chapter 235 income tax law - hawaii.govfiles.hawaii.gov/tax/legal/hrs/hrs_235.pdfincome tax law...

INCOME TAX LAW

CHAPTER235,Page1(UnofficialCompilation)

CHAPTER 235INCOME TAX LAW

PartI.GeneralProvisions

Section235-1 Definitions235-2 Repealed235-2.1 Repealed235-2.2 Repealed235-2.3 ConformancetothefederalInternalRevenueCode;generalapplication235-2.35 OperationofcertainInternalRevenueCodeprovisionsnotoperativeundersection235-2.3235-2.4 OperationofcertainInternalRevenueCodeprovisions;sections63to530235-2.45 OperationofcertainInternalRevenueCodeprovisions;sections641to7518235-2.5 Administration,adoption,andinterrelationshipofInternalRevenueCodeandPublicLawswiththis

chapter235-3 Legislativeintent,howInternalRevenueCodeshallapply,ingeneral235-4 IncometaxesbytheState;residents,nonresidents,corporations,estates,andtrusts235-4.3 Repealed235-4.5 Taxationoftrusts,beneficiaries;credit235-5 Allocationofincomeofpersonsnottaxableuponentireincome235-5.5 Individualhousingaccounts235-5.6 Individualdevelopmentaccountcontributiontaxcredit235-6 Foreignmanufacturingcorporation;warehousingofproducts235-7 Otherprovisionsastogrossincome,adjustedgrossincome,andtaxableincome235-7.3 Royaltiesderivedfrompatents,copyrights,ortradesecretsexcludedfromgrossincome235-7.5 Certainunearnedincomeofminorchildrentaxedasifparent’sincome235-8 Repealed235-9 Exemptions;generally235-9.5 Stockoptionsfromqualifiedhightechnologybusinessesexcludedfromtaxation235-10,11 Repealed235-12 Energyconservation;incometaxcredit235-12.2 Repealed235-12.5 Renewableenergytechnologies;incometaxcredit235-13 Salesofresidentiallandtolessees;involuntaryconversion235-15 Taxcreditstopromotethepurchaseofchildpassengerrestraintsystems235-16 Repealed235-16.5 Cesspoolupgrade,conversion,orconnection;incometaxcredit235-17 Motionpicture,digitalmedia,andfilmproductionincometaxcredit235-17.5 Capitalinfrastructuretaxcredit235-18 Depositbeveragecontainerdepositexemption235-19 Exceptionaltrees;taxdeduction235-20 Comfortletters;authoritytoassessfees;established235-20.5 Taxadministrationspecialfund;established235- Taxcreditforfloodvictims(temporary uncodified section)235- Relating to Income Tax Credit tax year 2007 (temporary uncodified section)235- Relating to Income Tax Credit tax year 2008 (temporary uncodified section)235- Relating to Income Tax Credit tax year 2009 (temporary uncodified section)235- Itemizeddeductions;limitations (temporary uncodified section)

PartII.UniformDivisionofIncomeforTaxPurposes

235-21 Definitions235-22 Taxpayersaffected235-23 Taxableinanotherstate

INCOME TAX LAW


235-24 Specifiednonbusinessincome235-25 Rents;royalties235-26 Allocationofcapitalgainsandlosses235-27 Allocationofinterestanddividends235-28 Allocationofpatentandcopyrightroyalties235-29 Apportionmentofbusinessincome;percentage235-30 Apportionment;propertyfactor235-31 Apportionment;propertyfactor;ownedandusedproperty235-32 Apportionment;propertyfactor;averagevalue235-33 Apportionment;payrollfactor235-34 Compensation;wherepaid235-35 Apportionment;salesfactor235-36 Apportionment;salesfactor;tangiblepersonalty235-37 Apportionment;salesfactor;nontangiblepersonalty235-38 Equitableadjustmentofformula235-38.5 Application235-39 Citationofpart

PartIII.IndividualIncomeTax

235-51 Taximposedonindividuals;rates235-52 Taxincaseofjointreturnorreturnofsurvivingspouse235-53 Taxtablesforindividuals235-54 Exemptions235-55 Taxcreditsforresidenttaxpayers235-55.5 Repealed235-55.6 Expensesforhouseholdanddependentcareservicesnecessaryforgainfulemployment235-55.7 Incometaxcreditforlow-incomehouseholdrenters235-55.75 Earnedincometaxcredit235-55.8 Repealed235-55.85 Refundablefood/excisetaxcredit235-55.9 Repealed235-55.91 Creditforemploymentofvocationalrehabilitationreferrals235-56to58.2Repealed235-59 Decedents235-60 Repealed

WithholdingandCollectionofTaxatSource

235-61 Withholdingoftaxonwages235-62 Returnandpaymentofwithheldtaxes235-63 Statementstoemployees235-64 Taxeswithheldbyemployerheldintrust;employer’sliability235-65 Repealed235-66 Furtherwithholdingsatsource;creditingofwithheldtaxes235-67 Indemnityofwithholder235-68 Withholdingoftaxonthedispositionofrealpropertybynonresidentpersons235-69 Voluntarydeductionandwithholdingofstateincometaxfromunemploymentcompensation

PartIV.CorporationIncomeTax

235-71 Taxoncorporations;rates;creditofshareholderofregulatedinvestmentcompany235-71.5 Alternativetaxforcorporations235-72 Corporationscarryingonbusinessinpartnership

PartV.ElectionbySmallBusinessCorporation

235-81to89 Repealed

INCOME TAX LAW


PartVI.ReturnsandPayments;Administration

235-91 Repealed235-91.5 Incometaxcredits;orderingofcreditclaims235-92 Returns,whoshallmake235-93 Jointreturns235-93.4 Effectofcivilunion235-93.5 Repealed235-94 Returnsbyagent,guardian,etc.;liabilityoffiduciaries235-94.5 Repealed235-95 Partnershipreturns235-96 Returnsbypersonsmakingpayments235-96.5 Returnsrelatingtounemployment235-97 Estimates;taxpayments;returns235-98 Returns;form,verificationandauthentication,timeoffiling235-99 Same;placeforfiling235-100 Personsinmilitaryservice235-100.5 Abatementofincometaxesofmembersofarmedforcesondeath235-101 Federalreturnsandassessments,whencopiesarerequired235-102 Recordsandspecialreturns235-102.5 Incomecheck-offauthorized235-102.6 Refundsplitting235-103 Distortionofincome235-104 Penalties235-105 Failuretokeeprecords,renderreturns,ormakereportsbyresponsiblepersons235-106 Repealed235-107 Procedureuponfailuretofilereturn235-108 Auditofreturn;procedure;additionaltaxes235-109 Jeopardyassessments,securityforpayment,etc.235-109.5 Repealed235-110 Creditsandrefunds235-110.2 Creditforschoolrepairandmaintenance235-110.3 Repealed235-110.31 Renewablefuelsproductiontaxcredit235-110.4 Repealed235-110.45 Repealed235-110.46 Repealed235-110.5 Repealed235-110.51 Technologyinfrastructurerenovationtaxcredit235-110.6 Fueltaxcreditforcommercialfishers235-110.7 Capitalgoodsexcisetaxcredit235-110.8 Low-incomehousingtaxcredit235-110.9 Hightechnologybusinessinvestmenttaxcredit235-110.91 Taxcreditforresearchactivities235-110.92 Repealed235-110.93 Importantagriculturallandqualifiedagriculturalcosttaxcredit235-110.94 Organicfoodsproductiontaxcredit235-111 Limitationperiodforassessment,levy,collection,orcredit;netoperatinglosscarrybacks235-111.5 Hightechnology;saleofunusednetoperatinglosscarryover235-112 Timeforassessmentofdeficiencyattributabletogainuponconversion235-113 Timeforassessmentofdeficiencyattributabletogainuponsaleofaresidence

Appeal

235-114 Appeals

GeneralProvisions

235-115 Assessments,etc.,primafacieproof

§235-1 INCOME TAX LAW


235-116 Disclosureofreturnsunlawful;penalty235-117 Reciprocalsupplyingoftaxinformation235-118 Rulesandregulations235-119 Taxes,staterealizations

PartVII.HawaiiSCorporationIncomeTaxAct

235-121 Title;definitions;federalconformity;construction235-122 TaxationofanScorporationanditsshareholders235-123 Modificationandcharacterizationofincome235-124 Basisandadjustments235-125 Carryforwardsandcarrybacks;losslimitation235-125.5 Transitionrule235-126 Part-yearresidence235-127 Distributions235-128 Returns;shareholderagreements;mandatorypayments235-129 Taxcredits235-130 LIFOrecapture

ThisisanunofficialcompilationoftheHawaiiRevisedStatutes.

Note

Itemizeddeductions;limitations(repealedJanuary1,2016).L2011,c97,§§3,6;L2013,c256.

Cross Reference

Civilreliefforstatemilitaryforces,seechapter657D.TaxInformationReleaseNo.90-3,“IncomeTaxationandEligibilityforCreditsofanIndividualTaxpayerWhoseStatusChangesfromResident

toNonresidentorfromNonresidenttoResident” SupplementedandsupersededinpartbyTIR97-1TaxInformationReleaseNo.90-10,“ClarificationofTaxationandtheEligibilityforPersonalExemptions&CreditsofResidents&Nonresidents

intheMilitaryandSpousesandDependentsofPersonsintheMilitary” SupplementedandsupersededinpartbyTIR97-1TaxInformationReleaseNo.97-1,“DeterminationofResidenceStatus”TaxInformationReleaseNo.2010-01,“MilitarySpousesResidencyReliefAct(“MSRRA”)”

Law Journals and Reviews

TaxesinHawaiiSinceJuly1,1968:AReportontheUnreportedDecisionsofJudgeDickYinWong.ArthurB.Reinwald,9HBJ95.TaxesinHawaii1983-1988:AFunnyThingHappenedattheForum.22HBJ53.

PART I. GENERAL PROVISIONS

§235-1 Definitions.“Biotechnology”means fundamental knowledge regarding the function of biological systems from the macro

level to themolecularandsubatomiclevels thathasapplicationtodevelopment includingthedevelopmentofnovelproducts,services,technologies,andsubtechnologiesfrominsightsgainedfromresearchadvancesthataddtothatbodyoffundamentalknowledge.

“Blind”meansapersonwhosecentralvisualacuitydoesnotexceed20/200inthebettereyewithcorrectinglenses,orwhosevisualacuityisgreaterthan20/200butisaccompaniedbyalimitationinthefieldofvisionsuchthatthewidestdiameterofthevisualfieldsubtendsananglenogreaterthantwentydegrees.Theimpairmentofsightshallbecertifiedtoonformsprescribedbythedepartmentoftaxationonthebasisofawrittenreportonanexaminationperformedbyaqualifiedophthalmologistorqualifiedoptometrist.

“Computerdata”meansanyrepresentationofinformation,knowledge,facts,concepts,orinstructionsthatisbeingpreparedorhasbeenpreparedandisintendedtobeprocessed,isbeingprocessed,orhasbeenprocessedinacomputerorcomputernetwork.

“Computerprogram”meansanorderedsetofcomputerdatarepresentingcodedinstructionsorstatements,that,whenexecutedbyacomputer,causesthecomputertoperformoneormorecomputeroperations.

“Computersoftware”meanscomputerdata,acomputerprogram,orasetofcomputerprograms,procedures,orassociateddocumentationconcernedwiththeoperationandfunctionofacomputersystem,andincludesbothsystemsandapplicationprogramsandsubdivisions,suchasassemblers,compilers,routines,generators,andutilityprograms.

“Corporation”meansthesameasintheInternalRevenueCode.A“domesticcorporation”isoneorganizedunderthelawsoftheState.A“foreigncorporation”isanyothercorporation.

18-235-1

INCOME TAX LAW §235-1


“Deaf”meansapersonwhoseaveragelossinthespeechfrequencies(500-2000Hertz)inthebettereariseighty-twodecibels,A.S.A.,orworse.Theimpairmentofdeafnessshallbecertifiedtobyaqualifiedotolaryngologistoralicensedaudiologistunderchapter468Eonformsprescribedbythedepartmentoftaxation.

“Dividend”meansanydistributionbyacorporationtoitsshareholdersorholdersonaninterestthereinwhichistreatedasadividendbytheInternalRevenueCode.

“Employee”meansthesameasintheInternalRevenueCode.“Fiduciary”meansthesameasintheInternalRevenueCode.“Fiscalyear”meansthesameasintheInternalRevenueCode.“Grossincome”,“adjustedgrossincome”,“ordinaryincome”,“ordinaryloss”,and“taxableincome”respectively

meanthesameasgrossincome,adjustedgrossincome,ordinaryincome,ordinaryloss,andtaxableincomeasdefinedanddeterminedundertheInternalRevenueCode,exceptasotherwiseprovidedinthischapter.

“Headofhousehold”meansanyindividualwhoqualifiesasaheadofhouseholdundertheInternalRevenueCode.“Husbandandwife”meansthesameasintheInternalRevenueCode.“Incometaxlawof1901”meanstheincometaxlawenactedbyAct20oftheSessionLawsof1901asitreadfrom

timetotimepriortotheenactmentoftheincometaxlawof1932.“Incometaxlawof1932”meanstheincometaxlawenactedbyAct44oftheSecondSpecialSessionLawsof1932,

asitreadfromtimetotimepriortotheenactmentoftheincometaxlawof1957.“Incometaxlawof1957”meanstheincometaxlawenactedbytheTwenty-NinthLegislature,asitreadsfromtime

totime.“Includes”and“including”whenusedinadefinitionshallnotbedeemedtoexcludeotherthingsotherwisewithin

themeaningofthetermdefined.“Individual”meansapersonotherthanatrust,estate,partnership,orcorporation,asdefined.“InternalRevenueCodeof1954,asamended”includestheInternalRevenueCodeof1986andtheInternalRevenue

Codeof1986,asamended.“Investment”meansanonrefundableinvestment,atrisk,asthattermisusedinsection465(withrespecttodeductions

limitedtoamountatrisk)oftheInternalRevenueCode,inaqualifiedhightechnologybusiness,ofcashthatistransferredtothequalifiedhightechnologybusiness,thetransferofwhichisinconnectionwithatransactioninexchangeforstock,interestsinpartnerships,jointventures,orotherentities,licenses(exclusiveornonexclusive),rightstousetechnology,marketingrights,warrants,options,oranyitemssimilartothoseincludedinthisdefinition,includingbutnotlimitedtooptionsorrightstoacquireanyoftheitemsincludedinthisdefinition.Thenonrefundableinvestmentisentirelyatriskoflosswhererepaymentdependsuponthesuccessofthequalifiedhightechnologybusiness.Ifthemoneyinvestedistoberepaidtothetaxpayer,norepaymentexceptfordividendsorinterestshallbemadeforatleastoneyearfromthedatetheinvestmentismade.Theannualamountofanydividendandinterestpaymenttothetaxpayershallnotexceedtwelvepercentoftheamountoftheinvestment.

“Legalserviceplan”or“plan”meansaplaninwhichthecostoftheservicesarepaidbyamemberorbysomeotherpersonororganizationinthemember’sbehalf.Alegalserviceplanisaplanbywhichlegalservicesarerenderedtomembersidentifiableintermsofsomecommoninterest.Aplanshallprovide:

(1) Thatindividualmembersshallbeaffordedfreedomofchoiceintheselectionof theirownattorneyorattorneystoprovidelegalservicesundertheplan;and

(2) Forthepaymentofequalamountsforthecostofservicesrenderedwithoutregardtotheidentityoftheattorneyorattorneysselectedbytheplanmemberormembers.Noplanshallotherwisediscriminateonthebasisoftheselection.

“Nonresident”meanseveryindividualotherthanaresident.“Nonresidentestate”or“nonresidenttrust”meansoneotherthanresident.“Paidorincurred,paidoraccrued”meansthesameasintheInternalRevenueCode.“Partner”meansthesameasintheInternalRevenueCode.“Partnership”meansthesameasintheInternalRevenueCode.“Person”includesanindividual,atrust,estate,partnership,association,company,orcorporation.“Persontotallydisabled”meansapersonwhoistotallyandpermanentlydisabled,eitherphysicallyormentally,

whichresultsintheperson’sinabilitytoengageinanysubstantialgainfulbusinessoroccupation.Thedisabilityshallbecertifiedtobya:(1) Physicianorosteopathicphysicianlicensedunderchapter453;(2) Qualifiedout-of-statephysicianwhoiscurrentlylicensedtopracticeinthestateinwhichthephysician

resides;or(3) CommissionedmedicalofficerintheUnitedStatesArmy,Navy,MarineCorps,orPublicHealthService,

engagedinthedischargeoftheofficer’sofficialduty.Certificationshallbeonformsprescribedbythedepartmentoftaxation.

“Regulatedinvestmentcompany”meansacorporationwhichqualifiesassuchundersections851and852oftheInternalRevenueCode.

“Resident”meansevery:

18-235-1.01

18-235-1.11

18-235-1.01



(1) IndividualdomiciledintheState;and(2) Otherindividual,whetherdomiciledintheStateornot,whoresidesintheState.To“reside”intheState

meanstobeintheStateforotherthanatemporaryortransitorypurpose.EveryindividualwhoisintheStatemorethantwohundreddaysofthetaxableyearintheaggregateshallbepresumedtobearesidentoftheState.Thispresumptionmaybeovercomebyevidencesatisfactorytothedepartmentoftaxationthat the individualmaintainsapermanentplaceofabodeoutsideof theStateand is in theState foratemporaryor transitorypurpose.Nopersonshallbedeemedtohavegainedorlostaresidencesimplybecauseoftheperson’spresenceorabsenceincompliancewithmilitaryornavalordersoftheUnitedStates,orwhileengagedinaviationornavigation,orwhileastudentatanyinstitutionoflearning.

“Residentestate”meansanestateofaresidentdecedentthefiduciaryofwhichwasappointedbyacourtofthisStateandtheadministrationofwhichiscarriedoninthisState,and“residenttrust”meansatrustofwhichthefiduciaryisaresidentoftheStateortheadministrationofwhichiscarriedonintheState.

“Shareholder”meansthesameasintheInternalRevenueCode.“Stock”meansthesameasintheInternalRevenueCode.“Taxableyear”meansthecalendaryearorthefiscalyearendingduringsuchcalendaryearuponthebasisofwhich

incomeiscomputedunderthischapter.“Taxableyear”includes,inthecaseofareturnmadeforafractionalpartofayearunderthischapterorunderregulationsprescribedbythedepartmentoftaxation,theperiodforwhichsuchreturnismade,andincaseswherethedepartmentterminatesthetaxableyearinaccordancewithsection231-24andleviesajeopardyassessmentonincomeforsuchportionorperiodofayearundersection235-109,thentheperiodorportionoftheyearforwhichthejeopardyassessmentismade.

“Taxpayer”meansapersonsubjecttoataximposedbythischapter.“Tradeorbusiness”includestheperformanceofthefunctionsofapublicoffice.“UniformedservicesoftheUnitedStates”meanstheArmy,Navy,AirForce,MarineCorps,CoastGuard,Coast

andGeodeticSurvey,andPublicHealthService,andallregularandreservecomponentsthereof,includingtheNationalGuard.Theterm“uniformedservicesoftheUnitedStates”appliesonlytopersonswhoaredeemedmembersthereofunderthelawsoftheUnitedStatesrelatingtopayandallowances.Servicesasamemberof theuniformedservicesincludesinactivedutytraining.

“WithoutregardtosourceintheState”shallmeanincomederivedorearnedfromallsourceswhetherfromsourceslocatedwithinorfromsourceslocatedwithouttheState.[LSp1957,c1,ptof§2;amL1959,c246,§13andc277,ptof§6;amLSp19592d,c1,§§16,19;Supp,§121-1;amL1967,c250,§2;HRS§235-1;amL1968,c42,§3;amL1970,c90,§1;amL1971,c97,§1;amL1973,c217,§10;amL1974,c42,§2;amL1976,c156,§5andc208,§1;amL1978,c173,§2(3),(4),and(5);amimpL1984,c90,§1;gench1985;amL1987,c239,§1(4);amL1988,c81,§1;amL1990,c17,§1;amL1997,c178,§1;amL2000,c297,§4;amL2001,c36,§1;amL2009,c11,§27;amL2012,c34,§17;amL2017,c12,§39]

Note

Definitionof“prepaidlegalserviceplan”changedto“legalserviceplan”.L2012,c34,§17.

