited to policyholders), and less any reinsurance accepted (the tax upon such business being payable by the direct writing insurer).

     All premiums written, procured, or received in the State shall be presumed to have been from risks or property resident, situated, or located within the State.  This presumption may be rebutted as to any premium by:

     (1)  [By showing] Showing that it has been properly allocated or apportioned and reported as a taxable premium of another state or other appropriate taxing authority; or

     (2)  [By facts] Facts as to the residence, situation, or location of the risks or property, conclusively showing the nontaxability of the premium.

     (b)  Each authorized insurer, with respect to life insurance contracts[,] entered into before July 1, 2010, shall pay to the director of finance through the commissioner a tax of 2.75 per cent on the gross premiums received from all risks resident within this State, during the year ending on the preceding December 31, less return premiums, dividends paid or credited to policyholders, and reinsurance accepted (the tax upon such business being payable by the direct writing insurer).

     Each authorized insurer, with respect to life insurance contracts entered into on or after July 1, 2010, shall pay to the director of finance through the commissioner a tax of       per cent on the gross premiums received from all risks resident within this State, during the year ending on the preceding December 31, less return premiums, dividends paid or credited to policyholders, and reinsurance accepted (the tax upon such business being payable by the direct writing insurer).

     The tax also shall apply to premiums for insurance written on individuals residing outside the State unless the direct writing insurer shall show the payment of a comparable tax to another appropriate taxing authority.  Such showing may be required as to any premium written, procured, or received in the State.

     (c)  Each authorized insurer shall, with respect to all ocean marine insurance contracts written within the State, during the year ending on the preceding December 31, pay to the director of finance through the commissioner a tax of [.8775]       per cent on its gross underwriting profit.  The gross underwriting profit shall be ascertained by deducting from the net premiums (i.e., gross premiums less all return premiums and premiums for reinsurance ceded) on such ocean marine insurance contracts, the net losses paid (i.e., gross losses paid less salvage and recoveries on reinsurance ceded) during such year under such contracts.  In the case of an insurer issuing participating contracts, the gross underwriting profit shall not include, for computation of the tax prescribed by this subsection, the amount refunded, or paid as participation dividends, by such insurer to the holders of such contracts.

     (d)  Each authorized insurer, with respect to real property title insurance contracts written on real property situated within this State during the year ending on the preceding December 31, shall pay to the director of finance through the commissioner a tax of [4.265]       per cent of the amount of the risk premium actually received by the authorized insurer for the provision of such insurance.  The amount of the risk premium received by the authorized insurer for the provision of real property title insurance shall be an amount equal to the amount actually received by the authorized insurer solely for the provision of real property title insurance coverage in accordance with the underwriting agreement or contract between the authorized insurer and the underwritten title company."

     SECTION 5.  Section 431:8-205, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

     "(c)  Gross premiums charged for the insurance, less any return premiums, are subject to a tax at the rate of [4.68]       per cent.  At the time of filing the report required in subsection (b), the insured shall pay the tax to the commissioner.

     As used in this subsection, "gross premiums" [mean] means the amount of the policy or coverage premium charged by the insurer in consideration for the insurance contract.  Any charges for policy, survey, inspection, service, or similar fees or other charges added by the broker shall not be considered part of gross premiums."

     SECTION 6.  Section 431:8-315, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  On or before March 15 of each year, each surplus lines broker shall pay to the director of finance, through the commissioner, a premium tax on surplus lines insurance transacted by the broker during the preceding calendar year.  The tax shall be in the amount of [4.68]       per cent of gross premiums, less return premiums, on taxable surplus lines insurance.

     As used in this subsection, "gross premiums" [mean] means the amount of the policy or coverage premium charged by the insurer in consideration for the insurance contract.  Any charges for policy, survey, inspection, service, or similar fees or other charges added by the broker shall not be considered part of gross premiums."

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

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

     (1)  Part I shall apply to taxable years beginning after December 31, 2009;

     (2)  Part II shall be effective on July 1, 2010;

     (3)  The amendments made to section 431:7-101, Hawaii Revised Statutes, under section 3 of this Act shall not be repealed when that section is reenacted on June 16, 2010, pursuant to Act 11, Session Laws of Hawaii 2009; and

     (4)  Part IV shall take effect on July 1, 2010, and shall be repealed on June 30, 2015, provided that sections 431:7-202(a) through (d), 431:8-205(c), and 431:8‑315(a), Hawaii Revised Statutes, shall be reenacted in the form in which they read on June 30, 2010.

 



 

Report Title:

Taxation; Political Contribution; Insurance Fees and Premiums

 

Description:

Repeals the deduction from taxable income for amounts given as political contributions; increases the tax on cigarettes and little cigars by one cent for sales on or after July 1, 2010; increases insurance producer license fees and specifies that the fees be deposited equally into the compliance resolution fund and the general fund as an insurance license and service tax; and temporarily increases certain insurance premium tax rates.  (SD1)

 

 

 

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