THE SENATE

S.B. NO.

1516

THIRTIETH LEGISLATURE, 2019

S.D. 1

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO TAXATION.

 

 

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

 


SECTION 1. Section 231-39, Hawaii Revised Statutes, is amended to read as follows:

"231-39 Additions to taxes for noncompliance or evasion; interest on underpayments and overpayments. (a) Except as otherwise provided, this section shall apply to every tax or revenue law of the State that provides for the filing with the director of taxation of a return or statement of the tax or the amount taxable.

(b) There shall be added to and become a part of the tax imposed by such tax or revenue law, and collected as such:

(1) Failure to file tax return. In case of failure to file any tax return required to be filed on the date prescribed therefor (determined with regard to any extension of time for filing), unless it is shown that the failure is due to reasonable cause and not due to neglect, there shall be added to the amount required to be shown as tax on the return [five] three per cent of the amount of the tax if the failure is for not more than one month, with an additional five per cent for each additional month or fraction thereof during which the failure continues, not exceeding [twenty-five] thirty per cent in the aggregate. For purposes of this paragraph, the amount of tax required to be shown on the return shall be reduced by the amount of any part of the tax which is paid on or before the date prescribed for payment of the tax and by the amount of any credit against the tax which may be claimed upon the return. This paragraph shall not apply to any failure to file a declaration of estimated tax required by section 235-97.

(2) Failure to pay tax.

(A) If any part of any underpayment is due to reasonable cause, and not due to neglect, intentional disregard of rules, or fraud, there shall be added to the tax an amount equal to one-half of one per cent of the underpayment for each month or fraction thereof until full payment of the tax and penalties is made; provided that the aggregate amount of the penalty imposed under this subparagraph shall not exceed twenty-five per cent of the underpayment.

[(A)] (B) If any part of any underpayment is due to negligence or intentional disregard of rules (but without intent to defraud), there shall be added to the tax an amount up to twenty-five per cent of the underpayment as determined by the director.

[(B)] (C) If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount up to [fifty] seventy-five per cent of the underpayment as determined by the director.

[(C)] (D) If any penalty is assessed under subparagraph [(B)] (C) (relating to fraud) for an underpayment of tax which is required to be shown on a return, no penalty under paragraph (1) (relating to failure to file the return) shall be assessed with respect to the same underpayment.

(3) Failure to pay tax after filing timely returns. If a return is filed on or before the date prescribed therefor and the amount shown as tax on the return is not completely paid within sixty days of the prescribed filing date, there shall be added to the unpaid tax an amount up to twenty per cent as determined by the director.

(4) Interest on underpayment or nonpayment of tax.

(A) If any amount of tax is not paid on or before the last date prescribed for payment, interest on such amount at the rate of two-thirds of one per cent a month or fraction of a month shall be paid for the period beginning with the first calendar day after the date prescribed for payment, section 231-21 to the contrary notwithstanding, to the date paid.

(B) If the amount of any tax is reduced by reason of a carryback of a net operating loss allowed under chapter 235, such reduction in tax shall not affect the computation of interest under this paragraph for the period ending with the last day of the taxable year in which the net operating loss arises.

(C) Interest prescribed under this paragraph on any tax shall be paid upon notice and demand, and shall be assessed, collected, and paid in the same manner as taxes.

(D) No interest under this paragraph shall be imposed on interest provided by this paragraph.

(E) If any portion of a tax is satisfied by credit of any overpayment, then no interest shall be imposed under this paragraph on the portion of the tax so satisfied for any period during which, if the credit had not been made, interest would have been allowable with respect to the overpayment.

(F) Interest prescribed under this paragraph on any tax may be assessed and collected at any time during the period within which the tax to which the interest relates may be collected.

(G) This paragraph shall not apply to any failure to pay estimated tax required by section 235-97.

(c) No taxpayer shall be exempt from any penalty or interest by reason of having contested the tax, but only to the extent that the tax is adjudged to be excessive or contrary to law.

(d) Notwithstanding the above, there shall be no addition to the tax from the date that the taxpayer posts bond, with or without sureties, on a form specified by the director of taxation. The bond shall be refundable and may be made by an agent of the taxpayer, without disclosure of the taxpayer, type of tax, and periods involved, in a form prescribed by the director of taxation."

SECTION 2. Section 235-101, Hawaii Revised Statutes, is amended to read as follows:

"235-101 Federal returns and assessments, when copies are required. (a) In prescribing the form of return the department of taxation may require that a person who is required to file a federal income tax return include in the person's return a reconciliation of the return with the person's federal return, or that the person furnish with the return and as a part thereof a copy of the federal return.

(b) It shall be the duty of every person who is required by section 235-92 to make a return, to report to the department, as to any taxable year governed by this chapter, if:

(1) The amount of taxable income as returned to the United States is changed, corrected, or adjusted by an officer of the United States or other competent authority;

(2) A change in taxable income results from a renegotiation of a contract with the United States or a subcontract thereunder;

(3) A recomputation of the income tax imposed by the United States under the Internal Revenue Code results from any cause; or

(4) An amended income tax return is made to the United States.

The report shall be made within ninety days after the change, correction, adjustment, or recomputation is finally determined or the amended return is filed, as the case may be. The report required by this subsection shall be made in the form of an amendment of the person's return filed under this chapter. The amended return shall be accompanied by a copy of the document issued by the United States under paragraphs (1) to (3). The statutory period for the assessment of any deficiency or the determination of any refund attributable to this report shall not expire before the expiration of one year from the date the department is notified by the taxpayer or the Internal Revenue Service, whichever is earlier, of the report in writing. Before the expiration of this one-year period, the department and the taxpayer may agree in writing to the extension of this period. The period so agreed upon may be further extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

(c) If the department assesses a deficiency pursuant to subsection (b), interest shall be assessed on the deficiency at the following rates:

(1) Four per cent; provided that full payment of the deficiency is made by the taxpayer within thirty days of being notified of the deficiency by the department; and

(2) Six per cent; provided that full payment of the deficiency is made by the taxpayer after thirty days but within ninety days of being notified of the deficiency by the department.

[(c)] (d) Whenever, in the opinion of the department, it is necessary to examine any federal income tax return of any taxpayer or any determination, assessment, or report related thereto, the department may compel the taxpayer to produce for inspection a copy of any federal return, copies of all statements and schedules in support thereof, and copies of all determinations, assessments, and reports related thereto."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2050.



 

Report Title:

Taxation; Penalties and Interest for Nonpayment and Underpayment

 

Description:

Establishes reduced taxpayer penalties for nonpayments and underpayments that are due to reasonable cause. Allows a taxpayer to post a bond to avoid penalties and interest. Assesses interest on a deficiency in state income taxes paid caused by a change in the taxable income reported on the taxpayer's federal tax return. Effective 7/1/2050. (SD1)

 

 

 

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