Cross Reference

TaxInformationReleaseNo.57-78,“AdoptionofInternalRevenueCode”OBSOLETETax InformationReleaseNo. 89-3, “StateTaxBenefitsAvailable toPersonsWith ImpairedSight, ImpairedHearing, orWhoAreTotally

Disabled”TaxInformationReleaseNo.90-3,“IncomeTaxationandEligibilityforCreditsofanIndividualTaxpayerWhoseStatusChangesfromResident

toNonresidentorfromNonresidenttoResident” SupplementedandsupersededinpartbyTIR97-1TaxInformationReleaseNo.90-10,“ClarificationofTaxationandtheEligibilityforPersonalExemptions&CreditsofResidents&Nonresidents

intheMilitaryandSpousesandDependentsofPersonsintheMilitary” SupplementedandsupersededinpartbyTIR97-1TaxInformationReleaseNo.90-14,“WithholdingofTaxontheDispositionofRealPropertybyNonresidentPersons” SupersededbyTIR

2017-01TaxInformationReleaseNo.94-2,“StateTaxBenefitsAvailabletoPersonsTotallyDisabled”TaxInformationReleaseNo.97-1,“DeterminationofResidenceStatus”Tax InformationReleaseNo.97-4,“Applicationof theBusinessEntityClassificationRulesUnder the ‘Check-the-box’Regulations to the

HawaiiIncomeTaxandOtherTaxes”TaxInformationReleaseNo.2003-1,“ApplicationofSection235-110.9,HawaiiRevisedStatutes(HRS), relating to theHighTechnology

BusinessInvestmentCredit”Tax InformationReleaseNo.2007-03,“ImpositionofHawaiiState IncomeTaxon IncomeEarnedbyNonresidentMerchantSeamenand

WithholdingObligationsofEmployersofNonresidentMerchantSeamen”TaxInformationReleaseNo.2008-04,“CertainPrototypeCostsThatMayBeEligiblefortheHawaiiTaxCreditForResearchActivitiesUnder

Section235-110.91,HawaiiRevisedStatutes”TaxInformationReleaseNo.2010-01,“MilitarySpousesResidencyReliefAct(“MSRRA”)”TaxInformationReleaseNo.2017-01,“WithholdingofStateIncomeTaxesontheDispositionofHawaiiRealProperty”

Attorney General Opinions

Definitionsof“marriage”and“spouse”underthefederalDefenseofMarriageAct,Pub.L.No.104-199,110Stat.2419,mayprecludecivilunionpartnersofthesamegenderundertheState’sCivilUnionActfromfilingjointlyforfederalincometaxpurposes,buttheydonotprecludecivilunionpartnersfromfilingjointtaxreturnsforHawaiiincometaxpurposes.Att.Gen.Op.11-2.

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INCOME TAX LAW §235-2.3


“Resident”clarified.Att.Gen.Op.65-5.

Case Notes

Redemptionofstocktaxableasgainorprofitheldnotdividend.79F.2d761.“Taxableyear”.33H.766.AbandonmentofHawaiiandomicileandacquisitionofnew.51H.339,461P.2d131.

§235-2 REPEALED. L2016,c53,§2.

§235-2.1 REPEALED. L2016,c53,§3.

§235-2.2 REPEALED. L2016,c53,§4.

§235-2.3 Conformance to the federal Internal Revenue Code; general application. (a)Forall taxableyearsbeginningafterDecember31,2016,asusedinthischapter,exceptasprovidedinsection235-2.35,“InternalRevenueCode”meanssubtitleA,chapter1,ofthefederalInternalRevenueCodeof1986,asamendedasofDecember31,2016,asitappliestothedeterminationofgrossincome,adjustedgrossincome,ordinaryincomeandloss,andtaxableincome,except thoseprovisionsof theInternalRevenueCodeandfederalpublic lawswhich,pursuant to thischapter,donotapplyorareotherwiselimitedinapplicationandexceptfortheprovisionsofPublicLaw109-001,whichapplytoSection170oftheInternalRevenueCode.TheprovisionsofPublicLaw109-001toacceleratethedeductionforcharitablecashcontributionsforthereliefofvictimsofthe2004IndianOceantsunamiareapplicableforthecalendaryearthatendedDecember31,2004,andthecalendaryearendingDecember31,2005.

Priorlawshallcontinuetobeusedtodetermine:(1) Thebasisofproperty,ifataxpayerfirstdeterminedthebasisofpropertyinataxableyeartowhichprior

lawapplies;and(2) Grossincome,adjustedgrossincome,ordinaryincomeandloss,andtaxableincomeforataxableyearto

whichpriorlawapplies.(b) ThefollowingInternalRevenueCodesubchapters,partsofsubchapters,sections,subsections,andpartsof

subsectionsshallnotbeoperativeforthepurposesofthischapter,unlessotherwiseprovided:(1) SubchapterA(Sections1to59A)(withrespecttodeterminationoftaxliability),exceptSection1(h)(2)

(relating to net capital gain reducedby the amount taken into account as investment income), exceptSections2(a),2(b),and2(c)(withrespecttothedefinitionof“survivingspouse”and“headofhousehold”),exceptSection41(withrespecttothecreditforincreasingresearchactivities),exceptSection42(withrespecttolow-incomehousingcredit),exceptSections47and48,asamended,asofDecember31,1984(withrespecttocertaindepreciabletangiblepersonalproperty),andexceptSection48(d)(3),asamended,asofFebruary17,2009(withrespecttothetreatmentofUnitedStatesDepartmentofTreasurygrantsmadeunderSection1603oftheAmericanRecoveryandReinvestmentTaxActof2009).Fortreatment,seesections235-110.91,235-110.7,and235-110.8;

(2) Section78(withrespecttodividendsreceivedfromcertainforeigncorporationsbydomesticcorporationschoosingforeigntaxcredit);

(3) Section86(withrespecttosocialsecurityandtier1railroadretirementbenefits);(4) Section103(withrespecttointerestonstateandlocalbonds).Fortreatment,seesection235-7(b);(5) Section114(withrespect toextraterritorial income).For treatment,any transactionasspecified in the

transitionalrulefor2005and2006asspecifiedintheAmericanJobsCreationActof2004Section101(d)andanytransactionthathasoccurredpursuanttoabindingcontractasspecifiedintheAmericanJobsCreationActof2004Section101(f)areinoperative;

(6) Section120(withrespecttoamountsreceivedunderqualifiedgrouplegalservicesplans).Fortreatment,seesection235-7(a)(9)to(11);

(7) Section122(withrespecttocertainreduceduniformedservicesretirementpay).Fortreatment,seesection235-7(a)(3);

(8) Section135(withrespecttoincomefromUnitedStatessavingsbondsusedtopayhighereducationtuitionandfees).Fortreatment,seesection235-7(a)(1);

(9) Section139C(withrespecttoCOBRApremiumassistance);(10)SubchapterB(Sections141to150)(withrespecttotaxexemptionrequirementsforstateandlocalbonds);(11)Section151(withrespecttoallowanceofdeductionsforpersonalexemptions).Fortreatment,seesection

235-54;(12)Section 179B (with respect to expensing of capital costs incurred in complying with Environmental

ProtectionAgencysulphurregulations);(13)Section181(withrespecttospecialrulesforcertainfilmandtelevisionproductions);(14)Section196(withrespecttodeductionforcertainunusedinvestmentcredits);(15)Section199(withrespecttotheU.S.productionactivitiesdeduction);

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§235-2.3 INCOME TAX LAW


(16)Section222(withrespecttoqualifiedtuitionandrelatedexpenses);(17)Sections241to247(withrespecttospecialdeductionsforcorporations).Fortreatment,seesection235-

7(c);(18)Section280C(withrespecttocertainexpensesforwhichcreditsareallowable).Fortreatmentsee,section

235-110.91;(19)Section291(withrespecttospecialrulesrelatingtocorporatepreferenceitems);(20)Section367(withrespecttoforeigncorporations);(21)Section501(c)(12),(15),(16)(withrespecttoexemptorganizations);exceptthatsection501(c)(12)shall

beoperativeforcompaniesthatprovidepotablewatertoresidentialcommunitiesthatlackanyaccesstopublicutilitywaterservices;

(22)Section515(withrespecttotaxesofforeigncountriesandpossessionsoftheUnitedStates);(23)SubchapterG(sections531to565)(withrespecttocorporationsusedtoavoidincometaxonshareholders);(24)SubchapterH(sections581to597)(withrespecttobankinginstitutions),exceptSection584(withrespect

tocommontrustfunds).Fortreatment,seechapter241;(25)Section642(a)and(b)(withrespecttospecialrulesforcreditsanddeductionsapplicabletotrusts).For

treatment,seesections235-54(b)and235-55;(26)Section646(withrespecttotaxtreatmentofelectingAlaskaNativesettlementtrusts);(27)Section668(withrespecttointerestchargeonaccumulationdistributionsfromforeigntrusts);(28)SubchapterL(sections801 to848) (with respect to insurancecompanies).For treatment, seesections

431:7-202and431:7-204;(29)Section853(withrespecttoforeigntaxcreditallowedtoshareholders).Fortreatment,seesection235-55;(30)Section853A(withrespecttocreditsfromtaxcreditbondsallowedtoshareholders);(31)SubchapterN(Sections861to999)(withrespecttotaxbasedonincomefromsourceswithinorwithout

the United States), except Sections 985 to 989 (with respect to foreign currency transactions). Fortreatment,seesections235-4,235-5,235-7(b),and235-55;

(32)Section1042(g) (with respect to salesof stock in agricultural refiners andprocessors to eligible farmcooperatives);

(33)Section1055(withrespecttoredeemablegroundrents);(34)Section1057(withrespecttoelectiontotreattransfertoforeigntrust,etc.,astaxableexchange);(35)Sections1291to1298(withrespecttotreatmentofpassiveforeigninvestmentcompanies);(36)SubchapterQ (sections1311 to1351) (with respect to readjustmentof taxbetweenyears and special

limitations);(37)SubchapterR (sections 1352 to 1359) (with respect to election to determine corporate tax on certain

internationalshippingactivitiesusingpertonrate);(38)SubchapterU(Sections1391to1397F)(withrespecttodesignationandtreatmentofempowermentzones,

enterprisecommunities,andruraldevelopmentinvestmentareas).Fortreatment,seechapter209E;(39)SubchapterW(Sections1400to1400C)(withrespecttoDistrictofColumbiaenterprisezone);(40)Section1400O(withrespecttoeducationtaxbenefits);(41)Section1400P(withrespecttohousingtaxbenefits);(42)Section1400R(withrespecttoemploymentrelief);(43)Section1400T(withrespecttospecialrulesformortgagerevenuebonds);(44)Section1400U-1(withrespecttoallocationofrecoveryzonebonds);(45)Section1400U-2(withrespecttorecoveryzoneeconomicdevelopmentbonds);and(46)Section1400U-3(withrespecttorecoveryzonefacilitybonds).[L1978,c173,§2(1);amL1979,c62,

§2(1)to(3);amL1980,c235,§1andc238,§2;amL1981,c3,§2(2),c208,§2,andc209,§1;amL1982,c22,§1(1)andc25,§1;amL1983,c88,§1;amL1984,c99,§1;amL1985,c19,ptof§1;amL1986,c283,§1;amL1987,c39,§2,andc239,§1(5);amL1988,c10,§1(2),c102,§1,c107,§2,andc216,§3;amL1989,c13,§1;amL1990,c15,§1andc289,§2;amL1991,c54,§1andc137,§2;amL1992,c37,§1;amL1993,c73,§1;amL1994,c13,§2;amL1995,c7,§1;amL1996,c187,§1;amL1997,c297,§2;amL1998,c113,§1;amL1999,c178,§28andc198,§1;amL2000,c174,§2;amL2001,c199,§1;amL2002,c223,§2;amL2003,c172,§2;amL2004,c89,§3;amL2005,c60,§2;amL2006,c124,§1;amL2007,c84,§1;amL2008,c93,§1;amL2009,c133,§2;amL2010,c112,§4;amL2011,c91,§2;amL2012,c179,§2andc184,§2;amL2013,c43,§2;amL2014,c88,§2;amL2015,c52,§2;amL2016,c33,§2andc53,§1;amL2017,c95,§2]

Note

The2017amendmentappliestotaxableyearsbeginningafterDecember31,2016.L2017,c95,§5.

Cross Reference

TaxInformationReleaseNo.53-77,“BenefitsReceivedUnderIndividualRetirementPlansandSelf-EmployedRetirementPlans”TaxInformationReleaseNo.57-78,“AdoptionofInternalRevenueCode”OBSOLETE



TaxInformationReleaseNo.83-3,“StateTaxTreatmentofPensionandProfitSharingPlans,IndividualRetirementAccounts,H.R.10PlansandtheLike”

TaxInformationReleaseNo.84-1,“TaxabilityofInterestonU.S.Obligations”TaxInformationReleaseNo.90-4,“TaxabilityofBenefitPaymentsfromPensionPlantoParticipantsWhoAttainAge70-1/2asRequiredby

theInternalRevenueCode(IRC)Section401(a)(9)(C)”TaxInformationReleaseNo.91-4,“HawaiiTaxObligationsofNonprofitOrganizations”TaxInformationReleaseNo.92-3,“IncomeTaxIssuesAffectingNonresidentAliens” SupplementedandsupersededinpartbyTIR97-1TaxInformationReleaseNo.93-6,“MovingExpenses-HawaiiQuarantineFees”Tax InformationReleaseNo. 94-4, “Application of StateTaxes onRebates for the Purchase and Installation ofUltra-low FlushToilets”

OBSOLETETaxInformationReleaseNo.96-5,“TaxationPensionsundertheHawaiiNetIncomeTaxLaw:DeferredCompensationArrangements;Rollover

IRAs;Sub-AccountsofPensionPlans;SocialSecurityandRailroadRetirementActBenefits;LimitationsonDeductionsforContributionstoaNonqualifiedPlan”

Tax InformationReleaseNo.97-4,“Applicationof theBusinessEntityClassificationRulesUnder the ‘Check-the-box’Regulations to theHawaiiIncomeTaxandOtherTaxes”

TaxInformationReleaseNo.2001-1,“TheApplicationofCertainHawaiiTaxestoQualifiedSubchapterSSubsidiaryCorporations,QualifiedSubchapterSTrusts,andElectingSmallBusinessTrusts”

TaxInformationReleaseNo.2003-2,“ExtensionofDeadlinesandOtherTaxReliefforMembersoftheArmedForces,Reserves,andHawaiiNationalGuard”


Hawaii’snetincometaxlawincorporatesInternalRevenueCodeof1954,asamended,withcertainexceptions,forpurposesofdetermininggrossincome.Att.Gen.Op.91-03.

§235-2.35 Operation of certain Internal Revenue Code provisions not operative under section 235-2.3. Thefollowingsectionsof thefederal InternalRevenueCodeof1986,asamended,shallbeoperativeforpurposesof thischapter:

(1) Section6038(D) (with respect to informationwith respect to foreignfinancialassets).With respect topersonsrequiredtoreportinformationunderthissection,section6662(j)(withrespecttoimpositionofaccuracy-relatedpenaltiesonunderpayments)andsection6501(e)(1)(A)(ii)(withrespecttolimitationsonassessment and collection) shall also be operative for purposes of this chapter and shall be appliedconsistentlywiththecorrelatingprovisionsofsections231-36.6and235-111;

(2) Section6045B(withrespecttoreturnsrelatingtoactionsaffectingbasisinsecurities);and(3) Section6050W(withrespecttoreturnsrelatingtopaymentsmadeinsettlementofpaymentcardandthird

partynetworktransactions).[L2010,c112,§2;amL2011,c43,§5andc91,§3;amL2012,c179,§3]Note


§235-2.4 Operation of certain Internal Revenue Code provisions; Sections 63 to 530. (a)Section63 (withrespecttotaxableincomedefined)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapter,subjecttothefollowing:

(1) Section 63(c)(1)(B) (relating to the additional standard deduction), 63(c)(1)(C) (relating to the realpropertytaxdeduction),63(c)(1)(D)(relatingtothedisasterlossdeduction),63(c)(1)(E)(relatingtothemotorvehiclesalestaxdeduction,63(c)(4)(relatingtoinflationadjustments),63(c)(7)(definingtherealproperty tax deduction), 63(c)(8) (defining the disaster loss deduction), 63(c)(9) (defining the motorvehiclesalestaxdeduction),and63(f)(relatingtoadditionalamountsfortheagedorblind)oftheInternalRevenueCodeshallnotbeoperativeforpurposesofthischapter;

(2) [Paragraph effective until December 31, 2012. For paragraph effective January 1, 2013, see below.] Section63(c)(2)(relatingtothebasicstandarddeduction)oftheInternalRevenueCodeshallbeoperative,exceptthatthestandarddeductionamountsprovidedthereinshallinsteadmean:(A) $4,000inthecaseof: (i)Ajointreturnasprovidedbysection235-93;or (ii)Asurvivingspouse(asdefinedinSection2(a)oftheInternalRevenueCode);(B) $2,920inthecaseofaheadofhousehold(asdefinedinSection2(b)oftheInternalRevenueCode);(C) $2,000inthecaseofanindividualwhoisnotmarriedandwhoisnotasurvivingspouseorheadof

household;or(D) $2,000inthecaseofamarriedindividualfilingaseparatereturn;

(2) [Paragraph effective January 1, 2013. For paragraph effective until December 31, 2012, see above.] Section63(c)(2)(relatingtothebasicstandarddeduction)oftheInternalRevenueCodeshallbeoperative,exceptthatthestandarddeductionamountsprovidedthereinshallinsteadmean:(A) $4,400inthecaseof: (i)Ajointreturnasprovidedbysection235-93;or (ii)Asurvivingspouse(asdefinedinsection2(a)oftheInternalRevenueCode);



(B) $3,212inthecaseofaheadofhousehold(asdefinedinSection2(b)oftheInternalRevenueCode);(C) $2,200inthecaseofanindividualwhoisnotmarriedandwhoisnotasurvivingspouseorheadof

household;or(D) $2,200inthecaseofamarriedindividualfilingaseparatereturn;

(3) Section63(c)(5)(limitingthebasicstandarddeductioninthecaseofcertaindependents)oftheInternalRevenueCodeshallbeoperative,exceptthatthelimitationshallbethegreaterof$500ortheindividual’searnedincome;and

(4) Thestandarddeductionamountfornonresidentsshallbecalculatedpursuanttosection235-5.(b) Section68(withrespecttotheoveralllimitationonitemizeddeductions)oftheInternalRevenueCodeshall

beoperative;providedthatthethresholdsshallbethosethatwereoperativeforfederaltaxyear2009.(c) Section72(withrespect toannuities;certainproceedsofendowmentand life insurancecontracts)of the

InternalRevenueCodeshallbeoperativeforpurposesofthischapterandbeinterpretedwithdueregardtosection235-7(a),exceptthatthetenpercentadditionaltaxonearlydistributionsfromretirementplansinsection72(t)shallnotbeoperativeforpurposesofthischapter.

(d) Section85(withrespecttounemploymentcompensation)oftheInternalRevenueCodeshallbeoperativeforpurposesofthischapter,exceptthatsection85(c)shallnotbeoperativeforpurposesofthischapter.

(e) Section108(withrespecttoincomefromdischargeofindebtedness)oftheInternalRevenueCodeshallbeoperativeforpurposesofthischapter,exceptthatsection108(i)(relatingtodeferralandratableinclusionofincomearisingfrombusinessindebtednessdischargedbythereacquisitionofadebtinstrument)shallnotbeoperativeforpurposesofthischapter.

(f) Section121(withrespecttoexclusionofgainfromsaleofprincipalresidence)oftheInternalRevenueCodeshallbeoperativeforpurposesofthischapter,exceptthatfortheelectionundersection121(f),areferencetosection1034treatmentmeansareferencetosection235-2.4(s)ineffectfortaxableyear1997.

(g) Section132 (with respect to certain fringebenefits) of the InternalRevenueCode shall beoperative forpurposesofthischapter,exceptthattheprovisioninsection132(f)(2)thatequalizesthedollaramountsforsection132(f)(2)(A)and(B)shallnotbeoperativeandexceptthatsection132(n)shallnotapplytoUnitedStatesDepartmentofDefenseHomeownersAssistanceprogrampaymentsauthorizedbytheAmericanRecoveryandReinvestmentActof2009.

(h) Section163(withrespecttointerest)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapter,exceptthatprovisionsinsection163(d)(4)(B)(definingnetinvestmentincometoexcludedividends),section163(e)(5)(F) (suspensionof applicablehigh-yielddiscountobligation (AHYDO) rules) and section163(i)(1) as itappliestodebtinstrumentsissuedafterJanuary1,2010,(definingAHYDO)shallnotbeoperativeforthepurposesofthischapter.

