HOUSE OF REPRESENTATIVES

H.B. NO.

146

TWENTY-NINTH LEGISLATURE, 2017

H.D. 1

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO CONFORMITY OF THE INCOME TAX LAW TO THE FEDERAL INTERNAL REVENUE CODE.

 

 

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

 


     SECTION 1.  The purpose of this Act is to adopt "moving date conformity", which is in place in twenty-two jurisdictions. Under this system, changes in federal tax law automatically apply to the Hawaii income tax law as they occur, but the State may pass specific legislation to decouple from any new federal law it disagrees with.

     Under the current system, known as "fixed date conformity", taxpayers attempting to prepare and file their income tax returns in the first half of the year are forced to assume that no federal amendments have been adopted until the annual conformity bill is passed and signed into law.  When the annual conformity bill is signed into law, it is normally retroactive to the beginning of the taxable year to which it pertains.  Thus, taxpayers might file an incorrect return that is later validated when the conformity bill is enacted, or could file a correct return that may have to be amended when the conformity bill is enacted.

     Moving date conformity will give relief to taxpayers and the department of taxation while avoiding constitutional delegation issues by providing prompt review and ratification of any federal amendments.

     SECTION 2.  Section 235-2.3, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows: 

     "(a) [For all taxable years beginning after December 31, 2015, as] Subtitle A, chapter 1, of the Internal Revenue Code, as it applies to the determination of gross income, adjusted gross income, ordinary income and loss, and taxable income, shall be operative for the purposes of this chapter, unless provided otherwise by law. 

     As used in this chapter, except as provided in section 235-2.35, "Internal Revenue Code" means [subtitle A, chapter 1, of] the federal Internal Revenue Code of 1986, as amended [as of December 31, 2015, as it applies to the determination of gross income, adjusted gross income, ordinary income and loss, and taxable income, except those provisions of the Internal Revenue Code and federal public laws which, pursuant to this chapter, do not apply or are otherwise limited in application and except for the provisions of Public Law 109-001, which apply to section 170 of the Internal Revenue Code.  The provisions of Public Law 109-001 to accelerate the deduction for charitable cash contributions for the relief of victims of the 2004 Indian Ocean tsunami are applicable for the calendar year that ended December 31, 2004, and the calendar year ending December 31, 2005.], as the same may become effective at any time or from time to time, for the taxable year.

     Prior law shall continue to be used to determine:

     (1)  The basis of property, if a taxpayer first determined the basis of property in a taxable year to which prior law applies; and

     (2)  Gross income, adjusted gross income, ordinary income and loss, and taxable income for a taxable year to which prior law applies."

     SECTION 3.  Section 235-2.5, Hawaii Revised Statutes, is amended to read as follows: 

     "§235-2.5  Administration, adoption, and interrelationship of Internal Revenue Code and Public Laws with this chapter.  (a)  Reference in provisions of the Internal Revenue Code which are operative in this State to provisions in the Internal Revenue Code which are not operative in this State shall be considered inoperative for the purposes of determining gross income, adjusted gross income, ordinary income and loss, and taxable income; provided that:

     (1)  References to time limits and other administrative provisions in subtitle F (sections 6001 to 7873) of the Internal Revenue Code contained in operative sections of the Internal Revenue Code shall be deemed references to applicable provisions of this chapter or chapter 231 or 232, and in the absence of applicable provisions in this chapter or chapter 231 or 232, then to rules adopted by the director of taxation under subsection (b);

     (2)  If inoperative provisions of the Internal Revenue Code have been codified in this chapter [such], those references shall be deemed references to the codified provisions in this chapter.  Transitory and savings provisions in federal Public Laws amending sections of the Internal Revenue Code operative in this chapter shall be operative for the purposes of this chapter.  Provisions in this chapter or chapter 231 or 232 in conflict with the Internal Revenue Code or transitory or savings provisions in federal Public Law shall control; and

     (3)  Retroactive and prospective provisions in federal Public Laws amending sections of the federal Internal Revenue Code operative in this chapter [affecting taxable years beginning or ending before the December 31 date in section 235-2.3] shall be operative for the purposes of this chapter[; provided that the effective dates in Public Law 96-471 placing it in effect for the taxable year 1980 shall be operative for the purposes of this chapter.] as of the date they are effective for federal purposes, unless provided otherwise by law.

     (b)  The director of taxation may adopt by rule under chapter 91 the rules and regulations promulgated by the United States Secretary of Treasury or a delegate of the Secretary relating to the provisions of subtitle A, chapter 1 or 6, of the Internal Revenue Code operative in this chapter and any administrative provisions of the Internal Revenue Code (subtitle F, sections 6001 to [7873] 7874) not in conflict with or similar to provisions contained in this chapter or chapter 231 or 232 either by reference or by setting them forth in full.

     (c)  The department of taxation shall submit to each regular session of the legislature a bill to amend sections 235-2.3, 235-2.4, and 235-2.45 and [such] any other sections and subsections of this chapter as [may be] necessary to adopt the Internal Revenue Code as it exists on the December 31 preceding such regular session.  In submitting the bill, the department may provide that certain amendments to the Internal Revenue Code by Congress during the preceding calendar year shall not be operative in this State or as operative are limited in their operation.  The department shall also prepare a digest and explanation of the amended provisions of the Internal Revenue Code recommended for operation, as well as those provisions that are limited in their operation, or that are not recommended for operation, and shall submit with the bill required by this subsection the digest, explanation, and a statement of revenue impact of the adoption of the bill.  In preparing the bill, digest, and explanation the department may request the assistance of the office of the legislative reference bureau.

