THE SENATE

S.B. NO.

2242

THIRTY-FIRST LEGISLATURE, 2022

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

relating to taxation.

 

 

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

 


PART I

SECTION 1. The legislature finds that the coronavirus disease 2019 (COVID-19) spread globally and was declared a pandemic by the World Health Organization on March 11, 2020. Upon reaching Hawaii's shores, the COVID‑19 outbreak disrupted the local economy, resulting in a fiscal downturn that is expected to impact the State's budget for years to come.

The legislature additionally finds that at the peak of Hawaii's economic downturn in 2020, the State experienced levels of unemployment not seen since the Great Depression. For example, the unemployment rate in Kahului skyrocketed to thirty-five per cent in April, nearly ten per cent higher than the national unemployment rate at the peak of the Great Depression and the highest of any metropolitan area in the United States at the time, according to the United States Bureau of Labor Statistics.

The legislature further finds that Hawaii's cost of living continues be burdensome for island residents. According to the National Low Income Housing Coalition's "Out of Reach 2021" report, a minimum wage employee must work one hundred fourteen hours per week to afford a one-bedroom rental home at fair market prices. To afford a two-bedroom residence without being cost burdened, the National Low Income Housing Coalition estimates that a person must earn $37.69 per hour. Hawaii's electricity prices are also the highest in the nation, while the cost of other essential items, like food and clothing, has risen significantly in the past year.

The legislature also finds that taxing unemployment compensation worsens the financial hardship faced by people who have lost their jobs. Fifteen states, including Alabama, Alaska, California, Florida, Montana, Nevada, New Hampshire, New Jersey, Pennsylvania, South Dakota, Tennessee, Texas, Virginia, Washington, and Wyoming, do not tax unemployment compensation; nine of those states do not impose personal income taxes. Moreover, Hawaii was one of only thirteen states that levied its personal income tax on the first $10,200 of unemployment income received by individuals in 2020, when the first emergency public health orders went into effect.

Accordingly, the purpose of this Act is to increase revenue for essential public services and uplift Hawaii's most vulnerable workers by:

(1) Increasing the personal income tax rate and implementing a rate recapture mechanism that phases out lower tax brackets for high earners;

(2) Increasing the tax on capital gains;

(3) Increasing the corporate income tax and establishing a single corporate income tax rate; and

(4) Exempting unemployment payments from the State's personal income tax.

PART II

SECTION 2. Section 235-51, Hawaii Revised Statutes, is amended as follows:

1. By amending subsections (a) through (c) to read:

"(a) There is hereby imposed on the taxable income of every:

(1) Taxpayer who files a joint return under section 235-93; and

(2) Surviving spouse,

a tax determined in accordance with the following table:

In the case of any taxable year beginning after December 31, 2017:

If the taxable income is: The tax shall be:

Not over $4,800 1.40% of taxable income

Over $4,800 but $67.00 plus 3.20% of

not over $9,600 excess over $4,800

Over $9,600 but $221.00 plus 5.50% of

not over $19,200 excess over $9,600

Over $19,200 but $749.00 plus 6.40% of

not over $28,800 excess over $19,200

Over $28,800 but $1,363.00 plus 6.80% of

not over $38,400 excess over $28,800

Over $38,400 but $2,016.00 plus 7.20% of

not over $48,000 excess over $38,400

Over $48,000 but $2,707.00 plus 7.60% of

not over $72,000 excess over $48,000

Over $72,000 but $4,531.00 plus 7.90% of

not over $96,000 excess over $72,000 Over $96,000 but $6,427.00 plus 8.25% of

not over $300,000 excess over $96,000 Over $300,000 but $23,257.00 plus 9.00% of

not over $350,000 excess over $300,000

Over $350,000 but $27,757.00 plus 10.00% of

not over $400,000 excess over $350,000

Over $400,000 $32,757.00 plus 11.00% of

excess over $400,000.