(i) Section164(withrespecttotaxes)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapter,exceptthat:

(1) Section164(a)(6)and(b)(6)shallnotbeoperativeforthepurposesofthischapter;(2) Thedeductionsundersection164(a)(3)and(b)(5)shallnotbeoperativeforcorporatetaxpayersandshall

beoperativeonlyforthefollowingindividualtaxpayers:(A) Ataxpayerfilingasinglereturnoramarriedpersonfilingseparatelywithafederaladjustedgross

incomeoflessthan$100,000;(B) Ataxpayerfilingasaheadofhouseholdwithafederaladjustedgrossincomeoflessthan$150,000;

and(C) Ataxpayerfilingajointreturnorasasurvivingspousewithafederaladjustedgrossincomeofless

than$200,000;and(3) Section164(a)(3)shallnotbeoperativeforanyamountsforwhichthecreditundersection235-55has

beenclaimed.(j) Section165(withrespect to losses)of theInternalRevenueCodeshallbeoperativeforpurposesof this

chapter,exceptthattheamountprescribedbysections165(h)(1)(relatingtothelimitationpercasualty)oftheInternalRevenueCodeshallbea$100limitationpercasualty,andsection165(h)(3)(A)and(B)(bothofwhichrelatetospecialrulesforpersonalcasualtygainsandlossesinfederallydeclareddisasters)oftheInternalRevenueCodeshallnotbeoperativeforthepurposesofthischapter.Section165asoperativeforthischaptershallalsoapplytolossessustainedfromthesaleofstocksorotherinterestsissuedthroughtheexerciseofthestockoptionsorwarrantsgrantedbyaqualifiedhightechnologybusinessasdefinedinsection235-7.3.

(k) Section168(withrespect totheacceleratedcostrecoverysystem)of theInternalRevenueCodeshallbeoperativeforpurposesofthischapter,exceptthatsections168(j)(relatingtopropertyonIndianreservations),168(k)(relatingtothespecialallowanceforcertainpropertyacquiredduringtheperiodspecifiedtherein),168(m)(relatingtothespecialallowanceforcertainreuseandrecyclingproperty),and168(n)(relatingtothespecialallowanceforqualifieddisasterassistanceproperty)oftheInternalRevenueCodeshallnotbeoperativeforpurposesofthischapter.

(1) Section172(withrespecttonetoperatinglossdeductions)oftheInternalRevenueCodeshallbeoperativeforpurposesof thischapter,asfurtherprovidedinsection235-7(d),except thatsection172(b)(1)(J)and(j) (both



ofwhichrelatetoqualifieddisasterlosses)oftheInternalRevenueCodeshallnotbeoperativeforpurposesofthischapter.

(m)Section 179 (with respect to the election to expense certain depreciable business assets) of the InternalRevenueCodeshallbeoperativeforpurposesofthischapter,exceptasprovidedinthissubsection:

(1) Theaggregatecostprovidedinsection179(b)(1),whichmaybetakenintoaccountundersection179(a)foranytaxableyear,shallnotexceed$25,000;

(2) Theamountatwhichthereductioninlimitationprovidedinsection179(b)(2)beginsshallexceed$200,000foranytaxableyear;and

(3) Thefollowingshallnotbeoperativeforpurposesofthischapter:(A) Definingsection179propertytoincludecomputersoftwareinsection179(d)(1);(B) Inflationadjustmentsinsection179(b)(5);(C) Irrevocableelectioninsection179(c)(2);and(D) Specialrulesforqualifieddisasterassistancepropertyinsection179(e).

(n) Section 198A (with respect to the expensing of qualified disaster assistances expenses) of the InternalRevenueCodeshallnotbeoperativeforpurposesofthischapter.

(o) Section219 (with respect to retirement savings)of the InternalRevenueCode shallbeoperative for thepurposeofthischapter.Forthepurposeofcomputingthelimitationonthedeductionforactiveparticipantsincertainpensionplansforstateincometaxpurposes,adjustedgrossincomeasusedinsection219asoperativeforthischaptermeansfederaladjustedgrossincome.

(p) Section220 (with respect tomedical savings accounts) of the InternalRevenueCode shall be operativeforthepurposeofthischapter,butonlywithrespecttomedicalservicesaccountsthathavebeenapprovedbytheSecretaryoftheTreasuryoftheUnitedStates.

(q) Section265(withrespecttoexpensesandinterestrelatingtotax-exemptincome)oftheInternalRevenueCodeshallbeoperativeforpurposesofthischapter;exceptthatsection265(b)(3)(G)and(7)shallnotbeoperativeandsection265shallnotapplytoexpensesforroyaltiesandotherincomederivedfromanypatents,copyrights,andtradesecretsbyanindividualoraqualifiedhightechnologybusinessasdefinedinsection235-7.3.Theseexpensesshallbedeductible.

(r) Section 280E (with respect to expenditures in connectionwith the illegal sale of drugs) of the InternalRevenueCodeshallbeoperativeforthepurposesofthischapter,exceptthatsection280Eshallnotbeoperativewithrespecttotheproductionandsaleofmedicalcannabisandmanufacturedcannabisproductsbydispensarieslicensedunderchapter329Dandtheirsubcontractors,asdefinedinsection329D-1.

(s) Section 382 (with respect to limitation on net operating loss carryforwards and certain built-in lossesfollowingownershipchange)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapter,exceptthatsection382(n)shallnotbeoperativeforpurposesofthischapter.

(t) Section408A(withrespecttoRothIndividualRetirementAccounts)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapter,exceptthatsection408A(d)(3)(A)(iii)shallnotbeoperativeforpurposesofthischapter.ForthepurposesofdeterminingtheaggregateamountofcontributionstoaRothIndividualRetirementAccountorqualifiedrollovercontributiontoaRothIndividualRetirementAccountfromanindividualretirementplanotherthanaRothIndividualRetirementAccount,adjustedgrossincomeasusedinsection408Aasoperativeforthischaptermeansfederaladjustedgrossincome.

(u) Inadministering theprovisionsofsections410 to417(with respect tospecial rules relating topensions,profitsharing,stockbonusplans,etc.),sections418to418E(withrespecttospecialrulesformultiemployerplans),andsections419and419A(withrespect to treatmentofwelfarebenefitfunds)of theInternalRevenueCode, thedepartmentoftaxationshalladoptrulesunderchapter91relatingtothespecificrequirementsunderthosesectionsandtootheradministrativerequirementsunderthosesectionsasmaybenecessaryfortheefficientadministrationofsections410to419A.

Inadministeringsections401to419A(withrespecttodeferredcompensation)oftheInternalRevenueCode,PublicLaw93-406,section1017(i),shallbeoperativeforthepurposesofthischapter.

Inadministeringsection402(withrespecttothetaxabilityofbeneficiaryofemployees’trust)oftheInternalRevenueCode,thetaximposedonlumpsumdistributionsbysection402(e)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapterandthetaximposedthereinisherebyimposedbythischapterattheratedeterminedunderthischapter.

(v) Inadministeringsection403(withrespecttotaxationofemployeeannuities)oftheInternalRevenueCode,anyfundsthatrepresentpre-taxemployeedeferralsorcontributionsthataredistributedfromtheannuityandusedsolelytoobtainretirementcreditsunderthestateemployees’retirementsystemshallnotbetreatedasarolloverforpurposesofsection403(b)(8)(A)oftheInternalRevenueCode,andthosefundsshallbesubjecttoincometaxunderthischapter.

(w) Section451(whichprovidesgeneralrulesfortaxableyearofinclusion)oftheInternalRevenueCodeshallbeoperative,exceptthatsection451(i)(3)and(6),asitrelatestoaqualifiedelectricutility,shallnotbeoperativeforpurposesofthischapter.



(x) In administering section 457 (with respect to compensation plans of state and local governments andtax-exempt organizations) of the Internal Revenue Code, any funds that represent pre-tax employee deferrals orcontributionsthataredistributedfromthedeferredcompensationplanandusedsolelytoobtainretirementcreditsunderthestateemployees’retirementsystemshallnotbetreatedasarolloverforpurposesofsection457(e)(16)(A)oftheInternalRevenueCodeandthosefundsshallbesubjecttoincometaxunderthischapter.

(y) Section468B(withrespecttospecialrulesfordesignatedsettlementfunds)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapterandthetaximposedthereinisherebyimposedbythischapteratarateequaltothemaximumrateineffectforthetaxableyearimposedonestatesandtrustsundersection235-51.

(z) Section469(withrespect topassiveactivitiesandcredits limited)of theInternalRevenueCodeshallbeoperativeforthepurposesofthischapter.Forthepurposeofcomputingtheoffsetforrentalrealestateactivitiesforstateincometaxpurposes,adjustedgrossincomeasusedinsection469asoperativeforthischaptermeansfederaladjustedgrossincome.

(aa)Sections512 to514 (with respect to taxationofbusiness incomeofcertainexemptorganizations)of theInternalRevenueCodeshallbeoperativeforthepurposesofthischapterasprovidedinthissubsection.

“Unrelatedbusinesstaxableincome”meansthesameasintheInternalRevenueCode,exceptthatinthecomputationthereof sections 235-3 to 235-5, and 235-7 (except subsection (c)), shall apply, and in the determination of the netoperatinglossdeductionthereshallnotbetakenintoaccountanyamountofincomeordeductionthatisexcludedincomputingtheunrelatedbusinesstaxableincome.Unrelatedbusinesstaxableincomeshallnotincludeanyincomefromalegalserviceplan.

Forapersondescribedinsection401or501oftheInternalRevenueCode,asmodifiedbysection235-2.3,thetaximposedbysection235-51or235-71shallbeimposedupontheperson’sunrelatedbusinesstaxableincome.

(bb)Section 521 (with respect to cooperatives) and subchapter T (sections 1381 to 1388, with respect tocooperativesandtheirpatrons)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapterastoanycooperativefullymeetingtherequirementsofsection421-23,exceptthatInternalRevenueCodesection521cooperativesneednotbeorganizedinHawaii.

(cc)Sections 527 (with respect to political organizations) and 528 (with respect to certain homeownersassociations)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapterandthetaxesimposedineachsectionareherebyimposedbythischapterattheratesdeterminedundersection235-71.

(dd)Section529(withrespecttoqualifiedtuitionprograms)shallbeoperativeforthepurposesofthischapter,exceptthatsections529(c)(6)and529(e)(3)(A)(iii)shallnotbeoperative.

(ee)Section529A(withrespecttoqualifiedABLEprograms)shallbeoperativeforthepurposesofthischapter,exceptthatsection529A(c)(3)(withrespecttoadditionaltaxfordistributionsnotusedfordisabilityexpenses)shallnotbeoperative.

(ff) Section530(withrespecttoCoverdelleducationsavingsaccounts)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapter.Forthepurposeofdeterminingthemaximumamountthatacontributorcouldmake to an education individual retirement account for state income taxpurposes,modified adjustedgrossincomeasusedinsection530asoperativeforthischaptermeansfederalmodifiedadjustedgrossincomeasdefinedinsection530.[L1985,c19,ptof§1;amL1987,c239,§1(6);amL1989,c13,§2andc321,§2;amL1990,c16,§2;amL1991,c207,§1;amL1996,c187,§2;amL1997,c297,§3;amL1998,c113,§2;amL1999,c198,§2,c253,§2,andc270,§2;amL2000,c148,ptof§2,c174,§3,andc297,ptof§5;amL2001,c221,§5;amL2002,c223,§3;L2003,c172,§3;amL2004,c89,§4;amL2005,c60,§3;amL2006,c110,§2;amL2008,c93,§2;amL2009,c60,§1,c133,§3,c165,§2,andc181,§1;amL2010,c23,§1,andc112,§§5,6;amL2011,c91,§4andc97,§§2,4;amL2012,c34,§§9,18;amL2014,c88,§3;amL2015,c52,§3;amL2016,c230,§4;amL2017,c170,§2]

Note

The2015amendmentappliestotaxableyearsbeginningafterDecember31,2014.L2015,c52,§5.The2016amendmentappliestotaxableyearsbeginningafterDecember31,2015.L2016,c230,§25.

Cross Reference

TaxInformationReleaseNo.81-3,“NewHebridesLandInvestment”OBSOLETETaxInformationReleaseNo.83-3,“StateTaxTreatmentofPensionandProfitSharingPlans,IndividualRetirementAccounts,H.R.10Plans

andtheLike”TaxInformationReleaseNo.90-6,“Act16,SessionLawsofHawaii1990,RelatingtoSCorporations”TaxInformationReleaseNo.91-4,“HawaiiTaxObligationsofNonprofitOrganizations”TaxInformationReleaseNo.91-7,“WithholdingofTaxontheDispositionofRealPropertybyNonresidentPersonsandRolloverofGainon

theSaleofaPrincipalResidencebyPersonsintheMilitary” SupersededbyTIR2017-01TaxInformationReleaseNo.92-3,“IncomeTaxIssuesAffectingNonresidentAliens”TaxInformationReleaseNo.97-1,“DeterminationofResidenceStatus”TaxInformationReleaseNo.2017-01,“WithholdingofStateIncomeTaxesontheDispositionofHawaiiRealProperty”



§235-2.45 Operation of certain Internal Revenue Code provisions; sections 641 to 7518. (a)Section641(withrespecttoimpositionoftax)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischaptersubjecttothefollowing:

(1) Thedeductionforexemptionsshallbeallowedasprovidedinsection235-54(b);(2) Thedeductionforcontributionsandgiftsindeterminingtaxableincomeshallbelimitedtotheamount

allowedinthecaseofanindividual,unlessthecontributionsandgiftsaretobeusedexclusivelyinthestate;and

(3) Thetaximposedbysection1(e)oftheInternalRevenueCodeasappliedbysection641oftheInternalRevenueCodeisherebyimposedbythischapterattherateandamountasdeterminedundersection235-51onestatesandtrusts.

(b) Section667(withrespecttotreatmentofamountsdeemeddistributedbytrustsinprecedingyears)oftheInternalRevenueCode shall be operative for the purposes of this chapter and the tax imposed therein is herebyimposedbythischapterattheratedeterminedunderthischapter;exceptthatthereferencetotax-exemptinteresttowhichsection103oftheInternalRevenueCodeappliesinsection667(a)oftheInternalRevenueCodeshallinsteadbeareferencetotax-exemptinteresttowhichsection235-7(b)applies.

(c) Section685 (with respect to treatmentofqualified funeral trusts) of the InternalRevenueCode shall beoperativeforpurposesofthischapter,exceptthatthetaximposedunderthischaptershallbecomputedat thetaxratesprovidedundersection235-51,andnodeductionfortheexemptionamountprovidedinsection235-54(b)shallbeallowed.Thecost-of-livingadjustmentdeterminedundersection1(f)(3)of theInternalRevenueCodeshallbeoperativeforthepurposeofapplyingsection685(c)(3)underthischapter.

(d) Section704oftheInternalRevenueCode(withrespecttoapartner’sdistributiveshare)shallbeoperativeforpurposesofthischapter;exceptthatsection704(b)(2)shallnotapplyto:

(1) Allocations of the high technology business investment tax credit allowed by section 235-110.9 forinvestmentsmadebeforeMay1,2009;

(2) Allocationsofnetoperatinglosspursuanttosection235-111.5;or(3) Allocationsoflow-incomehousingtaxcreditsamongpartnersundersection235-110.8.

(e) Section1202(withrespecttopartialexclusionforgainfromcertainsmallbusinessstock)oftheInternalRevenueCode shallbeoperative forpurposesof this chapter, except that section1202(a)(3) and (4) shallnotbeoperativeforpurposesofthischapter.

(f) Section1212(withrespecttocapitallosscarrybacksandcarryforwards)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapter;exceptthatforthepurposesofthischapterthecapitallosscarrybackprovisionsofsection1212shallnotbeoperativeandthecapitallosscarryforwardallowedbysection1212(a)shallbelimitedtofiveyears;exceptforaqualifiedhightechnologybusinessasdefinedinsection235-7.3,whichshallbelimitedtofifteenyears.

(g) Section1221(withrespecttothedefinitionofcapitalassets)isoperative;providedthattheprovisionsofsection301ofPublicLaw110-343,whichprovide thatgainor loss from the saleor exchangeof anyapplicablepreferredstockbyanyapplicablefinancial institution(such termsbeingdefinedbyPublicLaw110-343)shallbetreatedasordinaryincomeorloss,shallnotbeoperative.Asaleorexchangeofanyapplicablepreferredstockbyanyapplicablefinancialinstitution(asthosetermsaredefinedbysection301ofPublicLaw110-343)shallbetreatedasasaleofacapitalassetandtaxedaccordingly.

(h) SubchapterS(sections1361to1379)(withrespecttotaxtreatmentofScorporationsandtheirshareholders)ofChapter1oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapterasprovidedinpartVII;exceptthatsection1374(d)(7)(B),(C),and(D)shallnotbeoperativeforpurposesofthischapter.

(i) Section1400N(withrespecttotaxbenefitsforGulfOpportunityZone)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapter,exceptthatsections1400N(a)(withrespecttotax-exemptbondfinancing);1400N(b)(withrespecttoadvancerefundingsofcertaintax-exemptbonds);1400N(c)(withrespecttothelowincomehousing credit);1400N(d) (with respect to special allowance for certain property acquired on or afterAugust 28,2005);1400N(e) (with respect to increase inexpensingundersection179);1400N(h) (with respect to increase inrehabilitationcredit);1400N(l)(withrespecttocredittoholdersofGulftaxcreditbonds);1400N(m)(withrespecttoapplicationofnewmarketstaxcredittoinvestmentsincommunitydevelopmententitiesservingGulfOpportunityZone);1400N(n)(withrespecttotreatmentofrepresentationsregardingincomeeligibilityforpurposesofqualifiedresidentialrentalprojectrequirements)shallnotbeoperativeforpurposesofthischapter.

(j) Section1400S(withrespecttoadditionaltaxreliefprovisions)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapter,exceptthatsection1400S(d)(withrespecttothespecialrulefordeterminingearnedincome)shallnotbeoperativeforthepurposesofthischapter.

(k) Section6015(withrespecttorelieffromjointandseveralliabilityonjointreturn)oftheInternalRevenueCodeisoperativeforpurposesofthischapter.

(l) Sections6103(i)(3)(C)and6103(i)(7)(withrespecttodisclosuresofinformationtotheUnitedStatesJusticeDepartmentorappropriatefederalorstatelawenforcementagencyforpurposesofinvestigatingterroristincidents,



threats,oractivities,andforanalyzingintelligenceconcerninginvestigatingterroristincidents,threats,oractivities)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapter.

(m)Sections6221,6222,and6231(withrespecttotaxtreatmentofpartnershipitems)ofsubchapterCofchapter63oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapter.

(n) Subchapter D (sections 6240 to 6255) (with respect to simplified audit procedures for electing largepartnerships)of the InternalRevenueCodeshallbeoperative for thepurposesof thischapter,withdueregard toChapter232relatingtotaxappeals.

(o) Section6501(e)(withrespecttolimitationonassessmentandcollectionwherethereisasubstantialomissionofitems)oftheInternalRevenueCodeshallbeoperativeforpurposesofthischapter.

(p) Section 6511(h) (with respect to running of periods of limitation suspendedwhile taxpayer is unable tomanagefinancialaffairsduetodisability)oftheInternalRevenueCodeshallbeoperativeforpurposesofthischapter,withdueregardtosection235-111relatingtothelimitationperiodforassessment,levy,collection,orcredit.

(q) Section 7518 (with respect to capital construction fund for commercial fishers) of the Internal RevenueCodeshallbeoperativeforthepurposesofthischapter.Qualifiedwithdrawalsfortheacquisition,construction,orreconstructionofanyqualifiedassetthatisattributabletodepositsmadebeforetheeffectivedateofthissectionshallnotreducethebasisoftheassetwhenwithdrawn.Qualifiedwithdrawalsshallbetreatedonafirst-in-first-outbasis.[L2000,c148,ptof§2,c,174,§1,andc297,ptof§5;amL2001,c45,§2andc221,§6;amL2003,c100,§4;amL2005,c60,§4;amL2006,c124,§2;amL2008,c93,§3;amL2009,c133,§4andc178,§2;amL2010,c112,§7;amL2014,c88,§4;amL2017,c3,§4]

Note


Cross Reference

TaxInformationReleaseNo.81-3,“NewHebridesLandInvestment”OBSOLETETaxInformationReleaseNo.83-3,“StateTaxTreatmentofPensionandProfitSharingPlans,IndividualRetirementAccounts,H.R.10Plans

andtheLike”TaxInformationReleaseNo.90-6,“Act16,SessionLawsofHawaii1990,RelatingtoSCorporations”TaxInformationReleaseNo.91-4,“HawaiiTaxObligationsofNonprofitOrganizations”TaxInformationReleaseNo.91-7,“WithholdingofTaxontheDispositionofRealPropertybyNonresidentPersonsandRolloverofGainon

theSaleofaPrincipalResidencebyPersonsintheMilitary” SupersededbyTIR2017-01TaxInformationReleaseNo.92-3,“IncomeTaxIssuesAffectingNonresidentAliens”TaxInformationReleaseNo.97-1,“DeterminationofResidenceStatus”TaxInformationReleaseNo.2002-1,“AuditofNetIncome,GeneralExcise,andUseTaxReturns;AppealRights;ClaimsforRefund;and

PaymenttoStateUnderProtest”TaxInformationReleaseNo.2017-01,“WithholdingofStateIncomeTaxesontheDispositionofHawaiiRealProperty”

§235-2.5 Administration, adoption, and interrelationship of Internal Revenue Code and Public Laws with this chapter. (a)ReferenceinprovisionsoftheInternalRevenueCodewhichareoperativeinthisStatetoprovisionsintheInternalRevenueCodewhicharenotoperativeinthisStateshallbeconsideredinoperativeforthepurposesofdetermininggrossincome,adjustedgrossincome,ordinaryincomeandloss,andtaxableincome;providedthat:

(1) ReferencestotimelimitsandotheradministrativeprovisionsinsubtitleF(sections6001to7873)oftheInternalRevenueCodecontained inoperativesectionsof the InternalRevenueCodeshallbedeemedreferencestoapplicableprovisionsofthischapterorchapter231or232,andintheabsenceofapplicableprovisionsinthischapterorchapter231or232,thentorulesadoptedbythedirectoroftaxationundersubsection(b);

(2) IfinoperativeprovisionsoftheInternalRevenueCodehavebeencodifiedinthischaptersuchreferencesshallbedeemedreferencestothecodifiedprovisionsinthischapter.TransitoryandsavingsprovisionsinfederalPublicLawsamendingsectionsoftheInternalRevenueCodeoperativeinthischaptershallbeoperativeforthepurposesofthischapter.Provisionsinthischapterorchapter231or232inconflictwiththeInternalRevenueCodeortransitoryorsavingsprovisionsinfederalPublicLawshallcontrol;and

(3) RetroactiveandprospectiveprovisionsinfederalPublicLawsamendingsectionsofthefederalInternalRevenueCodeoperativeinthischapteraffectingtaxableyearsbeginningorendingbeforetheDecember31dateinsection235-2.3shallbeoperativeforthepurposesofthischapter;providedthattheeffectivedatesinPublicLaw96-471placingitineffectforthetaxableyear1980shallbeoperativeforthepurposesofthischapter.