     It is the intent of the legislature that it shall each year adopt all amendments to the Internal Revenue Code for the calendar year preceding the year in which the legislature meets; provided that the legislature may choose to adopt none of the amendments to the Internal Revenue Code or may provide that certain amendments are limited in their operation[.] as of the time those amendments are or were effective for federal purposes."

     SECTION 4.  Section 235-3, Hawaii Revised Statutes, is amended to read as follows: 

     "§235-3  Legislative intent, how Internal Revenue Code shall apply, in general.  (a)  It is the intent of this chapter, in addition to the essential purpose of raising revenue, to conform the income tax law of the State as closely as may be with the Internal Revenue Code in order to simplify the filing of returns and minimize the taxpayer's burdens in complying with the income tax law.  The rules and regulations, forms and procedures adopted and established under this chapter shall conform as nearly as possible, and unless there is good reason to the contrary, to the rules and regulations, forms and procedures adopted and established under the Internal Revenue Code.

     (b)  The Internal Revenue Code, so far as made operative by this chapter, is a statute adopted and incorporated by reference.  The Internal Revenue Code shall be applied using changes in nomenclature and other language, including the omission of inapplicable language, where necessary to effectuate the intent of this section.  In the Internal Revenue Code, references to terms such as:

     (1)  "Secretary or his delegate" shall refer to the director of taxation and the director's duly authorized subordinates;

     (2)  "Estate taxes" shall refer to the estate and transfer tax imposed by chapter 236D or the estate and generation-skipping transfer tax imposed by chapter 236E, as applicable;

     (3)  "The highest rate of tax imposed upon individuals" or "39.6 per cent" shall refer to the highest rate imposed upon individuals under section 235-51;

     (4)  "The highest rate of tax imposed upon corporations" shall refer to the highest rate imposed upon corporations under section 235-71; and

     (5)  "Interest at the underpayment rate" or "interest at the overpayment rate" shall refer to the interest rate set forth in section 231-39(b)(4) or section 231-23(d)(1), as the case may be.

     (c)  Where, under a provision of the Internal Revenue Code made operative in this chapter, the allowance or disallowance to a taxpayer of a deduction, exclusion, adjustment, credit, or exemption is dependent on whether, under the Internal Revenue Code or a prior applicable federal income tax law, the following was or was not, is or is not, in relation to the same taxpayer or another taxpayer, for the same taxable year or a prior taxable year, an operative factor:  the imposition or payment of an income tax, an inclusion in gross income, an exclusion from gross income, or a deduction from gross income--the allowance or disallowance under this chapter of such deduction, exclusion, adjustment, credit, or exemption shall depend on the operativeness of such factor or factors under this chapter or a prior applicable income tax law of the State.  This subsection shall govern the application of such sections of the Internal Revenue Code as, for example, sections 111, 215, 668(b), and 7852(c) and all matters of a similar nature.

     [(d)  Whenever, in a taxable year of a corporation or its shareholders not governed by the income tax law of 1957, a distribution of money, stock, securities, or other property (whether in complete or partial liquidation or otherwise) has been made by a corporation to shareholders owning such shares in the State, or stock, securities, or other property has been transferred to a corporation, or corporate stock or securities exchanged, in the course of a corporate organization or reorganization effected under the laws of the State, in the application of the income tax law of 1957 effect shall be given to the recognition of income by the income tax laws of 1901 and 1932, if any, to the extent necessary to avoid double taxation, for example, in determining the earnings and profits of any corporation involved or the basis of any stock, securities, or other property so received, transferred, or exchanged.  No increase in basis shall be allowed on account of such events in taxable years not governed by the income tax law of 1957, except as provided by this subsection.  As used in this subsection the words "double taxation" mean and refer to double taxation of the same taxpayer, or taxation of both a corporation and its shareholders when the taxation of both would not have occurred had the income tax law of 1957 governed prior taxable years.

     (e)  In the determination of the basis or adjusted basis of any stock, securities, or other property:

     (1)  If the property was acquired by an exchange (including an involuntary conversion or the sale of an old residence and purchase of a new residence where both occur within a one-year period) the "cost" thereof to the taxpayer shall be deemed to include among other things, any income of the taxpayer recognized by the income tax laws of 1901 and 1932 as a result of the exchange;

     (2)  If the basis is dependent upon acquisition from a decedent, the property shall be deemed to have been acquired from a decedent if deemed so acquired for the purposes of chapter 236 prior to July 1, 1983, or after June 30, 1983, under this chapter but not otherwise, and the residence or nonresidence of the decedent, the location of the property, and chapter 236 for property acquired prior to July 1, 1983, or this chapter where the property has been acquired after June 30, 1983, shall be considered;

     (3)  If the basis is dependent upon deductions, exclusions, or exemptions taken or allowable, under the Internal Revenue Code or a prior applicable federal income tax law, in a prior year, it shall depend upon deductions, exclusions, or exemptions taken or allowable under the income tax law of the State governing such prior years;

     (4)  If the basis is dependent upon the election provided for by section 307, Internal Revenue Code, it shall be governed by the election actually made under the Internal Revenue Code for the taxable year, whether or not the taxable year was governed by the income tax law of 1957.]"

     SECTION 5.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 6.  This Act shall take effect on July 1, 2030, and shall apply to taxable years beginning after December 31, 2016.



 

Report Title:

Income Tax; Internal Revenue Code

 

Description:

Adopts moving date conformity, which will allow changes in the Federal Internal Revenue Code to automatically apply to State income tax law.  (HB146 HD1)

 

 

 

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