In the case of any taxable year beginning after December 31, 2021:

If the taxable income is: The tax shall be:

Not over $4,800 1.40% of taxable income

Over $4,800 but $67.00 plus 3.20% of

not over $9,600 excess over $4,800

Over $9,600 but $221.00 plus 5.50% of

not over $19,200 excess over $9,600

Over $19,200 but $749.00 plus 6.40% of

not over $28,800 excess over $19,200

Over $28,800 but $1,363.00 plus 6.80% of

not over $38,400 excess over $28,800

Over $38,400 but $2,016.00 plus 7.20% of

not over $48,000 excess over $38,400

Over $48,000 but $2,707.00 plus 7.60% of

not over $72,000 excess over $48,000

Over $72,000 but $4,531.00 plus 7.90% of

not over $96,000 excess over $72,000 Over $96,000 but $6,427.00 plus 8.25% of

not over $200,000 excess over $96,000 Over $200,000 but $4,531.00 plus 9.00% of

not over $300,000 excess over $72,000

Over $300,000 but $2,016.00 plus 10.00% of

not over $400,000 excess over $38,400

Over $400,000 but $749.00 plus 11.00% of

not over $450,000 excess over $19,200

Over $450,000 but $67.00 plus 12.00% of

not over $500,000 excess over $4,800

Over $500,000 13.00% of all taxable income.

(b) There is hereby imposed on the taxable income of every head of a household a tax determined in accordance with the following table:

In the case of any taxable year beginning after December 31, 2017:

If the taxable income is: The tax shall be:

Not over $3,600 1.40% of taxable income

Over $3,600 but $50.00 plus 3.20% of

not over $7,200 excess over $3,600

Over $7,200 but $166.00 plus 5.50% of

not over $14,400 excess over $7,200

Over $14,400 but $562.00 plus 6.40% of

not over $21,600 excess over $14,400

Over $21,600 but $1,022.00 plus 6.80% of

not over $28,800 excess over $21,600

Over $28,800 but $1,512.00 plus 7.20% of

not over $36,000 excess over $28,800

Over $36,000 but $2,030.00 plus 7.60% of

not over $54,000 excess over $36,000

Over $54,000 but $3,398.00 plus 7.90% of

not over $72,000 excess over $54,000

Over $72,000 but $4,820.00 plus 8.25% of

not over $225,000 excess over $72,000

Over $225,000 but $17,443.00 plus 9.00% of

not over $262,500 excess over $225,000

Over $262,500 but $20,818.00 plus 10.00% of

not over $300,000 excess over $262,500

Over $300,000 $24,568.00 plus 11.00% of

excess over $300,000.

In the case of any taxable year beginning after December 31, 2021:

If the taxable income is: The tax shall be:

Not over $3,600 1.40% of taxable income

Over $3,600 but $50.00 plus 3.20% of

not over $7,200 excess over $3,600

Over $7,200 but $166.00 plus 5.50% of

not over $14,400 excess over $7,200

Over $14,400 but $562.00 plus 6.40% of

not over $21,600 excess over $14,400

Over $21,600 but $1,022.00 plus 6.80% of

not over $28,800 excess over $21,600

Over $28,800 but $1,512.00 plus 7.20% of

not over $36,000 excess over $28,800

Over $36,000 but $2,030.00 plus 7.60% of

not over $54,000 excess over $36,000

Over $54,000 but $3,398.00 plus 7.90% of

not over $72,000 excess over $54,000

Over $72,000 but $4,820.00 plus 8.25% of

not over $150,000 excess over $72,000

Over $150,000 but $3,398.00 plus 9.00% of

not over $225,000 excess over $54,000

Over $225,000 but $1,512.00 plus 10.00% of

not over $300,000 excess over $28,800

Over $300,000 but $562.00 plus 11.00% of

not over $350,000 excess over $14,400

Over $350,000 but $50.00 plus 12.00% of

not over $400,000 excess over $3,600

Over $400,000 13% of all taxable

income.

(c) There is hereby imposed on the taxable income of (1) every unmarried individual (other than a surviving spouse, or the head of a household) and (2) on the taxable income of every married individual who does not make a single return jointly with the individual's spouse under section 235-93 a tax determined in accordance with the following table:

In the case of any taxable year beginning after December 31, 2017:

If the taxable income is: The tax shall be:

Not over $2,400 1.40% of taxable income

Over $2,400 but $34.00 plus 3.20% of

not over $4,800 excess over $2,400

Over $4,800 but $110.00 plus 5.50% of

not over $9,600 excess over $4,800

Over $9,600 but $374.00 plus 6.40% of

not over $14,400 excess over $9,600

Over $14,400 but $682.00 plus 6.80% of

not over $19,200 excess over $14,400

Over $19,200 but $1,008.00 plus 7.20% of

not over $24,000 excess over $19,200

Over $24,000 but $1,354.00 plus 7.60% of

not over $36,000 excess over $24,000

Over $36,000 but $2,266.00 plus 7.90% of

not over $48,000 excess over $36,000

Over $48,000 but $3,214.00 plus 8.25% of

not over $150,000 excess over $48,000

Over $150,000 but $11,629.00 plus 9.00% of

not over $175,000 excess over $150,000

Over $175,000 but $13,879.00 plus 10.00% of

not over $200,000 excess over $175,000

Over $200,000 $16,379.00 plus 11.00% of

excess over $200,000.

In the case of any taxable year beginning after December 31, 2021:

If the taxable income is: The tax shall be:

Not over $2,400 1.40% of taxable income

Over $2,400 but $34.00 plus 3.20% of

not over $4,800 excess over $2,400

Over $4,800 but $110.00 plus 5.50% of

not over $9,600 excess over $4,800

Over $9,600 but $374.00 plus 6.40% of

not over $14,400 excess over $9,600

Over $14,400 but $682.00 plus 6.80% of

not over $19,200 excess over $14,400

Over $19,200 but $1,008.00 plus 7.20% of

not over $24,000 excess over $19,200

Over $24,000 but $1,354.00 plus 7.60% of

not over $36,000 excess over $24,000

Over $36,000 but $2,266.00 plus 7.90% of

not over $48,000 excess over $36,000

Over $48,000 but $3,214.00 plus 8.25% of

not over $100,000 excess over $48,000

Over $100,000 but $2,266.00 plus 9.00% of

not over $150,000 excess over $36,000

Over $150,000 but $1,008.00 plus 10.00% of

not over $200,000 excess over $19,200

Over $200,000 but $374.00 plus 11.00% of

not over $250,000 excess over $9,600

Over $250,000 but $34.00 plus 12.00% of

not over $300,000 excess over $2,400

Over $300,000 13.00% of all taxable

income."

2. By amending subsection (f) to read:

"(f) If a taxpayer has a net capital gain for any taxable year to which this subsection applies, then the tax imposed by this section shall not exceed the sum of:

(1) The tax computed at the rates and in the same manner as if this subsection had not been enacted on the greater of:

(A) The taxable income reduced by the amount of net capital gain, or

(B) The amount of taxable income taxed at a rate below [7.25] 11 per cent, plus

(2) A tax of [7.25] 11 per cent of the amount of taxable income in excess of the amount determined under paragraph (1).

This subsection shall apply to individuals, estates, and trusts for taxable years beginning after December 31, 1986."

PART III

SECTION 3. Section 235-71, Hawaii Revised Statutes, is amended as follows:

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

"(a) A tax at the rates herein provided shall be assessed, levied, collected, and paid for each taxable year on the taxable income of every corporation, including a corporation carrying on business in partnership, except that in the case of a regulated investment company the tax is as provided by subsection (b) and further that in the case of a real estate investment trust as defined in section 856 of the Internal Revenue Code of 1954 the tax is as provided in subsection (d). "Corporation" includes any professional corporation incorporated pursuant to chapter 415A.

The tax on all taxable income shall be at the rate of [4.4 per cent if the taxable income is not over $25,000, 5.4 per cent if over $25,000 but not over $100,000, and on all over $100,000, 6.4] 9.6 per cent.

(b) In the case of a regulated investment company there is imposed on the taxable income, computed as provided in sections 852 and 855 of the Internal Revenue Code but with the changes and adjustments made by this chapter (without prejudice to the generality of the foregoing, the deduction for dividends paid is limited to such amount of dividends as is attributable to income taxable under this chapter), a tax [consisting in the sum of the following: 4.4 per cent if the taxable income is not over $25,000, 5.4 per cent if over $25,000 but not over $100,000, and on all over $100,000, 6.4] of 9.6 per cent."