(b) Thedirectoroftaxationmayadoptbyruleunderchapter91therulesandregulationspromulgatedbytheUnitedStatesSecretaryofTreasuryoradelegateoftheSecretaryrelatingtotheprovisionsofsubtitleA,chapter1or6,oftheInternalRevenueCodeoperativeinthischapterandanyadministrativeprovisionsoftheInternalRevenueCode(subtitleF,sections6001to7873)notinconflictwithorsimilartoprovisionscontainedinthischapterorchapter231or232eitherbyreferenceorbysettingthemforthinfull.

(c) Thedepartmentoftaxationshallsubmittoeachregularsessionofthelegislatureabilltoamendsections235-2.3,235-2.4,and235-2.45andsuchothersectionsandsubsectionsofthischapterasmaybenecessarytoadopt



theInternalRevenueCodeasitexistsontheDecember31precedingsuchregularsession.InsubmittingthebillthedepartmentmayprovidethatcertainamendmentstotheInternalRevenueCodebyCongressduringtheprecedingcalendaryearshallnotbeoperativeinthisStateorasoperativearelimitedintheiroperation.Thedepartmentshallalsoprepareadigest andexplanationof theamendedprovisionsof the InternalRevenueCode recommended foroperation,aswellasthoseprovisionsthatarelimitedintheiroperation,orthatarenotrecommendedforoperation,andshallsubmitwiththebillrequiredbythissubsectionthedigest,explanation,andastatementofrevenueimpactoftheadoptionofthebill.Inpreparingthebill,digest,andexplanationthedepartmentmayrequesttheassistanceoftheofficeofthelegislativereferencebureau.

ItistheintentofthelegislaturethatitshalleachyearadoptallamendmentstotheInternalRevenueCodeforthecalendaryearprecedingtheyearinwhichthelegislaturemeets;providedthatthelegislaturemaychoosetoadoptnoneoftheamendmentstotheInternalRevenueCodeormayprovidethatcertainamendmentsarelimitedintheiroperation.[L1985,c19,ptof§1;amL1988,c102,§2;amL1989,c13,§3;amL1996,c187,§3;amL2001,c199,§2;amL2008,c93,§4;amL2013,c43,§3;amL2014,c88,§5]

Note


Cross Reference

TaxInformationReleaseNo.98-6,“ApplicationofIncomeTaxandFranchiseTaxLawstoRealEstateInvestmentTrustsandTheirOwners”

§235-3 Legislative intent, how Internal Revenue Code shall apply, in general. (a)Itistheintentofthischapter,inadditiontotheessentialpurposeofraisingrevenue,toconformtheincometaxlawoftheStateascloselyasmaybewiththeInternalRevenueCodeinordertosimplifythefilingofreturnsandminimizethetaxpayer’sburdensincomplyingwiththeincometaxlaw.Therulesandregulations,formsandproceduresadoptedandestablishedunderthischaptershallconformasnearlyaspossible,andunlessthereisgoodreasontothecontrary,totherulesandregulations,formsandproceduresadoptedandestablishedundertheInternalRevenueCode.

(b) TheInternalRevenueCode,sofarasmadeoperativebythischapter,isastatuteadoptedandincorporatedbyreference.TheInternalRevenueCodeshallbeappliedusingchangesinnomenclatureandotherlanguage,includingtheomissionofinapplicablelanguage,wherenecessarytoeffectuatetheintentofthissection.IntheInternalRevenueCode,referencestotermssuchas:

(1) “Secretary or his delegate” shall refer to the director of taxation and the director’s duly authorizedsubordinates;

(2) “Estate taxes” shall refer to the estate and transfer tax imposed by chapter 236D or the estate andgeneration-skippingtaximposedbychapter236E,asapplicable;

(3) “The highest rate of tax imposed upon individuals” or “39.6 per cent” shall refer to the highest rateimposeduponindividualsundersection235-51;

(4) “The highest rate of tax imposed upon corporations” shall refer to the highest rate imposed uponcorporationsundersection235-71;and

(5) “Interestattheunderpaymentrate”or“interestattheoverpaymentrate”shallrefertotheinterestratesetforthinsection231-39(b)(4)orsection231-23(d)(1),asthecasemaybe.

(c) Where,underaprovisionof the InternalRevenueCodemadeoperative in thischapter, theallowanceordisallowancetoataxpayerofadeduction,exclusion,adjustment,credit,orexemptionisdependentonwhether,undertheInternalRevenueCodeorapriorapplicablefederalincometaxlaw,thefollowingwasorwasnot,isorisnot,inrelationtothesametaxpayeroranothertaxpayer,forthesametaxableyearorapriortaxableyear,anoperativefactor:theimpositionorpaymentofanincometax,aninclusioningrossincome,anexclusionfromgrossincome,oradeductionfromgrossincome—theallowanceordisallowanceunderthischapterofsuchdeduction,exclusion,adjustment,credit,orexemptionshalldependon theoperativenessof such factoror factorsunder thischapterorapriorapplicableincometaxlawoftheState.ThissubsectionshallgoverntheapplicationofsuchsectionsoftheInternalRevenueCodeas,forexample,sections111,215,668(b),and7852(c)andallmattersofasimilarnature.

(d) Whenever,inataxableyearofacorporationoritsshareholdersnotgovernedbytheincometaxlawof1957,adistributionofmoney,stock,securities,orotherproperty(whetherincompleteorpartialliquidationorotherwise)hasbeenmadebyacorporationtoshareholdersowningsuchsharesintheState,orstock,securities,orotherpropertyhasbeentransferredtoacorporation,orcorporatestockorsecuritiesexchanged,inthecourseofacorporateorganizationorreorganizationeffectedunderthelawsoftheState,intheapplicationoftheincometaxlawof1957effectshallbegiventotherecognitionofincomebytheincometaxlawsof1901and1932,ifany,totheextentnecessarytoavoiddoubletaxation,forexample,indeterminingtheearningsandprofitsofanycorporationinvolvedorthebasisofanystock,securities,orotherpropertysoreceived,transferred,orexchanged.Noincreaseinbasisshallbeallowedonaccountofsucheventsintaxableyearsnotgovernedbytheincometaxlawof1957,exceptasprovidedbythissubsection.Asusedin thissubsectionthewords“double taxation”meanandrefer todouble taxationof thesametaxpayer,ortaxationofbothacorporationanditsshareholderswhenthetaxationofbothwouldnothaveoccurredhadtheincometaxlawof1957governedpriortaxableyears.



(e) Inthedeterminationofthebasisoradjustedbasisofanystock,securities,orotherproperty:(1) Ifthepropertywasacquiredbyanexchange(includinganinvoluntaryconversionorthesaleofanold

residenceandpurchaseofanewresidencewherebothoccurwithinaone-yearperiod)the“cost”thereoftothetaxpayershallbedeemedtoincludeamongotherthings,anyincomeofthetaxpayerrecognizedbytheincometaxlawsof1901and1932asaresultoftheexchange;

(2) Ifthebasisisdependentuponacquisitionfromadecedent,thepropertyshallbedeemedtohavebeenacquiredfromadecedentifdeemedsoacquiredforthepurposesofchapter236priortoJuly1,1983,orafterJune30,1983,underthischapterbutnototherwise,andtheresidenceornonresidenceofthedecedent,thelocationoftheproperty,andchapter236forpropertyacquiredpriortoJuly1,1983,orthischapterwherethepropertyhasbeenacquiredafterJune30,1983,shallbeconsidered;

(3) Ifthebasisisdependentupondeductions,exclusions,orexemptionstakenorallowable,undertheInternalRevenueCodeorapriorapplicablefederalincometaxlaw,inaprioryear,itshalldependupondeductions,exclusions,orexemptionstakenorallowableundertheincometaxlawoftheStategoverningsuchprioryears;

(4) Ifthebasisisdependentupontheelectionprovidedforbysection307,InternalRevenueCode,itshallbegovernedbytheelectionactuallymadeundertheInternalRevenueCodeforthetaxableyear,whetherornotthetaxableyearwasgovernedbytheincometaxlawof1957.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-2;HRS§235-3;amL1979,c62,§ptof§2;amL1983,c217,§§7(1),(2);amimpL1984,c90,§1;gench1985;amL1996,c187,§4;amL2014,c43,§1]

Note

The2014amendmentisretroactivetoJanuary26,2012.L2014,c43,§3.

§235-4 Income taxes by the State; residents, nonresidents, corporations, estates, and trusts. (a)Residents.Thetaximposedbythischapterappliestotheentireincomeofaresident,computedwithoutregardtosourceintheState.

(b) Nonresidents.Inthecaseofanonresident,thetaxappliestotheincomereceivedorderivedfrompropertyowned,personalservicesperformed,trade,orbusinesscarriedon,andanyandeveryothersourceintheState.

Inthecaseofanonresidentspousefilingajointreturnwitharesidentspouse,thetaxappliestotheentireincomeofthenonresidentspousecomputedwithoutregardtosourceintheState.

(c) Changeofstatus.Exceptwhereajointreturnisfiled,whenthestatusofataxpayerchangesduringthetaxableyearfromresidenttononresident,orfromnonresidenttoresident,thetaximposedbythischapterappliestotheentireincomeearnedduring theperiodof residence in themannerprovided insubsection (a)of thissectionandduringtheperiodofnonresidencethetaxshallapplyupontheincomereceivedorderivedasanonresidentinthemannerprovidedinsubsection(b)ofthissection;providedthatifitcannotbedeterminedwhetherincomewasreceivedorderivedduringtheperiodofresidenceorduringtheperiodofnonresidence,thereshallbeattributedtotheStatesuchportionoftheincomeasisdeterminedbyapplyingtosuchincomeforthewholetaxableyeartheratiowhichtheperiodofresidenceintheStatebearstothewholetaxableyear,unlessthetaxpayershowstothesatisfactionofthedepartmentoftaxationthattheresultistoattributetothestateincome,dependentuponresidence,receivedorderivedduringtheperiodofnonresidence,inwhicheventtheamountofincomeastowhichsuchshowingismadeshallbeexcluded.

TheapportionmentofincomeprovidedbythissubsectionshallnotapplywhereonespouseisaresidentofthisStateandajointreturnisfiledwiththenonresidentspouseinwhicheventthetaxshallbecomputedontheiraggregateincomeinthemannerprovidedinsection235-52withoutregardtosourceintheState.Where,however,bothspouseschangetheirstatusfromresidenttononresidentorfromnonresidenttoresident,theirincomeshallbeapportionedinthemannerprovidedinthissubsection.

(d) Acorporation,foreignordomestic,istaxableupontheincomereceivedorderivedfrompropertyowned,tradeorbusinesscarriedon,andanyandeveryothersourceintheState.Inadditiontheretoadomesticcorporationistaxableuponitsincomefrompropertyowned,tradeorbusinesscarriedon,andanyandeveryothersourceoutsidetheState,unlesssubjectedtoincometaxthereoninanyotherjurisdiction.Subjectiontofederaltaxdoesnotconstitutesubjectionto incometaxinanother jurisdiction.“Corporation”includesanyprofessionalcorporationincorporatedpursuanttochapter415Aor416.

(e)(1) The incomeof a resident estateor trust shallbe computedwithout regard to source in theState.TheincomeofanonresidentestateortrustshallbethatreceivedorderivedfromsourcesintheState.

(2) Abeneficiaryofanestateortrust,orpersontreatedastheownerofanyportionofatrust,whoistaxableupon income thereof under the Internal Revenue Code, shall be taxed thereon as herein provided,irrespectiveofthetaxabilityoftheestateortrustorwhetheritisrequiredtomakeafiduciaryreturnunderthischapter.Ifallsuchincomeconsistsofincomewhichwouldbetaxableunderthischapterifreceiveddirectlybythebeneficiaryorperson,thebeneficiaryorpersonshallbetaxeduponallofit.Ifsomeofitconsistsof incomewhichwouldnotbe taxable if receiveddirectlyby thebeneficiaryorperson, thenunless the trust instrumentprovidesotherwise the incomeofeach suchbeneficiaryorperson shallbe

18-235-4



conclusivelypresumedtohavebeenreceivedorderivedoutofeachclassofincomeoftheestateortrust,andthebeneficiaryorpersonshallbetaxeduponsuchpartofitaswouldbetaxableifreceiveddirectlybythebeneficiaryorperson.

(3) Eachestateortrustshallincludeinitsreturnalloftheinformationnecessarytodeterminethetaxabilityoftheincomeoftheestateortrust,regardlessofsource.OnlyinthecaseofanonresidentestateortrustofwhichallthebeneficiariesarenonresidentsandnopartofwhichistreatedasownedbyaresidentshallthereturnbeconfinedtoincomefromsourcesintheState.Thisparagraphshallnotcauseincometobetaxedtoanestateortrustthatotherwisewouldnothavebeensotaxed.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-3;HRS§235-4;amL1969,c226,§5;amL1974,c9,§1;amL1976,c60,§1;amL1978,c95,§1;amL1983,c167,§18andc206,§1;amimpL1984,c90,§1;gench1985;amL1988,c141,§19]

Note

Chapter416referredtointextisrepealed.

Cross Reference

Professionalcorporations,seechapter415A.TaxInformationReleaseNo.92-7,“ApplicationofStateTaxesonInventoryandBusinessInterruptionInsuranceProceeds”TaxInformationReleaseNo.96-1,“ComputerCompany’sProvisionofIn-StateRepairServicesCreatesNexus”Tax InformationReleaseNo.97-4,“Applicationof theBusinessEntityClassificationRulesUnder the ‘Check-the-box’Regulations to the

HawaiiIncomeTaxandOtherTaxes”TaxInformationReleaseNo.2010-01,“MilitarySpousesResidencyReliefAct(“MSRRA”)”


Refundofrealpropertytaxafterterminationofatrustbecomesincometothebeneficiaries.Att.Gen.Op.64-5.Taxabilityofincomeearnedout-of-statebyresident.Att.Gen.Op.65-5.

Case Notes

Incometaxnotapplicabletoinheritanceunderterritoriallaws.14H.38.Taxonannuityfrompropertyheldintrustispayablebyannuitantandnottrustee.20H.589.Annuitiespaidfromtrusttaxableasincome.32

H.51.Taxpaidbyemployerforemployeeisincomeofemployee.38H.188.Giftsintervivosdeemednotincome.25H.603.Taxonincomeinyearpaymentmadefordamagescausedbylaborstrike.StockofmainlandagentsistaxablebyTerritory.26H.299,aff’d

289F.664.Onlytaxesactuallypaidduringthetaxableyeardeductibleasexpensesandnotreservefortaxesforsucceedingyears.27H.336.Intangibles.31H.264,aff’d47F.2d869.Profitsrealizedfromsaleofstocktaxableinyearoftransaction.Taxonprofitonstockredeemedbycorporation.32H.896,aff’d79F.2d671.Retrospectivetaxlaws.33H.766.Taxonincomeofcorporationisvalid.1U.S.D.C.Haw294,aff’d121F.772.AbilityofStatetotaxincomeofnonresidentsturnsonsitusofpropertygeneratingincome.64H.258,640P.2d282.IntangiblepropertygeneratingincomeacquiredabusinesssitusinHawaiiandcouldbetaxedundersubsections(b)and(e)(2).64H.258,640

P.2d282.

§235-4.3 REPEALED. L1999,c253,§5.

§235-4.5 Taxation of trusts, beneficiaries; credit. (a)Thereshallbeexcludedfromgrossincomeanyintangibleincome,suchasdividendsandinterest,earnedbyatrustsitedinthisStatetotheextentthat,duringthetaxableyearofthetrust,thebeneficialinterestinthetrustshallbeheldbyabeneficiaryorbeneficiariesresidingoutsidethisState.Thisexclusionshallnotapplytoincomereceivedfromrealpropertyheldinalandtrustformedunderchapter558.

(b) If a trust sited in thisStateownsonehundredpercentof the stockofa foreigncorporationwhichdoesnotengage inanactive tradeorbusinessbutacts solelyasaholdingcompanyreceiving intangible income,suchasdividendsandinterest,theintangibleincomeoftheforeigncorporationshallbeexcludedfromgrossincomeforHawaiiincometaxpurposesbutonlytotheextentthattheincomeofthetrustbeneficiariesisexcludedfromtaxationundersubsection(a).Asusedinthissection,foreigncorporationmeansacorporationnotcreatedororganizedintheUnitedStatesorunderthelawsoftheUnitedStates,Hawaii,oranyotherstate.

(c) Anyresidentbeneficiaryofatrustwithasitusinanotherstatemayclaimacreditforincometaxespaidbythetrusttotheotherstateonanyincomereceivedwhichisattributabletoassetsotherthanintangibles.[L1985,c283,§1;amL1988,c33,§1]

§235-5 Allocation of income of persons not taxable upon entire income. (a)ThissectionappliestoincomenotsubjecttopartIIofthischapter,includingnonbusinessincomeandcertainsection235-22income.

(b) Income(includinggains),alsolosses,frompropertyownedintheStateandfromanyothersourceintheStateshallbedeterminedbyanallocationandseparateaccountingsofaraspracticable.LossesfrompropertyownedoutsidetheStateandfromothersourcesoutsidetheStateshallnotbededucted.

18-235-5



(c) Deductionsconnectedwithincometaxableunderthischaptershallbeallowed,butdeductionsconnectedwithincomenottaxableunderthischaptershallnotbeallowed.Deductionsfromadjustedgrossincomethatarenotconnectedwithparticularpropertyorincome,suchasmedicalexpenses,shallbeallowedonlytotheextentoftheratiooftheadjustedgrossincomeattributedtothisStatetotheentireadjustedgrossincomecomputedwithoutregardtosourceintheState.

Deductions by individual taxpayers fromgross income for alimony and separatemaintenance payments undersection215oftheInternalRevenueCodeshallbeallowedonlytotheextentoftheratioofgrossincomeattributedtothisStatetotheentiregrossincomecomputedwithoutregardtosourceinthisState;providedthatasusedinthissentence“grossincome”meansgrossincomeasdefinedintheInternalRevenueCode,minusthedeductionsallowedbysection62oftheInternalRevenueCode,otherthanthedeductionsforalimonyandseparatemaintenancepaymentsundersection215oftheInternalRevenueCode.

Deductionsbyindividual taxpayersfromgross incomeforpension,profit-sharing,stockbonusplans,andotherplansqualifiedundersections401to409oftheInternalRevenueCode,assuchsectionsareoperativeforthepurposesofthischapter,shallbeallowedonlytotheextentthatsuchdeductionsareattributedtocompensationearnedinthisState.

(d) Thestandarddeductionasprovidedinsection235-2.4andpersonalexemptionsasprovidedinsection235-54shallbeallowedonlytotheextentoftheratiooftheadjustedgrossincomeattributedtothisStatetotheentireadjustedgrossincomecomputedwithoutregardtosourceintheState.

(e) IfintheopinionofthedepartmenttheallocationshereinaboveprovideddonotclearlyandaccuratelyreflecttheactualamountoftheadjustedgrossincomeandtaxableincomereceivedorderivedfromallpropertyownedandanyandeveryothersourceintheState,orifanypersonshowsthattheallocationshereinaboveprovidedresultinadjustedgrossincomeortaxableincomebeingattributedtotheStateinalargeramountthanisjustandequitable,thenthesameshallbedetermined,allocated,andapportionedundersuchrules,processes,andformulasasthedepartmentprescribesasbeingjustandequitable.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-4;HRS§235-5;amL1978,c173,§2(6);amL1983,c88,§2;amimpL1984,c90,§1;gench1985;amL1989,c11,§1;amL1999,c253,§3]

Cross Reference

TaxInformationReleaseNo.57-78,“AdoptionofInternalRevenueCode”OBSOLETETaxInformationReleaseNo.92-3,“IncomeTaxIssuesAffectingNonresidentAliens”SupplementedbyTIR97-1

§235-5.5 Individual housing accounts. (a)Thereshallbeallowedasadeductionfromgrossincometheamount,nottoexceed$5,000,paidincashduringthetaxableyearbyanindividualtaxpayertoanindividualhousingaccountestablishedfortheindividual’sbenefittoprovidefundingforthepurchaseoftheindividual’sfirstprincipalresidence.Adeductionnottoexceed$10,000shallbeallowedforamarriedcouplefilingajointreturn.Nodeductionshallbeallowedonanyamountsdistributedlessthanthreehundredsixty-fivedaysfromthedateonwhichacontributionismadetotheaccount.Anydeductionclaimedforaprevioustaxableyearforamountsdistributedlessthanthreehundredsixty-fivedaysfromthedateonwhichacontributionwasmadeshallbedisallowedandtheamountdeductedshallbeincludedintheprevioustaxableyear’sgrossincomeandthetaxreassessed.Theinterestpaidoraccruedwithinthetaxableyearontheaccountshallnotbeincludedintheindividual’sgrossincome.Forpurposesofthissection,theterm“firstprincipalresidence”meansaresidentialpropertypurchasedwiththepaymentordistributionfromtheindividualhousingaccountwhichshallbeownedandoccupiedastheonlyhomebyanindividualwhodidnothaveanyinterestin,individually,orwhosespousedidnothaveanyinterestin,iftheindividualismarried,aresidentialpropertywithinthelastfiveyearsofopeningtheindividualhousingaccount.

Inthecaseofamarriedcouplefilingseparatereturns,thesumofthedeductionsallowabletoeachofthemforthetaxableyearshallnotexceed$5,000,or$10,000forajointreturn,foramountspaidincash,excludinginterestpaidoraccruedthereon.

Theamountspaidincashallowableasadeductionunderthissectiontoanindividualforalltaxableyearsshallnotexceed$25,000,excludinginterestpaidoraccrued.Inthecaseofmarriedindividualshavingseparateindividualhousingaccounts, thesumoftheseparateaccountsandthedeductionunderthissectionshallnotexceed$25,000,excludinginterestpaidoraccruedthereon.

(b) Forpurposesof thissection, theterm“individualhousingaccount”meansatrustcreatedororganizedinHawaiifortheexclusivebenefitofanindividual,or,inthecaseofamarriedindividual,fortheexclusivebenefitoftheindividualandspousejointly,butonlyifthewrittengoverninginstrumentcreatingthetrustmeetsthefollowingrequirements:

(1) Contributionsshallnotbeacceptedforthetaxableyearinexcessof$5,000(or$10,000inthecaseofajointreturn)orinexcessof$25,000foralltaxableyears,exclusiveofinterestpaidoraccrued;

(2) Thetrusteeisabank,asavingsandloanassociation,acreditunion,oradepositoryfinancialservicesloancompany,chartered,licensed,orsupervisedunderfederalorstatelaw,whoseaccountsareinsuredbytheFederalDepositInsuranceCorporation,theNationalCreditUnionAdministration,oranyagencyofthis

18-235-5.5



Stateoranyfederalagencyestablishedforthepurposeofinsuringaccountsinthesefinancialinstitutions.ThefinancialinstitutionmustactivelymakeresidentialrealestatemortgageloansinHawaii;

(3) Theassetsofthetrustshallbeinvestedonlyinfullyinsuredsavingsortimedeposits.Fundsheldinthetrustmaybecommingledforpurposesofinvestment,butindividualrecordsshallbemaintainedbythetrusteeforeachindividualhousingaccountholderthatshowalltransactionsindetail;

(4) Theentireinterestofanindividualormarriedcoupleforwhosebenefitthetrustismaintainedshallbedistributedtotheindividualorcouplenotlaterthanonehundredtwentymonthsafterthedateonwhichthefirstcontributionismadetothetrust;

(5) Exceptasprovidedinsubsection(g),thetrusteeshallnotdistributethefundsintheaccountunlessthetrustee:(A) VerifiesthatthemoneyistobeusedforthepurchaseofafirstprincipalresidencelocatedinHawaii,

andprovidesthattheinstrumentofpaymentispayabletothemortgagor,constructioncontractor,orothervendorofthepropertypurchased;or

(B) Withholdsanamountequaltotenpercentoftheamountwithdrawnfromtheaccountandremitsthisamounttothedirectorwithintendaysafterthedateofthewithdrawal.Theamountwithheldshallbeappliedtotheliabilityofthetaxpayerundersubsections(c)and(e);and

(6) Ifanyamountsaredistributedbefore theexpirationof threehundredsixty-fivedays fromthedateonwhichacontributionismadetotheaccount,thetrusteeshallsonotifyinwritingthetaxpayerandthedirector. If the trusteemakes the verification required in paragraph (5)(A), then the department shalldisallowthedeductionundersubsection(a)andsubsections(c),(e),and(f)shallnotapplytothatamount.Ifthetrusteewithholdsanamountunderparagraph(5)(B),thenthedepartmentshalldisallowthedeductionundersubsection(a)andsubsection(e)shallapply,butsubsection(c)shallnotapply.

(c) Anycontributionspaidordistributedoutofanindividualhousingaccountshallbeincludedingrossincomebytheindividualforwhosebenefittheaccountwasestablishedforthetaxableyearinwhichthepaymentordistributionisreceived,unlesstheamountisusedexclusivelyinconnectionwiththepurchaseofthefirstprincipalresidenceinHawaiifortheindividualforwhosebenefittheaccountwasestablished.

(d) Thetransferofanindividual’sinterestinanindividualhousingaccounttoaspouseunderadissolutionofmarriagedecreeorunderawritteninstrumentincidenttoadissolutionofmarriageshallnotbeconsideredataxabletransfermadebytheindividual,andtheinterest,atthetimeofthetransfer,shallbetreatedaspartofanindividualhousingaccountofthetransferee,andnotofthetransferor.Afterthetransfer,theaccountshallbetreated,forpurposesofthissection,asmaintainedforthebenefitofthetransferee.

(e) If a distribution from an individual housing account to an individual forwhose benefit the accountwasestablishedismadeandnotusedinconnectionwiththepurchaseofthefirstprincipalresidenceinHawaiifortheindividual,thetaxliabilityoftheindividualunderthischapterforthetaxableyearinwhichthedistributionisreceivedshallbeincreasedbyanamountequal totenpercentof theamountof thedistributionwhichis includableintheindividual’sgrossincomeforthetaxableyear.

If,duringanytaxableyear,theindividualusestheaccountoranyportionthereofassecurityforaloan,theportionsousedshallbetreatedasifithadbeendistributedtothatindividual.

(f) If theindividualforwhosebenefittheindividualhousingaccountwasestablishedpurchasesaresidentialpropertyinHawaiiwiththedistributionfromtheindividualhousingaccount:

(1) BeforeJanuary1,1990,andiftheindividualsellsinanymannerormethodorbyuseofanyinstrumentconveyingortransferringtheresidentialproperty,thegrossincomeoftheindividualunderthischapterforthetaxableyearinwhichtheresidentialpropertyissold,conveyed,ortransferred,whicheverisapplicable,shallincludeanamountequaltotheamountofthedistributionfromtheindividualhousingaccount,andinaddition,thegrossincomeoftheindividualshallbeincreasedbyanamountequaltotenpercentofthetotaldistributionfromtheindividualhousingaccount;or

(2) AfterDecember31,1989,theindividualshallreportone-tenthofthetotaldistributionfromtheindividualhousingaccountusedtopurchasetheresidentialpropertyasgrossincomeinthetaxableyearinwhichthedistributioniscompletedandineachtaxableyearthereafteruntilallofthedistributionhasbeenincludedintheindividual’sgrossincomeattheendofthetenthtaxableyearafterthepurchaseoftheresidentialproperty. If the individual sells in anymanner ormethod or by use of any instrument conveying ortransferringtheresidentialproperty,thegrossincomeoftheindividualunderthischapterforthetaxableyear inwhich the residentialproperty is sold, conveyed,or transferred,whichever is applicable, shallinclude an amount equal to the amount of the distribution from the individual housing account notpreviouslyreportedasgrossincome,andinaddition,thetaxliabilityoftheindividualshallbeincreasedbyanamountequaltotenpercentofthetotaldistributionfromtheindividualhousingaccount.Iftheindividual sells the residential property in anymanner as provided in this paragraph after all of thedistributionhasbeenincludedintheindividual’sgrossincomeattheendofthetenthtaxableyearafterthepurchaseoftheresidentialproperty,thetaxliabilityoftheindividualshallnotbeincreasedbyanamountequaltotenpercentofthetotaldistributionfromtheindividualhousingaccount.

[§235-5.6] INCOME TAX LAW


AnindividualwhopurchasedaresidentialpropertyinHawaiiwiththedistributionfromanindividualhousingaccountbeforeJanuary1,1990,whoissubjecttoparagraph(1)mayelecttoreportasprovidedinparagraph(2).TheelectionshallbemadebeforeJanuary1,1991.Iftheindividualmakestheelection,theindividualshallreportone-tenthofthetotaldistributionfromtheindividualhousingaccountasgrossincomeinthetaxableyearinwhichtheelectionoccursandineachtaxableyearthereafteruntilallofthedistributionhasbeenincludedingrossincomeasprovidedbyparagraph(2).If theindividualmakingtheelectionsells theresidentialpropertyinanymannerasprovidedinparagraph(2),thentheindividualshallincludeasincometheamountofthedistributionnotpreviouslyreportedasincomeandincreasetheindividual’staxliabilityasprovidedinthesecondsentenceofparagraph(2),exceptwhenthethirdsentenceofparagraph(2)applies.

Inthealternative,anyindividualsubjecttoparagraph(2)whoestablishedtheindividualhousingaccountbeforeJanuary1,1990,mayelectwithinoneyearafterthedateofpurchase,tobesubjecttoparagraph(1).

(g) Notaxliabilityshallbeimposedunderthissectionif:(1) Thepaymentordistributionisattributabletotheindividualdyingorbecomingtotallydisabled;or(2) Residentialpropertysubjecttosubsection(f)istransferredbywillorbyoperationoflaworsolddueto

thedeathortotaldisabilityofanindividualorindividual’sspouse,subjecttothefollowing:

Anindividualshallnotbeconsideredtobetotallydisabledunlessproofisfurnishedofthetotaldisabilityintheformandmannerasthedirectormayrequire.

Uponthedeathofanindividualforwhosebenefitanindividualhousingaccounthasbeenestablished,thefundsin the account shall be payable to the estate of the individual; provided that if the accountwas held jointly by thedecedentandaspouseofthedecedent,theaccountshallterminateandbepaidtothesurvivingspouse;or,ifthesurvivingspousesoelects, thespousemaycontinuetheaccountasanindividualhousingaccount.Uponthetotaldisabilityofanindividualforwhosebenefitanindividualhousingaccounthasbeenestablished,theindividualortheindividual’sauthorizedrepresentativemayelecttocontinuetheaccountorterminatetheaccountandbepaidtheassets;providedthatiftheaccountwasheldjointlybyatotallydisabledpersonandaspouseofthatperson,thenthespouseoranauthorizedrepresentativemayelecttocontinuetheaccountorterminatetheaccountandbepaidtheassets.

(h) Iftheindividualforwhosebenefittheindividualhousingaccountwasestablishedsubsequentlymarriesapersonwhohasorhashadanyinterestinresidentialproperty,theindividual’shousingaccountshallbeterminated,thefundsthereinshallbedistributedtotheindividual,andtheamountofthefundsshallbeincludableintheindividual’sgross incomefor thetaxableyear inwhichsuchmarriagetookplace;providedthat thetaxliabilitydefinedundersubsection(f)shallnotbeimposed.

(i) Thetrusteeofanindividualhousingaccountshallmakereportsregardingtheaccounttothedirectorandtotheindividualforwhomtheaccountismaintainedwithrespecttocontributions,distributions,andothermattersasthedirectormayrequireunderrules.Thereportsshallbefiledatatimeandinamannerasmayberequiredbyrulesadoptedunderchapter91.Apersonwhofailstofilearequiredreportshallbesubjecttoapenaltyof$10tobepaidtothedirectorforeachinstanceoffailuretofile.[L1982,c285,§2;amL1986,c231,§2;amL1990,c99,§§1,2;amL1992,c183,§§1,2;amL1994,c49,§1;amL1998,c120,§2;amL2017,c12,§40]

[§235-5.6] Individual development account contribution tax credit. (a)Thereshallbeallowedtoeachtaxpayersubjecttothetaximposedunderthischapter,anindividualdevelopmentaccountcontributiontaxcreditcertifiedunderchapter257whichshallbeappliedagainstthetaxpayer’snetincometaxliability,ifany,imposedbythischapterforthetaxableyearinwhichthecreditisproperlyclaimed.

(b) Theindividualdevelopmentaccountcontributiontaxcreditshallbeequal tofiftypercentof theamountcontributedbythetaxpayertoafiduciaryorganizationasdefinedbyandinthemannerprescribedinchapter257.Ifadeductionistakenundersection170(withrespecttocharitablecontributionsandgifts)oftheInternalRevenueCode,notaxcreditshallbeallowedforthatportionofthecontributionforwhichthedeductionwastaken.

(c) Ifthetaxcreditunderthissectionexceedsthetaxpayer’sincometaxliability,theexcessofthetaxcreditoverliabilitymaybeusedasacreditagainstthetaxpayer’sincometaxliabilityinsubsequentyearsuntilexhausted.Allclaims,includinganyamendedclaims,fortaxcreditsunderthissectionshallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditmaybeclaimed.Failuretocomplywiththeforegoingprovisionshallconstituteawaiveroftherighttoclaimthecredit.

(d) Applicationforthecreditunderthissectionshallbeuponformsprovidedbythedepartment.(e) ThecreditunderthissectionshallbeavailablefortaxableyearsbeginningafterDecember31,1999,butshall

notbeavailablefortaxableyearsbeginningafterDecember31,2004.[L2000,c184,§1]

§235-6 Foreign manufacturing corporation; warehousing of products. (a)Forthepurposesofsections235-21to235-39,aforeigncorporationengagedinthebusinessofmanufacturingwithouttheState,havingitsmanufacturedproductswarehousedinthisStatebyanotherpersonwhoisengagedinthebusinessofwarehousinginthisStateandwhosecompensationforprovidingthewarehousingisincludedinthemeasureofthetaximposedbychapter237or239,shallnotbedeemedtobecarryingonatradeorbusinessinthisStateifallofthefollowingrequirementsaremet:



(1) Everydeliveryofsaleofsuchproductssowarehousedismadeatthewarehousetofillanorderforsuchpropertyprocuredbyarepresentative(asdefinedinsubsection(b))fromasellerlicensedunderchapter237andpurchasingsuchpropertyforpurposesofresale;

(2) EveryordersoprocuredwasmadesubjecttoacceptanceandwasacceptedbythecorporationatanofficelocatedoutofthisState;

(3) Nocollectionforthepaymentoftheproductsdeliveredasdescribedinparagraph(1)ismadeinthisStatebyanyofitsemployeesoragentsorbyanyrepresentative;and

(4) Exceptasprovidedinthissection,itisnotcarryingonatradeorbusinessinthisStatewithinthemeaningofsections235-21to235-39.

(b) “Representative”means a salesperson, commission agent, broker, or other person who is authorized oremployedasanindependentcontractorandnotasanemployeebytheforeignmanufacturingcorporationdescribedinsubsection(a)toassistthemanufacturerinsellingitsproductsinthisState,byprocuringordersforsuchsale,andwhocarriesonsuchactivitiesinthisState(itbeingimmaterialwhethersuchactivitiesareregularorintermittent),butwhosefunctionsandauthoritydonotincludetheacceptingofordersfor,orthemakingofdeliveriesof,orthecollectingofpaymentfordeliveriesofsuchproducts.[L1963,c70,§1;Supp,§121-4.1;HRS§235-6;amL1992,c134,§1;gench1993]

§235-7 Other provisions as to gross income, adjusted gross income, and taxable income. (a) Thereshallbeexcludedfromgrossincome,adjustedgrossincome,andtaxableincome:

(1) IncomenotsubjecttotaxationbytheStateundertheConstitutionandlawsoftheUnitedStates;(2) Rights,benefits,andotherincomeexemptedfromtaxationbysection88-91,havingtodowiththestate

retirementsystem,andtherights,benefits,andotherincome,comparabletotherights,benefits,andotherincomeexemptedbysection88-91,underanyotherpublicretirementsystem;

(3) Anycompensationreceivedintheformofapensionforpastservices;(4) CompensationpaidtoapatientaffectedwithHansen’sdiseaseemployedbytheStateortheUnitedStates

inanyhospital,settlement,orplaceforthetreatmentofHansen’sdisease;(5) Exceptasotherwiseexpresslyprovided,paymentsmadebytheUnitedStatesorthisState,underanactof

CongressoralawofthisState,whichbyexpressprovisionoradministrativeregulationorinterpretationareexemptfromboththenormalandsurtaxesoftheUnitedStates,eventhoughnotsoexemptedbytheInternalRevenueCodeitself;

(6) Anyincomeexpresslyexemptedorexcludedfromthemeasureofthetaximposedbythischapterbyanyother lawof theState, it being the intent of this chapter not to repeal or supersede any such expressexemptionorexclusion;

(7) IncomereceivedbyeachmemberofthereservecomponentsoftheArmy,Navy,AirForce,MarineCorps,orCoastGuard of theUnitedStates ofAmerica, and theHawaii national guard as compensation forperformanceofduty,equivalenttopayreceivedforforty-eightdrills(equivalentoftwelveweekends)andfifteendaysofannualduty,atan:(A) E-1paygradeaftereightyearsofservice;providedthatthissubparagraphshallapplytotaxableyears

beginningafterDecember31,2004;(B) E-2paygradeaftereightyearsofservice;providedthatthissubparagraphshallapplytotaxableyears

beginningafterDecember31,2005;(C) E-3paygradeaftereightyearsofservice;providedthatthissubparagraphshallapplytotaxableyears

beginningafterDecember31,2006;(D) E-4paygradeaftereightyearsofservice;providedthatthissubparagraphshallapplytotaxableyears

beginningafterDecember31,2007;and(E) E-5paygradeaftereightyearsofservice;providedthatthissubparagraphshallapplytotaxableyears

beginningafterDecember31,2008;(8) IncomederivedfromtheoperationofshipsoraircraftiftheincomeisexemptundertheInternalRevenue

CodepursuanttotheprovisionsofanincometaxtreatyoragreemententeredintobyandbetweentheUnitedStatesandaforeigncountry,providedthatthetaxlawsofthelocalgovernmentsofthatcountryreciprocallyexemptfromtheapplicationofalloftheirnetincometaxes, theincomederivedfromtheoperationofshipsoraircraftthataredocumentedorregisteredunderthelawsoftheUnitedStates;

(9) Thevalueoflegalservicesprovidedbyalegalserviceplantoataxpayer,thetaxpayer’sspouse,andthetaxpayer’sdependents;

(10)Amountspaid,directlyorindirectly,byalegalserviceplantoataxpayeraspaymentorreimbursementfortheprovisionoflegalservicestothetaxpayer,thetaxpayer’sspouse,andthetaxpayer’sdependents;

(11)Contributionsbyanemployertoalegalserviceplanforcompensation(throughinsuranceorotherwise)totheemployer’semployeesforthecostsoflegalservicesincurredbytheemployer’semployees,theirspouses,andtheirdependents;and

18-235-7-0118-235-7-02

18-235-7-03



(12)Amountsreceivedintheformofamonthlysurchargebyautilityactingonbehalfofanaffectedutilityundersection269-16.3;providedthatamountsretainedbytheactingutilityforcollectionorothercostsshallnotbeincludedinthisexemption.

(b) Thereshallbeincludedingrossincome,adjustedgrossincome,andtaxableincome:(1) Unlessexcludedby thischapter relating to theuniformedservicesof theUnitedStates,cost-of-living

allowancesandotherpaymentsexemptedbySection912oftheInternalRevenueCode,butSection119oftheInternalRevenueCodeneverthelessshallapply;and

(2) Unlessexpresslyexemptedorexcludedasprovidedbysubsection(a)(6),interestontheobligationsofaStateorapoliticalsubdivisionthereof.