2. By amending subsection (d) to read:

"(d) In the case of a real estate investment trust there is imposed on the taxable income, computed as provided in sections 857 and 858 of the Internal Revenue Code but with the changes and adjustments made by this chapter (without prejudice to the generality of the foregoing, the deduction for dividends paid is limited to such amount of dividends as is attributable to income taxable under this chapter), a tax [consisting in the sum of the following: 4.4 per cent if the taxable income is not over $25,000, 5.4 per cent if over $25,000 but not over $100,000, and on all over $100,000, 6.4] of 9.6 per cent. In addition to any other penalty provided by law any real estate investment trust whose tax liability for any taxable year is deemed to be increased pursuant to section 859(b)(2)(A) or 860(c)(1)(A) after December 31, 1978, (relating to interest and additions to tax determined with respect to the amount of the deduction for deficiency dividends allowed) of the Internal Revenue Code shall pay a penalty in an amount equal to the amount of interest for which such trust is liable that is attributable solely to such increase. The penalty payable under this subsection with respect to any determination shall not exceed one-half of the amount of the deduction allowed by section 859(a), or 860(a) after December 31, 1978, of the Internal Revenue Code for such taxable year."

PART IV

SECTION 4. Section 235-7, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(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 such 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 legal service plan to a taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

(10) Amounts paid, directly or indirectly, by a 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 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; [and]

(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; provided that amounts retained by the acting utility for collection or other costs shall not be included in this exemption[.]; and

(13) Income received as unemployment compensation benefits under chapter 383."

SECTION 5. Section 383-161, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Any agreement by an individual to waive, release, or commute the individual's rights to benefits or any other rights under this chapter shall be void, except agreements to withhold and deduct benefits for the following purposes:

(1) The payment of child support obligations as provided in section 383-163.5;

(2) The voluntary deduction and withholding of federal [and state] income tax from unemployment compensation as provided in section 383-163.6; and

(3) The repayment of uncollected overissuances of food stamp coupons as provided in section 383-163.7."

SECTION 6. Section 383-163, Hawaii Revised Statutes, is amended to read as follows:

"383-163 No assignment of benefits; waiver. No assignment, pledge, or encumbrance of any right to benefits which are or may become due or payable under this chapter shall be valid and the right to benefits shall not be subject to levy, execution, attachment, garnishment, or any other remedy for the collection of debt. No waiver of this section shall be valid, except that this section shall not apply to:

(1) Section 383-163.5 with respect to the withholding and deduction of benefits for the payment of child support obligations;

(2) Section 383-163.6 with respect to the voluntary withholding and deduction of benefits for payment of federal [and state] income taxes; and

(3) Section 383-163.7 with respect to the withholding and deduction of benefits for repayment of uncollected overissuances of food stamp coupons."

SECTION 7. Section 383-163.6, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) An individual filing a new claim for unemployment compensation shall, at the time of filing the claim, be advised that:

(1) Unemployment compensation is subject to federal [and state] income tax;

(2) Requirements exist pertaining to estimated tax payments;

(3) The individual may elect to have federal income tax deducted and withheld from the individual's payment of unemployment compensation at the amount specified in the federal Internal Revenue Code;

[(4) The individual may elect to have state income tax deducted and withheld from the individual's payment of unemployment compensation at the amount specified in section 235-69;

(5)] (4) The individual may elect to have state and local income taxes deducted and withheld from the individual's payment of unemployment compensation for other states and localities outside this State at the percentage established by the state or locality, if the department by agreement with the other state or locality is authorized to deduct and withhold income tax; and

[(6)] (5) The individual shall be permitted to change a previously elected withholding status no more than once during a benefit year."

SECTION 8. Section 235-69, Hawaii Revised Statutes, is repealed.

["[235-69] Voluntary deduction and withholding of state income tax from unemployment compensation. An individual receiving unemployment compensation benefits under chapter 383 may elect to have state income tax deducted and withheld from the individual's payment of unemployment compensation at the rate of five per cent in accordance with section 383-163.6."]

PART V

SECTION 9. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 10. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2021; provided that part IV shall take effect retroactive to January 1, 2022.

 

INTRODUCED BY:

_____________________________

 

 


 


 

Report Title:

Taxation; Personal Income Tax; Capital Gains; Corporate Tax; Unemployment Benefits

 

Description:

Increases personal income tax revenues for high earning taxpayers by establishing new income tax brackets and rates that are applied against a broader level of taxable income for taxable years beginning after 12/31/2021. Increases the tax on capital gains. Increases the corporate income tax and establishes a single corporate income tax rate. Exempts unemployment payments from the State's personal income tax from 1/1/2022.

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.