(c) The deductions of or based on dividends paid or received, allowed to a corporation under Chapter 1,SubchapterB,PartVIIIoftheInternalRevenueCode,shallnotbeallowed.Inlieuthereofthereshallbeallowedasadeductiontheentireamountofdividendsreceivedbyanycorporationuponthesharesofstockofanationalbankingassociation,qualifyingdividends,asdefinedinSection243(b)oftheInternalRevenueCode,receivedbymembersofanaffiliatedgroup,ordividendsreceivedbyasmallbusinessinvestmentcompanyoperatingundertheSmallBusinessInvestmentActof1958(PublicLaw85-699)uponsharesofstockqualifyingunderparagraph(3),seventypercentoftheamountreceivedbyanycorporationasdividends:

(1) Uponthesharesofstockofanothercorporation,ifatthedateofpaymentofthedividendatleastninety-fivepercentoftheothercorporation’scapitalstockisownedbyoneormorecorporationsdoingbusinessinthisstateandiftheothercorporationissubjectedtoanincometaxinanotherjurisdiction(butsubjectiontofederaltaxdoesnotconstitutesubjectiontoincometaxinanotherjurisdiction);and

(2) UponthesharesofstockofabankorinsurancecompanyorganizedanddoingbusinessunderthelawsoftheState;

(3) Upon the shares of stockof another corporation, if at leastfifteenper cent of the latter corporation’sbusiness,forthetaxableyearofthelattercorporationprecedingthepaymentofthedividend,hasbeenattributedtothisState.

However,exceptfornationalbankdividends,thedeductionsunderthissubsectionarenotallowedwhentheywouldnothavebeenallowedundersection243oftheInternalRevenueCode,asamendedbyPublicLaw85-866,byreasonofsubsections(b)and(c)ofsection246oftheInternalRevenueCode.Forthepurposesofthissubsectionfifteenpercentofacorporation’sbusinessshallbedeemedtohavebeenattributedtothisStateiffifteenpercentormoreoftheentiregrossincomeofthecorporationasdefinedinthischapter(whichforthepurposesofthissubsectionshallbecomputedwithoutregardtosourceinthestateandshallincludeincomenottaxablebyreasonofthefactthatitisfrompropertynotownedinthestateorfromatradeorbusinessnotcarriedoninthestateinwholeorinpart),undersection235-5andtheotherprovisionsofthischapter,shallhavebeenattributedtotheStateandsubjectedtoassessmentofthetaxableincometherefrom(includingthedeterminationoftheresultingnetloss,ifany).

(d)(1) FortaxableyearsendingbeforeJanuary1,1967,thenetoperatinglossdeductionsallowedascarrybacksandcarryoversbytheInternalRevenueCodeshallnotbeallowed.Inlieuthereofthenetoperatinglossdeductionshallconsistof theexcessof thedeductionsallowedbythischapterover thegross income,computed with the modifications specified in paragraphs (1) to (4) of section 172(d) of the InternalRevenueCode,andwiththefurthermodificationstatedinparagraph(3)hereof;andshallbeallowedasadeductionincomputingthetaxableincomeofthetaxpayerforthesucceedingtaxableyear;

(2)(A) With respect tonetoperating lossdeductions resulting fromnetoperating losses for taxableyearsendingafterDecember31,1966,thenetoperatinglossdeductionprovisionsoftheInternalRevenueCodeshallapply,provided that there shallbenonetoperating lossdeductioncarriedback toanytaxableyearendingpriortoJanuary1,1967;

(B) In the case of a taxable year beginning in 1966 and ending in 1967, the entire amount of all netoperatinglossdeductionscarriedbacktothetaxableyearshallbelimitedtothatportionoftaxableincomeforsuchtaxableyearwhichthenumberofdaysin1967bearstothetotaldaysinthetaxableyearendingin1967;and

(C) Thecomputationofanynetoperatinglossdeductionforataxableyearcoveredbythissubsectionshallrequirethefurthermodificationsstatedinparagraphs(3),(4),and(5)ofthissubsection;

(3) Incomputingthenetoperatinglossdeductionallowedbythissubsectionthereshallbeincludedingrossincometheamountofinterestwhichisexcludedfromgrossincomebysubsection(a),decreasedbytheamountofinterestpaidoraccruedwhichisdisallowedasadeductionbysubsection(e).Indeterminingtheamountofthenetoperatinglossdeductionunderthissubsectionofanycorporation,thereshallbedisregardedthenetoperatinglossofsuchcorporationforanytaxableyearforwhichthecorporationisanelectingsmallbusinesscorporation;

(4) Nonetoperatinglosscarrybackorcarryovershallbeallowedbythischapterifnotallowedundersection172oftheInternalRevenueCode;

(5) Theelectiontorelinquishtheentirecarrybackperiodwithrespecttoanetoperatinglossallowedundersection172(b)(3)(C)of theInternalRevenueCodeshallbeoperativefor thepurposesof thischapter;

18-235-7-15



providedthatnotaxpayershallmakesuchanelectionastoanetoperatinglossofabusinesswheresuchnetoperatinglossoccurredinthetaxpayer’sbusinesspriortothetaxpayerenteringbusinessinthisstate;

(6) Thefive-yearcarrybackperiodfornetoperatinglossesforanytaxableyearendingduring2001and2002in section 172(b)(1)(H) of the InternalRevenueCode as it read onDecember 31, 2008, shall not beoperativeforpurposesofthischapter;and

(7) Theelectionforthecarrybackfor2008or2009netoperatinglossesofsmallbusinessesasprovidedinsection172(b)(1)(H)oftheInternalRevenueCodeasitreadonDecember31,2009,shallnotbeoperativeforpurposesofthischapter.

(e) Thereshallbedisallowedasadeductiontheamountofinterestpaidoraccruedwithinthetaxableyearonindebtednessincurredorcontinued,(1)topurchaseorcarrybondstheinterestuponwhichisexcludedfromgrossincomebysubsection(a);or(2)topurchaseorcarrypropertyownedwithoutthestate,ortocarryontradeorbusinesswithoutthestate,ifthetaxpayerisapersontaxableonlyuponincomefromsourcesinthestate.

(f) Lossesofpropertyastheresultoftidalwave,hurricane,earthquake,orvolcaniceruption,orasaresultoffloodwatersoverflowingthebanksorwallsofariverorstream,orfromanyothernaturaldisaster,totheextentoftheamountdeductible,underthischapter,notcompensatedforbyinsuranceorotherwise,maybedeductedinthetaxableyearinwhichsustained,orattheoptionofthetaxpayermaybedeductedinequalinstallmentsoveraperiodoffiveyears,thefirstsuchyeartobethecalendaryearorfiscalyearofthetaxpayerinwhichsuchlossoccurred.[LSp1957,c1,ptof§2;amL1959,c276,§2andc277,§8(a);amLSp19591st,c29,§8;amL1963,c26,§1,c47,§1,c91,§2andc146,§4;amL1965,c155,§31(a)andc201,§5;Supp,§121-5;amL1967,c32,§1;HRS§235-7;amL1968,c18,§2;amL1969,c152,§1;amL1970,c180,§1;amL1971,c95,§1;amL1976,c156,§6;amL1978,c173,§2(7);amL1979,c62,§2(6),(7),c105,§21,andc224,§3;amL1981,c185,§1andc209,§2;amL1982,c25,§2;amL1983,c124,§16;amimpL1984,c90,§1;gench1985;amL1987,c39,§3andc239,§1(7),(8);amL1990,c340,§2;amL1992,c103,§1;amL1993,c337,§5;amLSp1995,c10,§3;amL2003,c172,§4;amL2004,c197,§2;amL2007,c166,§1;amL2008,c28,§21;amL2010,c59,§1andc112,§8;amL2012,c34,§19andc165,§5;amL2017,c205,§4]

Note

ThefollowingactsexemptedtheiramendmentsfromtheJanuary1,2018repealandreenactmentconditionofL2007,c166,§3asamendedbyL2012,c220,§5:

L2010,c59;L2012,c34andc165.

Cross Reference

TaxInformationReleaseNo.53-77,“BenefitsReceivedUnderIndividualRetirementPlansandSelf-EmployedRetirementPlans”TaxInformationReleaseNo.57-78,“AdoptionofInternalRevenueCode”OBSOLETETaxInformationReleaseNo.80-5,“DeductionsforPoliticalContributions”OBSOLETETaxInformationReleaseNo.84-1,“TaxabilityofInterestonU.S.Obligations”TaxInformationReleaseNo.88-7,“TaxabilityofAmountsReceivedUndertheCivilLibertiesActof1988forIncomeTaxPurposes”TaxInformationReleaseNo.90-4,“TaxabilityofBenefitPaymentsfromPensionPlantoParticipantsWhoAttainAge70-1/2asRequiredby

theInternalRevenueCode(IRC)Section401(a)(9)(C)”TaxInformationReleaseNo.95-3,“ImmunityfromNetIncomeTaxationUnderPublicLaw86-272”TaxInformationReleaseNo.96-1,“ComputerCompany’sProvisionofIn-StateRepairServicesCreatesNexus”Tax InformationReleaseNo.96-5, “TaxationofPensionsunder theHawaiiNet IncomeTaxLaw:DeferredCompensationArrangements;

RolloverIRAs;Sub-AccountsofPensionPlans;SocialSecurityandRailroadRetirementActBenefits;LimitationsonDeductionsforContributionstoaNonqualifiedPlan”

TaxInformationReleaseNo.98-6,“ApplicationofIncomeTaxandFranchiseTaxLawstoRealEstateInvestmentTrustsandTheirOwners”TaxInformationReleaseNo.98-7,“ChangeinAccountingPeriodfromCalendartoFiscalYearforPublicServiceCompanies”TaxInformationReleaseNo.99-2,“DividendsReceivedDeduction”TaxInformationReleaseNo.2010-01,“MilitarySpousesResidencyReliefAct(“MSRRA”)”


Federalhomeloanbanks,notbeingnationalbanks,dividendsreceivedtherefromaretaxable.Att.Gen.Op.65-8.

Case Notes

Depreciationnotactuallysustainedduringyear,notdeductible.18H.15.Nofederalorterritorialinhibitionagainstimpositionoftaxuponincomeaccruingpriortoenactment.33H.766.Insurancepremiumsonlifeofpresidentnotanactualbusinessexpense.36H.11.Cited:18H.530;18H.596;34H.515,583.

§235-7.3 Royalties derived from patents, copyrights, or trade secrets excluded from gross income. (a) Inadditiontotheexclusionsinsection235-7,thereshallbeexcludedfromgrossincome,adjustedgrossincome,andtaxableincome,amountsreceivedbyanindividualoraqualifiedhightechnologybusinessasroyaltiesandotherincomederivedfromanypatents,copyrights,andtradesecrets:

(1) Ownedbytheindividualorqualifiedhightechnologybusiness;and(2) Developedandarisingoutofaqualifiedhightechnologybusiness.

(b) Withrespecttoperformingartsproducts,thisexclusionshallextendto:



(1) Theauthorsofperformingartsproducts,oranyparts thereof,without regard to theapplicationof thework-for-hiredoctrineunderUnitedStatescopyrightlaw;

(2) The authors of performing arts products, or anyparts thereof, under thework-for-hire doctrineunderUnitedStatescopyrightlaw;and

(3) Theassignors,licensors,andlicenseesofanycopyrightrightsinperformingartsproducts,oranypartsthereof.

(c) Forthepurposesofthissection:“Performingartsproducts”means:(1) Audiofiles,videofiles,audiovideofiles,computeranimation,andotherentertainmentproductsperceived

byorthroughtheoperationofacomputer;and(2) Commercialtelevisionandfilmproductsforsaleorlicense,andreuseorresidualfeepaymentsfromthese

products.“Qualifiedhightechnologybusiness”meansabusinessthatconductsmorethanfiftypercentofitsactivitiesin

qualifiedresearch.“Qualifiedresearch”means:(1) Thesameasinsection41(d)oftheInternalRevenueCode;(2) Thedevelopmentanddesignofcomputersoftwareforultimatecommercialsale,lease,licenseortobe

otherwisemarketed,foreconomicconsideration.Withrespecttothesoftware’sdevelopmentanddesign,thebusinessshallhavesubstantialcontrolandretainsubstantialrightstotheresultingintellectualproperty;

(3) Biotechnology;(4) Performingartsproducts;(5) Sensorandoptictechnologies;(6) Oceansciences;(7) Astronomy;or(8) Nonfossilfuelenergy-relatedtechnology.[L1999,c178,§22;amL2000,c297,§6;amL2001,c221,

§7;amL2004,c215,§6]Cross Reference

TaxInformationReleaseNo.2007-05,“DepartmentofTaxation’sPositiononQualifiedHighTechnologyBusinessStatus forDisregardedEntities”

TaxInformationReleaseNo.2008-02,“AdvancedNoticeofProposedAdministrativeRulesRelatingtotheTaxationoftheMotionPictureandTelevisionFilmProductionIndustry”


§235-7.5 Certain unearned income of minor children taxed as if parent’s income. (a)Inthecaseofanychildtowhomthissectionapplies,thetaximposedbythischaptershallbeequaltothegreaterof:

(1) Thetaximposedbysection235-51withoutregardtothissection,or(2) Thesumof:

(A) Thetaxwhichwouldbeimposedbysection235-51ifthetaxableincomeofsuchchildforthetaxableyearwerereducedbythenetunearnedincomeofsuchchild,plus

(B) Suchchild’sshareofallocableparentaltax.(b) Thissectionshallapplytoanychildforanytaxableyearif:

(1) Suchchildhasnotattainedagefourteenbeforethecloseofthetaxableyear,and(2) Eitherparentofsuchchildisaliveatthecloseofthetaxableyear.

(c) Forthepurposeofthissection:(1) Theterm“allocableparentaltax”meanstheexcessof:

(A) Thetaxwhichwouldbeimposedbysection235-51ontheparent’staxableincomeifsuchincomeincludedthenetunearnedincomeofallchildrenoftheparenttowhomthissectionapplies,over,

(B) Thetaximposedbysection235-51ontheparentwithoutregardtothissection. Forpurposesofsubparagraph(A),netunearnedincomeofallchildrenoftheparentshallnotbetakeninto

accountincomputinganyexclusion,deduction,orcreditoftheparent.(2) Achild’sshareofanyallocableparentaltaxofaparentshallbeequaltoanamountwhichbearsthesame

ratio to the total allocable parental tax as the child’s net unearned income bears to the aggregate netunearnedincomeofallchildrenofsuchparenttowhomthissectionapplies.

(3) Exceptasprovidedinrules,iftheparentdoesnothavethesametaxableyearasthechild,theallocableparentaltaxshallbedeterminedonthebasisofthetaxableyearoftheparentendinginthechild’staxableyear.

(d) Forpurposesofthissection:(1) Theterm“netunearnedincome”meanstheexcessof:



(A) The portion of the adjusted gross income for the taxable yearwhich is not attributable to earnedincomeasdefinedintheInternalRevenueCode,over,

(B) Thesumof: (i)Theamountineffectforthetaxableyearundersection63(c)(5)(A)(relatingtothelimitationon

standarddeductioninthecaseofcertaindependents)oftheInternalRevenueCodeasoperativeundersection235-2.4(a),plus

(ii)Thegreateroftheamountdescribedinclause(i)or,ifthechilditemizesthechild’sdeductionsforthetaxableyear,theamountoftheitemizeddeductionsallowedbythischapterforthetaxableyearwhicharedirectlyconnectedwiththeproductionoftheportionofadjustedgrossincomereferredtoinsubparagraph(A).

(2) Theamountof thenetunearned incomeforany taxableyearshallnotexceed the individual’s taxableincomeforsuchtaxableyear.

(e) Forpurposesofthissection,theparentwhosetaxableincomeshallbetakenintoaccountshallbe:(1) Inthecaseofparentswhoarenotmarried(withinthemeaningofsection235-93),thecustodialparent

(withinthemeaningofsection152(e)(withrespecttothesupporttestincaseofchildofdivorcedparents,etc.)oftheInternalRevenueCode)ofthechild,and

(2) Inthecaseofmarriedindividualsfilingseparately,theindividualwiththegreatertaxableincome.(f) Theparentofanychildtowhomthissectionappliesforanytaxableyearshallprovidethesocialsecurity

numberofsuchparenttosuchchildandsuchchildshallincludesuchparent’ssocialsecuritynumberonthechild’sreturnoftaximposedbythissectionforsuchtaxableyear.

(g) Electiontoclaimcertainunearnedincomeofchildonparent’sreturn.(1) If:

(A) Anychildtowhomthissectionapplieshasgrossincomeforthetaxableyearonlyfrominterestanddividends(includingAlaskaPermanentFunddividends),

(B) Suchgrossincomeismorethan$500andlessthan$5,000,(C) Noestimatedtaxpaymentsforsuchyeararemadeinthenameandsocialsecuritynumberofsuch

child,andnoamounthasbeendeductedandwithheldundersection3406(withrespect tobackupwithholding)oftheInternalRevenueCode,and

(D) Theparentofsuchchild(asdeterminedundersubsection(e))electstheapplicationofparagraph(2), suchchildshallbetreated(otherthanforpurposesofthisparagraph)ashavingnogrossincomeforsuch

yearandshallnotberequiredtofileareturnunderthischapter.(2) Inthecaseofaparentmakingtheelectionunderthissubsection:

(A) Thegrossincomeofeachchildtowhomsuchelectionapplies(totheextentthegrossincomeofsuchchildexceeds$1,000)shallbeincludedinsuchparent’sgrossincomeforthetaxableyear,

(B) Thetaximposedbythissectionforsuchyearwithrespecttosuchparentshallbetheamountequaltothesumof:

(i)Theamountdeterminedundersection235-51aftertheapplicationofsubparagraph(A),plus (ii)Foreachsuchchild,thelesserof$10ortwopercentoftheexcessofthegrossincomeofsuch

childover$500.(3) Thedirectorshallprescribesuchrulesasmaybenecessaryorappropriatetocarryoutthepurposesofthis

subsection.[L1987,c239,§1(3);amL1989,c13,§4;amL1990,c15,§2;amL1991,c54,§2;amL2001,c199,§3]

Cross Reference

TaxInformationReleaseNo.90-7,“Parent’sElectiontoIncludeCertainUnearnedIncomeofChildrenonParent’sHawaiiNetIncomeTaxReturn”

§235-8 REPEALED. L1987,c239,§1(9).

§235-9 Exemptions; generally. Exceptasprovided in sections235-61 to235-67 relating towithholdingandcollectionoftaxatsource,andsection235-2.4relatingto“unrelatedbusinesstaxableincome”,thefollowingpersonsandorganizationsshallnotbetaxableunderthischapter:banks,buildingandloanassociations,financialservicesloancompanies, financial corporations, small business investment companies, trust companies,mortgage loan companies,financialholdingcompanies, subsidiariesoffinancialholdingcompaniesasdefined inchapter241,anddevelopmentcompanies taxableunder chapter 241; insurance companies, agricultural cooperative associations, andfishmarketingassociationsexclusivelytaxableunderotherlaws;andpersonsengagedinthebusinessofmotionpictureandtelevisionfilmproductionasdefinedbythedirectoroftaxation.[LSp1957,c1,ptof§2;amL1965,c224,§4;Supp,§121-6;HRS§235-9;amL1976,c156,§7andc203,§4;amL1979,c62,§2(8);amL1982,c92,§4;amimpL1984,c90,§1;gench1985;amL1987,c239,§1(10);amL1989,c266,§3;amL1992,c106,§2;amL1997c107,§2]



Cross Reference

TaxInformationReleaseNo.65-79,“StateTaxationofHomeownersAssociationsforIncome,GeneralExciseandUseTaxes”TaxInformationReleaseNo.98-1,“IncomeTaxExemptionandCreditsAvailableforPersonsEngagedintheMotionPictureandTelevision

FilmProductionBusiness”SupersededbyTIR2006-02relatingtoHRS§235-17.TaxInformationReleaseNo.99-4.“ApplicationoftheFranchiseTax,GeneralExciseTax,andIncomeTaxtoMortgageLoanCompanies,

IncludingMortgageLoanCompaniesOrganizedasPassthroughEntitiesandSoleProprietorships”TaxInformationReleaseNo.2009-05,“AdvancedNoticeofProposedAdministrativeRulesRelatingtotheTaxationoftheMotionPictureand

TelevisionFilmProductionIndustry”



Case Notes

Exemptingparticularclassesfromincometaxesdoesnotrenderlawobjectionableongroundsofinequality.35H.855,aff’d130F.2d786.Exemptionisgrantofimmunitywhereotherwiseliabletoassessment.35H.855,aff’d130F.2d786.Claimsforexemptionstrictlyconstrued.36H.340.

§235-9.5 Stock options from qualified high technology businesses excluded from taxation. (a)Notwithstandingany law to the contrary, all incomeearnedandproceedsderived fromstockoptionsor stock, including stock issuedthroughtheexerciseofstockoptionsorwarrants,fromaqualifiedhightechnologybusinessorfromaholdingcompanyofaqualifiedhightechnologybusinessbyanemployee,officer,ordirectorofthequalifiedhightechnologybusiness,orinvestorwhoqualifiesforthecreditundersection235-110.9,thatwouldotherwisebetaxedasordinaryincomeorascapitalgainstothosepersonsshallbeexcludedfromtaxationunderthischapter.

Similarprovisionsshallapplytooptionstoacquireequityinterestsandtoequityintereststhemselveswithregardtoentitiesotherthancorporations.

(b) Forthepurposesofthissection:“Holdingcompanyofaqualifiedhightechnologybusiness”meansanybusinessentitythatpossesses:(1) Atleasteightypercentofthetotalvotingpowerofthestockorotherinterest;and(2) Atleasteightypercentofthetotalvalueofthestockorotherinterest;inthequalifiedhightechnology

business.“Incomeearnedandproceedsderivedfromstockoptionsorstock”includesincomefrom:(1) Dividendsfromstockorstockreceivedthroughtheexerciseofstockoptionsorwarrants;(2) Thereceiptortheexerciseofstockoptionsorwarrants;or(3) Thesaleofstockoptionsorstock,includingstockissuedthroughtheexerciseofstockoptionsorwarrants.

“Qualifiedhightechnologybusiness”meansthesameasdefinedinsection235-7.3.[L1999,c178,§20,amL2000,c297,§7;amL2001,c221,§8]

Note

AppliestotaxableyearsbeginningafterDecember31,1999. L1999,c178,§31(2).Applicabilityof2000amendment. L2000,c297,§§10,35(1). [It is the intentionof the legislature inmakingamendments in thisPart to

sections235-7.3,235-9.5,235-110.9,and235-110.91,HawaiiRevisedStatutes,thattheamendmentsbeliberallyconstrued,andinthisregard,thedepartmentoftaxationgivenliberallatitudetointerpretthoseamendmentsinlightofcurrentindustrystandards.TheamendmentsmadeinthisParttosections235-7.3,235-9.5,235-110.9,and235-110.91,HawaiiRevisedStatutes,shallnotbeconstruedtodisqualifyanytaxpayerwhohasreceivedafavorablewrittendeterminationfromthedepartmentoftaxationundertheoriginalprovisionsofthosesectionsasenactedbyAct178,SessionLawsofHawaii,1999.]

The2001amendmentappliestotaxableyearsbeginningafterDecember31,2001.L2001,c221,§15(1).Applicabilityof2004amendment.L2004,c215,§10.ItistheintentionofthelegislatureinmakingamendmentsinthisParttosections235-

7.3,235-9.5,235-110.9,and235-110.91,HawaiiRevisedStatutes,thattheamendmentsbeconstruedinamannerconsistentwiththeintentofthisAct.Thedepartmentoftaxationfurthergivenliberallatitudetointerpretthoseamendmentsinlightofcurrentindustrystandards.Theamendmentsmade in thisPart to sections 235-7.3, 235-9.5, 235-110.9, and235-110.91,HawaiiRevisedStatutes, shall not be construed to disqualify anytaxpayerwhohasreceivedafavorablewrittendeterminationfromthedepartmentoftaxationundertheoriginalprovisionsofthosesectionsasenactedbyAct178,SessionLawsofHawaii,1999.

Cross Reference


§235-10 REPEALED. L1978,c173,§2(8).

§235-11 REPEALED. L1988,c107,§1.

§235-12 Energy conservation; income tax credit. (a)FortaxableyearsendingbeforeJanuary1,1990,exceptinthecaseoficestoragesystemsfortaxableyearsendingbeforeJanuary1,1991,eachindividualandcorporateresident

18-235-12



taxpayerwhofilesanindividualorcorporatenetincometaxreturnforataxableyear,mayclaimataxcreditunderthissectionagainsttheHawaiistateindividualorcorporatenetincometax.Thetaxcreditmaybeclaimedforanysolarorwindenergydevice,heatpump,oricestoragesysteminanamountnottoexceedtenpercentofthetotalcostofthedevice,heatpump,oricestoragesystem;providedthatthetaxcreditshallapplyonlytotheactualcostofthesolarorwindenergydevice,theheatpump,oricestoragesystem,theiraccessories,andinstallationandshallnotincludethecostofconsumerincentivepremiumsunrelatedtotheoperationofthesolarorwindenergydevice,theheatpump,oricestoragesystemofferedwiththesaleofthesolarorwindenergydevice,theheatpump,oricestoragesystem.Thecreditshallbeclaimedagainstnetincometaxliabilityfortheyearinwhichthesolarorwindenergydevice,theheatpump,oricestoragesystemwaspurchasedandplacedinuse;provided:

(1) The taxcredit shall be applicableonlywith respect to solardevices,whichare erectedandplaced inserviceafterDecember31,1974,butbeforeJanuary1,1990;

(2) Inthecaseofwindenergydevicesandheatpumps,thetaxcreditshallbeapplicableonlywithrespecttowindenergydevicesandheatpumpswhichareinstalledandplacedinserviceafterDecember31,1980,butbeforeJanuary1,1990;and

(3) Inthecaseoficestoragesystems,thetaxcreditshallbeapplicableonlywithrespecttoicestoragesystemswhichareinstalledandplacedinserviceafterDecember31,1985,butbeforeJanuary1,1990.

Taxcreditswhichexceedthetaxpayer’sincometaxliabilitymaybeusedasacreditagainstthetaxpayer’sincometaxliabilityinsubsequentyearsuntilexhausted.IffederalenergytaxcreditsarenotextendedbeyondDecember31,1985,arenotretroactivelyextendedorreenacted,orfederalenergytaxcreditsthesameasorlessinamountthanthecreditsineffectduringthe1985taxableyeararenotenactedduringthetaxableyear1986,thenthestatetaxcreditshallbeincreasedtofifteenpercentofthetotalcostafterDecember31,1985,butbeforeJanuary1,1990.

Asusedinthissubsection:“Solarorwindenergydevice”meansanynewidentifiablefacility,equipment,apparatus,orthelikewhichmakes

useofsolarorwindenergyforheating,cooling,orreducingtheuseofothertypesofenergydependentuponfossilfuelfortheirgeneration.

“Heatpump”meansandreferstoanelectricpoweredcompressionheatingsystemwhichextractsenergyfromwarmambientairorrecoverswasteheattoassistintheproductionofhotwater.

“Icestoragesystem”referstoicebanksorothercoolenergystoragetanks,containers,accessories,andcontrolsthatarespecificallydesignedtostoreiceorchilledfluidsfortheexpresspurposeofshiftingtheconsumptionofenergytooff-peakperiods.

(b) FortaxableyearsbeginningafterDecember31,1989,eachindividualorcorporateresidenttaxpayerwhofilesan individualorcorporatenet incometaxreturnfora taxableyear,mayclaima taxcreditunder thissectionagainsttheHawaiistateindividualorcorporatenetincometax.Thetaxcreditmaybeclaimedasfollows:

(1) ForwindenergysystemsthatareinstalledandplacedinserviceafterDecember31,1989,butbeforeJuly1,2003,thecreditshallbetwentypercentoftheactualcost;

(2) ForsolarenergysystemsthatareinstalledandplacedinserviceafterDecember31,1989,butbeforeJuly1,2003,onnewandexistingsinglefamilyresidentialbuildings,thecreditshallbeinanamountnottoexceedthirty-fivepercentor$1,750,whicheverisless,oftheactualcostofthesolarenergysystem;

(3) ForsolarenergysystemsthatareinstalledandplacedinserviceafterDecember31,1989,butbeforeJuly1,2003,onnewandexistingmultiunitbuildingsusedprimarilyforresidentialpurposes,thecreditshallbeinanamountnottoexceedthirty-fivepercentor$350perbuildingunit,whicheverisless,oftheactualcostofthesolarenergysystem;

(4) ForsolarenergysystemsthatareinstalledandplacedinserviceafterDecember31,1989,butbeforeJuly1,2003,innewandexistinghotel,commercial,andindustrialfacilities,thecreditshallbeinanamountnottoexceedthirty-fivepercentoftheactualcostofthesolarenergysystem;

(5) ForheatpumpsthatareinstalledandplacedinserviceafterDecember31,1989,butbeforeJuly1,2003,innewandexistingsingle-familyresidentialbuildings, thecreditshallbe inanamountnot toexceedtwentypercentor$400,whicheverisless,oftheactualcostoftheheatpump;

(6) ForheatpumpsthatareinstalledandplacedinserviceafterDecember31,1989,butbeforeJuly1,2003,innewandexistingmultiunitbuildingsusedprimarilyforresidentialpurposes,thecreditshallbeinanamountnottoexceedtwentypercentor$200perbuildingunit,whicheverisless,oftheactualcostoftheheatpump;providedthatalicensedprofessionalengineerreviewsthedesignofthesystemandprovidesawritten opinion that the system, in accordancewith recognized engineering practice, is designed toprovidenotlessthanninetypercentofthedailyannualaveragehotwaterneedsofalloftheoccupantsofthebuilding;

(7) ForheatpumpsthatareinstalledandplacedinserviceafterDecember31,1989,butbeforeJuly1,2003,innewandexistinghotel,commercial,andindustrialfacilities, thecreditshallbeinanamountnottoexceedtwentypercentoftheactualcostoftheheatpump;and



(8) ForicestoragesystemsthatareinstalledandplacedinserviceafterDecember31,1990,butbeforeJuly1,2003,thecreditshallbeinanamountnottoexceedfiftypercentoftheactualcostoftheicestoragesystem.

Theperunitofactualcostofasolarenergysystemorheatpumpreferredtoinsubsection(b)(3)and(6)shallbedeterminedbymultiplyingtheactualcostofthesolarenergysystemorheatpumpinstalledandplacedinserviceinthemultiunitbuildingbyafraction,thenumeratorbeingthetotalsquarefeetofthatunitinthemultiunitbuilding,andthedenominatorbeingthetotalsquarefeetofalltheunitsinthemultiunitbuilding.

Iffederalenergytaxcreditssimilartoanyofthoseprovidedinparagraphs(1)to(8)areestablishedafterJune30,1998,butbeforeJuly1,2003,thenthestatetaxcreditprovidedintherespectiveparagraphorparagraphsshallbereducedbytheamountoftheapplicablefederalenergytaxcredit.

(c) Taxcreditsshallapplyonlytotheactualcostofthesolarorwindenergysystem,heatpump,oricestoragesystem,includingtheiraccessoriesandinstallation,andshallnotincludethecostofconsumerincentivepremiumsunrelatedtotheoperationofthesystemorofferedwiththesaleofthesystemorheatpump.Thetaxcreditshallbeclaimedagainstnet income tax liability for theyear inwhich thesolarorwindenergysystem,heatpump,or icestoragesystemwaspurchasedandplacedinuseinHawaii.Taxcreditsthatexceedthetaxpayer’sincometaxliabilitymaybeusedascreditagainstthetaxpayer’sincometaxliabilityinsubsequentyearsuntilexhausted.

(d) Thedirectoroftaxationshallpreparesuchformsasmaybenecessarytoclaimacreditunderthissection.Thedirectormayalsorequirethetaxpayertofurnishreasonableinformationtoascertainthevalidityoftheclaimforcreditmadeunderthissectionandmayadoptrulesnecessarytoeffectuatethepurposesofthissectionpursuanttochapter91.

(e) Asusedinthissection:“Solarorwindenergysystem”meansanynewidentifiablefacility,equipment,apparatus,orthelikethatconverts

solarinsolationorwindenergytousefulthermalorelectricalenergyforheating,cooling,orreducingtheuseofothertypesofenergydependentuponfossilfuelfortheirgeneration.

“Heatpump”meansanelectricpoweredcompressionheatingsystemthatextractsenergyfromwarmambientairorrecoverswasteheattoassistintheproductionofhotwater.

“Icestoragesystem”referstoicebanksorothercoolenergystoragetanks,containers,accessories,andcontrolsthatarespecificallydesignedtostoreiceorchilledfluidsfortheexpresspurposeofshiftingtheconsumptionofenergytooff-peakperiods.[L1976,c189,§1;amL1980,c177,§2;amL1981,c233,§1;amL1983,c67,§1;amimpL1984,c90,§1;gench1985;amL1985,c232,§2;amL1986,c66,§1,c70,§1andc339,§18;amL1989,c307,§2;amL1990,c319,§3;amL1993,c93,§1;amL1998,c163,§2]

Cross Reference

TaxInformationReleaseNo.80-3,“SolarEnergyDevicesIncomeTaxCredit”TaxInformationReleaseNo.83-2,“TreatmentofTaxCreditsforStateIncomeTaxPurposes”TaxInformationReleaseNo.99-4.“ApplicationoftheFranchiseTax,GeneralExciseTax,andIncomeTaxtoMortgageLoanCompanies,

IncludingMortgageLoanCompaniesOrganizedasPassthroughEntitiesandSoleProprietorships”

§235-12.2 REPEALED. L1988,c64,§2.

§235-12.5 Renewable energy technologies; income tax credit. (a)Whentherequirementsofsubsection(d)aremet,eachindividualorcorporatetaxpayerthatfilesanindividualorcorporatenetincometaxreturnforataxableyearmayclaimataxcreditunderthissectionagainsttheHawaiistateindividualorcorporatenetincometax.ThetaxcreditmaybeclaimedforeveryeligiblerenewableenergytechnologysystemthatisinstalledandplacedinserviceintheStatebyataxpayerduringthetaxableyear.Thetaxcreditmaybeclaimedasfollows:

(1) For each solar energy system: thirty-fiveper cent of the actual cost or the cap amount determined insubsection(b),whicheverisless;or

(2) Foreachwind-poweredenergysystem:twentypercentoftheactualcostorthecapamountdeterminedinsubsection(b),whicheverisless;

providedthatmultipleownersofasinglesystemshallbeentitledtoasingletaxcredit;andprovidedfurtherthatthetaxcreditshallbeapportionedbetweentheownersinproportiontotheircontributiontothecostofthesystem.

Inthecaseofapartnership,Scorporation,estate,ortrust,thetaxcreditallowableisforeveryeligiblerenewableenergytechnologysystemthatisinstalledandplacedinserviceintheStatebytheentity.Thecostuponwhichthetaxcreditiscomputedshallbedeterminedattheentitylevel.Distributionandshareofcreditshallbedeterminedpursuanttosection235-110.7(a).

(b) Theamountofcreditallowedforeacheligiblerenewableenergytechnologysystemshallnotexceedtheapplicablecapamount,whichisdeterminedasfollows:

(1) Iftheprimarypurposeofthesolarenergysystemistouseenergyfromthesuntoheatwaterforhouseholduse,thenthecapamountsshallbe:(A) $2,250persystemforsingle-familyresidentialproperty;(B) $350perunitpersystemformulti-familyresidentialproperty;and

18-235-12.5



(C) $250,000persystemforcommercialproperty;(2) Forallothersolarenergysystems,thecapamountsshallbe:

(A) $5,000persystemforsingle-familyresidentialproperty;providedthatifalloraportionofthesystemisusedtofulfillthesubstituterenewableenergytechnologyrequirementpursuanttosection196-6.5(a)(3),thecreditshallbereducedbythirty-fivepercentoftheactualsystemcostor$2,250,whicheverisless;

(B) $350perunitpersystemformulti-familyresidentialproperty;and(C) $500,000persystemforcommercialproperty;and

(3) Forallwind-poweredenergysystems,thecapamountsshallbe:(A) $1,500persystemforsingle-familyresidentialproperty;providedthatifalloraportionofthesystem

isusedtofulfillthesubstituterenewableenergytechnologyrequirementpursuanttosection196-6.5(a)(3),thecreditshallbereducedbytwentypercentoftheactualsystemcostor$1,500,whicheverisless;

(B) $200perunitpersystemformulti-familyresidentialproperty;and(C) $500,000persystemforcommercialproperty.

(c) Forthepurposesofthissection:“Actual cost”means costs related to the renewable energy technology systems under subsection (a), including

accessoriesandinstallation,butnotincludingthecostofconsumerincentivepremiumsunrelatedtotheoperationofthesystemorofferedwiththesaleofthesystemandcostsforwhichanothercreditisclaimedunderthischapter.

“Householduse”meansanyusetowhichheatedwateriscommonlyputinaresidentialsetting,includingcommercialapplicationofthoseuses.

“Renewableenergy technologysystem”meansanewsystem thatcapturesandconvertsa renewable sourceofenergy,suchassolarorwindenergyinto:

(1) Ausablesourceofthermalormechanicalenergy;(2) Electricity;or(3) Fuel.

“Solarorwindenergysystem”meansanyidentifiablefacility,equipment,apparatus,orthelikethatconvertssolarorwindenergytousefulthermalorelectricalenergyforheating,cooling,orreducingtheuseofothertypesofenergythataredependentuponfossilfuelfortheirgeneration.

(d) FortaxableyearsbeginningafterDecember31,2005,thedollaramountofanyutilityrebateshallbedeductedfromthecostofthequalifyingsystemanditsinstallationbeforeapplyingthestatetaxcredit.

(e) The director of taxation shall prepare any forms thatmay be necessary to claim a tax credit under thissection,includingformsidentifyingthetechnologytypeofeachtaxcreditclaimedunderthissection,whetherforsolarorwind.Thedirectormayalsorequirethetaxpayertofurnishreasonableinformationtoascertainthevalidityoftheclaimforcreditmadeunderthissectionandmayadoptrulesnecessarytoeffectuatethepurposesofthissectionpursuanttochapter91.

(f) Ifthetaxcreditunderthissectionexceedsthetaxpayer’sincometaxliability,theexcessofthecreditoverliabilitymaybeusedasacreditagainstthetaxpayer’sincometaxliabilityinsubsequentyearsuntilexhausted,unlessotherwiseelectedbythetaxpayerpursuanttosubsection(g)or(h).Allclaimsforthetaxcreditunderthissection,includingamendedclaims,shallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditmaybeclaimed.Failuretocomplywiththissubsectionshallconstituteawaiveroftherighttoclaimthecredit.

(g) Forsolarenergysystems,ataxpayermayelecttoreducetheeligiblecreditamountbythirtypercentandifthisreducedamountexceedstheamountofincometaxpaymentduefromthetaxpayer,theexcessofthecreditamountoverpaymentsdueshallberefundedtothetaxpayer;providedthattaxcreditamountsproperlyclaimedbyataxpayerwhohasnoincometaxliabilityshallbepaidtothetaxpayer;andprovidedfurtherthatnorefundonaccountofthetaxcreditallowedbythissectionshallbemadeforamountslessthan$1.

Theelectionrequiredbythissubsectionshallbemadeinamannerprescribedbythedirectoronthetaxpayer’sreturnforthetaxableyearinwhichthesystemisinstalledandplacedinservice.Aseparateelectionmaybemadeforeachseparatesystemthatgeneratesacredit.Anelectiononcemadeisirrevocable.

(h) Notwithstandingsubsection(g),foranyrenewableenergytechnologysystem,anindividualtaxpayermayelecttohaveanyexcessofthecreditoverpaymentsduerefundedtothetaxpayer,if:

(1) Allofthetaxpayer’sincomeisexemptfromtaxationundersection235-7(a)(2)or(3);or(2) Thetaxpayer’sadjustedgrossincomeis$20,000orless(or$40,000orlessiffilingataxreturnasmarried

filingjointly);providedthattaxcreditsproperlyclaimedbyataxpayerwhohasnoincometaxliabilityshallbepaidtothetaxpayer;andprovidedfurtherthatnorefundonaccountofthetaxcreditallowedbythissectionshallbemadeforamountslessthan$1.

Ahusbandandwifewhodonotfileajointtaxreturnshallonlybeentitledtomakethiselectiontotheextentthattheywouldhavebeenentitledtomaketheelectionhadtheyfiledajointtaxreturn.

[§235-13] INCOME TAX LAW


Theelectionrequiredbythissubsectionshallbemadeinamannerprescribedbythedirectoronthetaxpayer’sreturnforthetaxableyearinwhichthesystemisinstalledandplacedinservice.Aseparateelectionmaybemadeforeachseparatesystemthatgeneratesacredit.Anelectiononcemadeisirrevocable.

(i) Notaxpayershallbeallowedacreditunderthissectionfortheportionoftherenewableenergytechnologysystemrequiredbysection196-6.5 that is installedandplaced in serviceonanynewlyconstructedsingle-familyresidentialpropertyauthorizedbyabuildingpermitissuedonorafterJanuary1,2010.

(j) Totheextentfeasible,usingexistingresourcestoassisttheenergy-efficiencypolicyreviewandevaluation,thedepartmentshallassistwithdatacollectiononthefollowingforeachtaxableyear:

(1) Thenumberofrenewableenergytechnologysystemsthathavequalifiedforataxcreditduringthecalendaryearby:(A) Technologytype;and(B) Taxpayertype(corporateandindividual);and

(2) ThetotalcostofthetaxcredittotheStateduringthetaxableyearby:(A) Technologytype;and(B) Taxpayertype.

(k) This sectionshallapply toeligible renewableenergy technologysystems thatare installedandplaced inserviceonorafterJuly1,2009.[L2003,c207,§2;amL2004,c97,§1;amL2006,c240,§3;amL2007,c151,§1;amL2008,c204,§4;amL2009,c154,§1andc155,§15]

Note

TheL2009,c154amendmentappliestotaxableyearsbeginningafterDecember31,2008.L2009,c154,§3.

Cross Reference

Tax InformationRelease 2012-01, “TemporaryAdministrative Rules Relating to the Renewable EnergyTechnologies IncomeTaxCredit(RETITC)”

TaxInformationRelease2007-02,“RelatingtotheRenewableEnergyTechnologiesIncomeTaxCredit”TaxInformationRelease2010-02,“Furtherguidanceregardingtheterm“system”forpurposesoftheRenewableEnergyTechnologiesIncome

TaxCredit,HRS§235-12.5”Tax Information Release 2010-03, “Further technical clarification regarding the term “system” for purposes of the Renewable Energy

TechnologiesIncomeTaxCredit,HRS§235-12.5”TaxInformationRelease2010-10,“CommonIncomeTax&GeneralExciseTaxIssuesAssociatedwiththeRenewableEnergyTechnologies

IncomeTaxCredit,HRS§235-12.5”

[§235-13] Sales of residential land to lessees; involuntary conversion. (a)Asalebyanorganizationexemptundersection501(c)(3),ortreatedasanestateortrustunderSubchapterJoftheInternalRevenueCodetoalesseeoftheentireinterestinthelandofthelessororganization,estate,ortrustshallbeaninvoluntaryconversionofpropertyusedintradeorbusinessoracapitalassetofthelessororganization,estate,ortrustandshallnotbeasaleofpropertyheldbythelessororganization,estateortrustintheordinarycourseofatradeorbusiness,irrespectiveofthenumberofsuchsalesinanytaxableyear,if:

(1) Thelesseehasarighttoterminatesuchleaseandtoacquiretheentireinterestofthelessorintheland,whichrightexistsbyvirtueofchapter516andnotbecauseofanyprivateagreementorprivatelycreatedcondition;

(2) Thelesseeexercisesthelessee’srighttopurchasesuchentireinterest;(3) Thelessororganization,estate,ortrusthasheldthelandforaperioddeterminedundersubsection(b)prior

tothedateofpurchasebylessee;and(4) Thelandisdevelopedsingle-familyresidentialland.

(b) Theperiodforwhichalessororganization,estate,ortrusthasheldland,withinthemeaningofsubsection(a)(3),shallbedeterminedundertherulesofsection1223oftheInternalRevenueCode,exceptthatifsuchlandshallhavebeenacquiredbythelessororganization,estate,ortrustfromadecedent,withinthemeaningofsection1014oftheInternalRevenueCode,orifsuchlandshallhavebeenacquiredbythelessororganization,estate,ortrustfromadonor,withinthemeaningofsection1015(otherthansection1015(c))oftheInternalRevenueCode,theholdingperiodshallincludetheperiodduringwhichsuchlandshallhavebeenheldbysuchdecedentorbysuchdonorandalsotheperiodifanyforwhichsuchlandshallhavebeenheldbyanintervivosortestamentarytrustestatecreatedbysuchdecedentorbysuchdonor.

(c) Thissectionshallnotapplywithrespecttoanytransactiongovernedbysection1055oftheInternalRevenueCode.

(d) Asusedinthissection:(1) “Lessee”meanstheoriginallesseeandanysuccessorwhohastherightunderchapter516tobringabout

aninvoluntaryconversion.(2) “Lessor”meansany fee simpleowner, any sublessor, andanypersonentitled to share in the rentsor

subrentsofthelandinvolvedinaninvoluntaryconversiondescribedinsubsection(a).



(e) Thegainderivedfromsalesqualifiedasinvoluntaryconversionofpropertyunderthissectionshallbetreatedasprovidedinsection1033oftheInternalRevenueCodeof1954,asamended.[L1977,c75,§1;amimpL1984,c90,§1;gench1985]

[§235-15] Tax credits to promote the purchase of child passenger restraint systems. (a)AnytaxpayerwhofilesanindividualincometaxreturnforataxableyearmayclaimanincometaxcreditunderthissectionagainsttheHawaiistateindividualnetincometax.

(b) Thetaxcreditshallbe$25;providedthatthetaxpayerpurchasesoneormorenewchildpassengerrestraintsystemsinthetaxyearforwhichthecreditisproperlyclaimed;andprovidedthatsuchrestraintsystemcanbeshowntobeinsubstantialconformitywithspecificationsforsuchrestraintsystemssetforthbythefederalmotorvehiclesafetystandardswhichwereineffectatthetimeofsuchpurchase.

(c) Ifthetaxcreditclaimedbythetaxpayerunderthissectionexceedstheamountoftheincometaxpaymentsduefromthetaxpayer,theexcessofcreditoverpaymentsdueshallberefundedtothetaxpayer;providedthatthetaxcreditproperlyclaimedbyataxpayerwhohasnoincometaxliabilityshallbepaidtothetaxpayer;andprovidedthatnorefundsorpaymentsonaccountofthetaxcreditallowedbythissectionshallbemadeforamountslessthan$1.

(d) Thedirectoroftaxationshallpreparesuchformsasmaybenecessarytoclaimacreditunderthissection,mayrequireproofoftheclaimforthetaxcredit,andmayadoptrulespursuanttochapter91.

(e) Alloftheprovisionsrelatingtoassessmentsandrefundsunderthischapterandundersection231-23(c)(1)shallapplytothetaxcreditunderthissection.

(f) Claimsforthetaxcreditunderthissection,includinganyamendedclaims,shallbefiledonorbeforetheendofthetwelfthmonthfollowingthetaxableyearforwhichthecreditmaybeclaimed.[L1982,c134,§1]

Revision Note

Insubsection(e),“231-23(c)(1)”substitutedfor“231-23(d)(1)”.

Cross Reference

TaxInformationReleaseNo.83-1,“TaxCreditforPurchaseofChildPassengerRestraintSystem”TaxInformationReleaseNo.83-2,“TreatmentofTaxCreditsforStateIncomeTaxPurposes”

§235-16 REPEALED. L2003,c135,§9.

§235-16.5 Cesspool upgrade, conversion, or connection; income tax credit. [Section repealed December 31, 2020. L 2015, c 120 §4.] (a)Thereshallbeallowedtoeachtaxpayersubjecttothetaximposedunderthischapter,acesspoolupgrade,conversion,orconnectionincometaxcreditthatshallbedeductiblefromthetaxpayer’snetincometaxliability,ifany,imposedbythischapterforthetaxableyearinwhichthecreditisproperlyclaimed.

(b) Inthecaseofapartnership,Scorporation,estate,ortrust,thetaxcreditallowableisforqualifiedexpensesincurredbytheentityforthetaxableyear.Theexpensesuponwhichthetaxcreditiscomputedshallbedeterminedattheentitylevel.Distributionandshareofcreditshallbedeterminedbyrule.

(c) Thecesspoolupgrade,conversion,orconnectionincometaxcreditshallbeequaltothequalifiedexpensesofthetaxpayer,uptoamaximumof$10,000;providedthat,inthecaseofaqualifiedcesspoolthatisaresidentiallargecapacitycesspool,theamountofthecreditshallbeequaltothequalifiedexpensesofthetaxpayer,uptoamaximumof$10,000perresidentialdwellingconnectedtothecesspool,ascertifiedbythedepartmentofhealthpursuanttosubsection(e).Thereshallbeallowedamaximumofonecesspoolupgrade,conversion,orconnectionincometaxcreditperqualifiedcesspoolorpertaxmapkeynumberwheremorethanoneresidenceisconnectedtoaresidentiallarge-capacitycesspool.Thecesspoolupgrade,conversion,orconnectionincometaxcreditshallbeavailableonlyforthetaxableyearinwhichthetaxpayer’squalifiedexpensesarecertifiedbytheappropriategovernmentagency.

(d) Thetotalamountoftaxcreditsallowedunderthissectionshallnotexceed$5,000,000foralltaxpayersinanytaxableyear;providedthatanytaxpayerwhoisnoteligibletoclaimthecreditinataxableyearduetothe$5,000,000caphavingbeenexceededforthattaxableyearshallbeeligibletoclaimthecreditinthesubsequenttaxableyear.

(e) Thedepartmentofhealthshall:(1) Certify all qualified cesspools for the purposes of this section; provided that, as a pilot program, the

departmentofhealth,initsdiscretion,maycertifynomorethantworesidentiallargecapacitycesspoolsasqualifiedcesspools;

(2) Collectandmaintainarecordofallqualifiedexpensescertifiedbyanappropriategovernmentagencyforthetaxableyear;and

(3) Certifytoeachtaxpayertheamountofcreditthetaxpayermayclaim;providedthatif,inanyyear,theannualamountofcertifiedcredits reaches$5,000,000 in theaggregate, thedepartmentofhealth shallimmediatelydiscontinuecertifyingcreditsandnotifythedepartmentoftaxation.

Thedirectorofhealthmayadoptrulesunderchapter91asnecessarytoimplementthecertificationrequirementsunderthissection.

(f) Thedirectoroftaxation:



(1) Shallprepareanyformsthatmaybenecessarytoclaimataxcreditunderthissection;(2) Mayrequirethetaxpayertofurnishreasonableinformationtoascertainthevalidityoftheclaimforthetax

creditmadeunderthissection;and(3) Mayadoptrulesunderchapter91necessarytoeffectuatethepurposesofthissection.

(g) Ifthetaxcreditunderthissectionexceedsthetaxpayer’sincometaxliability,theexcessofthecreditoverliabilitymaybeusedasacreditagainstthetaxpayer’sincometaxliabilityinsubsequentyearsuntilexhausted.Allclaims for the tax credit under this section, including amended claims, shall befiledonor before the endof thetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditmaybeclaimed.Failuretocomplywiththeforegoingprovisionshallconstituteawaiveroftherighttoclaimthecredit.

(h) ThissectionshallnotapplytotaxableyearsbeginningafterDecember31,2020.(i) Asusedinthissection:“Aerobictreatmentunitsystem”meansanindividualwastewatersystemthatconsistsofanaerobictreatmentunit

tank,aerationdevice,piping,andadischargemethodthatisinaccordancewithrulesadoptedbythedepartmentofhealthrelatingtohouseholdaerobicunits.

“Cesspool”meansanindividualwastewatersystemconsistingofanexcavationinthegroundwhosedepthisgreaterthanitswidestsurfacedimension,whichreceivesuntreatedwastewater,andretainsorisdesignedtoretaintheorganicmatterandsolidsdischarged into it,butpermits the liquid to seep through itsbottomor sides togainaccess to theundergroundgeographicformation.

“Qualifiedcesspool”meansacesspoolthatis:(1) Certifiedbythedepartmentofhealthtobe:

(A) Locatedwithin: (i)Fivehundredfeetofashoreline,perennialstream,orwetland;or (ii)Asourcewaterassessmentprogramarea(twoyeartimeoftravelfromacesspooltoapublic

drinkingwatersource);(B) Showntoimpactdrinkingwatersuppliesorrecreationalwaters;or(C) Aresidentiallargecapacitycesspool;or

(2) Certifiedbyacountyorprivatesewercompany tobeappropriate forconnection to itsexistingsewersystem.

“Qualifiedexpenses”meanscoststhatarenecessaryanddirectlyincurredbythetaxpayerforupgradingorconvertingaqualifiedcesspoolintoasepticsystemoranaerobictreatmentunitsystem,orconnectingaqualifiedcesspooltoasewersystem,andthatarecertifiedassuchbytheappropriategovernmentagency.

“Residentiallargecapacitycesspool”meansacesspoolthatisconnectedtomorethanoneresidentialdwelling.“Septicsystem”meansanindividualwastewatersystemthattypicallyconsistsofaseptictank,piping,andadrainage

fieldwherethereisnaturalbiologicaldecontaminationaswastewaterdischargedintothesystemisfilteredthroughsoil.“Sewer system”means a systemof piping,with appurtenances, for collecting and conveyingwastewater from

sourcetodischargefollowingtreatment.“Wastewater”meansanyliquidwaste,whetherornottreatedandwhetheranimal,mineral,orvegetable,including

agricultural,industrial,andthermalwastes.”[L2015,c120,§2;amL2016,c182,§1;amL2017,c125,§2]Note

SectionappliestotaxableyearsbeginningafterDecember31,2015.L2015,c120,§4.The2016amendmentappliestotaxableyearsbeginningafterDecember31,2015.L2016,c182,§3.The2017amendmentshalltakeeffectonJuly1,2017.

§235-17 Motion picture, digital media, and film production income tax credit. [Section effective until December 31, 2018. For section effective January 1, 2019, see below.] (a)Anylawtothecontrarynotwithstanding,thereshallbeallowedtoeachtaxpayersubjecttothetaxesimposedbythischapter,anincometaxcreditthatshallbedeductiblefromthetaxpayer’snetincometaxliability,ifany,imposedbythischapterforthetaxableyearinwhichthecreditisproperlyclaimed.Theamountofthecreditshallbe:

(1) TwentypercentofthequalifiedproductioncostsincurredbyaqualifiedproductioninanycountyoftheStatewithapopulationofoversevenhundredthousand;or

(2) Twenty-fivepercentofthequalifiedproductioncostsincurredbyaqualifiedproductioninanycountyoftheStatewithapopulationofsevenhundredthousandorless.

Aqualifiedproductionoccurringinmorethanonecountymayprorateitsexpendituresbasedupontheamountsspentineachcounty,ifthepopulationbasesdifferenoughtochangethepercentageoftaxcredit.

Inthecaseofapartnership,Scorporation,estate,ortrust,thetaxcreditallowableisforqualifiedproductioncostsincurredbytheentityforthetaxableyear.Thecostuponwhichthetaxcreditiscomputedshallbedeterminedattheentitylevel.Distributionandshareofcreditshallbedeterminedbyrule.

Ifadeductionistakenundersection179(withrespecttoelectiontoexpensedepreciablebusinessassets)oftheInternalRevenueCodeof1986,asamended,notaxcreditshallbeallowedforthosecostsforwhichthedeductionistaken.



Thebasisforeligiblepropertyfordepreciationofacceleratedcostrecoverysystempurposesforstateincometaxesshallbereducedbytheamountofcreditallowableandclaimed.

(b) Thecreditallowedunderthissectionshallbeclaimedagainstthenetincometaxliabilityforthetaxableyear.Forthepurposesofthissection,“netincometaxliability”meansnetincometaxliabilityreducedbyallothercreditsallowedunderthischapter.

(c) If the taxcreditunder this sectionexceeds the taxpayer’s income tax liability, theexcessofcreditsoverliabilityshallberefundedtothetaxpayer;providedthatnorefundsorpaymentonaccountofthetaxcreditsallowedbythissectionshallbemadeforamountslessthan$1.Allclaims,includinganyamendedclaims,fortaxcreditsunderthissectionshallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditmaybeclaimed.Failuretocomplywiththeforegoingprovisionshallconstituteawaiveroftherighttoclaimthecredit.

(d) Toqualifyforthistaxcredit,aproductionshall:(1) Meetthedefinitionofaqualifiedproductionspecifiedinsubsection(l);(2) Havequalifiedproductioncoststotalingatleast$200,000;(3) ProvidetheState,ataminimum,ashared-card,end-titlescreencredit,whereapplicable;(4) Provideevidenceofreasonableeffortstohirelocaltalentandcrew;and(5) Provideevidenceoffinancialorin-kindcontributionsoreducationalorworkforcedevelopmentefforts,in

partnershipwithrelatedlocalindustrylabororganizations,educationalinstitutions,orboth,towardthefurtheranceofthelocalfilmandtelevisionanddigitalmediaindustries.

(e) OnorafterJuly1,2006,noqualifiedproductioncostthathasbeenfinancedbyinvestmentsforwhichacreditwasclaimedbyanytaxpayerpursuanttosection235-110.9iseligibleforcreditsunderthissection.

(f) Toreceivethetaxcredit,thetaxpayershallfirstprequalifytheproductionforthecreditbyregisteringwiththe department of business, economic development, and tourism during the development or preproduction stage.Failuretocomplywiththisprovisionmayconstituteawaiveroftherighttoclaimthecredit.

(g) Thedirectoroftaxationshallprepareformsasmaybenecessarytoclaimacreditunderthissection.Thedirectormayalsorequirethetaxpayertofurnishinformationtoascertainthevalidityoftheclaimforcreditmadeunderthissectionandmayadoptrulesnecessarytoeffectuatethepurposesofthissectionpursuanttochapter91.

(h) Everytaxpayerclaimingataxcreditunderthissectionforaqualifiedproductionshall,nolaterthanninetydaysfollowingtheendofeachtaxableyear inwhichqualifiedproductioncostswereexpended,submitawritten,swornstatementtothedepartmentofbusiness,economicdevelopment,andtourism,identifying:

(1) Allqualifiedproductioncostsasprovidedbysubsection(a),ifany,incurredintheprevioustaxableyear;(2) Theamountoftaxcreditsclaimedpursuanttothissection,ifany,intheprevioustaxableyear;and(3) Thenumberoftotalhiresversusthenumberoflocalhiresbycategoryandbycounty.

This information may be reported from the department of business, economic development, and tourism to thelegislatureinredactedformpursuanttosubsection(i)(4).

(i) Thedepartmentofbusiness,economicdevelopment,andtourismshall:(1) Maintainrecordsofthenamesofthetaxpayersandqualifiedproductionsthereofclaimingthetaxcredits

undersubsection(a);(2) Obtainandtotaltheaggregateamountsofallqualifiedproductioncostsperqualifiedproductionandper

qualifiedproductionpertaxableyear;(3) Providealettertothedirectoroftaxationspecifyingtheamountofthetaxcreditperqualifiedproduction

foreachtaxableyearthatataxcreditisclaimedandthecumulativeamountofthetaxcreditforallyearsclaimed;and

(4) Submitareporttothelegislaturenolaterthantwentydayspriortotheconveningofeachregularsessiondetailingthenon-aggregatedqualifiedproductioncoststhatformthebasisofthetaxcreditclaimsandexpenditures,itemizedbytaxpayer,inaredactedformattopreservetheconfidentialityofthetaxpayersclaimingthecredit.

Uponeachdeterminationrequiredunderthissubsection,thedepartmentofbusiness,economicdevelopment,andtourismshallissuealettertothetaxpayer,regardingthequalifiedproduction,specifyingthequalifiedproductioncostsand the taxcreditamountqualified for ineach taxableyeara taxcredit isclaimed.The taxpayer foreachqualifiedproductionshallfiletheletterwiththetaxpayer’staxreturnforthequalifiedproductiontothedepartmentoftaxation.Notwithstandingtheauthorityofthedepartmentofbusiness,economicdevelopment,andtourismunderthissection,thedirectoroftaxationmayauditandadjustthetaxcreditamounttoconformtotheinformationfiledbythetaxpayer.

(j) Totaltaxcreditsclaimedperqualifiedproductionshallnotexceed$15,000,000.(k) Qualifiedproductionsshallcomplywithsubsections(d),(e),(f),and(h).(l) Forthepurposesofthissection:“Commercial”:(1) Meansanadvertisingmessagethatisfilmedusingfilm,videotape,ordigitalmedia,fordisseminationvia

televisionbroadcastortheatricaldistribution;



(2) Includesaseriesofadvertisingmessagesifallpartsareproducedatthesametimeoverthecourseofsixconsecutiveweeks;and

(3) DoesnotincludeanadvertisingmessagewithInternet-onlydistribution.“Digitalmedia”meansproductionmethods andplatformsdirectly related to the creationof cinematic imagery

andcontent,specificallyusingdigitalmeans,includingbutnotlimitedtodigitalcameras,digitalsoundequipment,andcomputers,tobedeliveredviafilm,videotape,interactivegameplatform,orotherdigitaldistributionmedia.

“Post-production”meansproductionactivitiesandservicesconductedafterprincipalphotographyiscompleted,includingbutnotlimitedtoediting,filmandvideotransfers,duplication,transcoding,dubbing,subtitling,credits,closedcaptioning,audioproduction,specialeffects(visualandsound),graphics,andanimation.

“Production”meansaseriesofactivitiesthataredirectlyrelatedtothecreationofvisualandcinematicimagerytobedeliveredviafilm,videotape,ordigitalmediaand tobesold,distributed,ordisplayedasentertainmentor theadvertisementofproductsformasspublicconsumption,includingbutnotlimitedtoscripting,casting,setdesignandconstruction,transportation,videography,photography,soundrecording,interactivegamedesign,andpost-production.

“Qualifiedproduction”:(1) Meansaproduction,withexpendituresinthestate,forthetotalorpartialproductionofafeature-length

motion picture, short film, made-for-television movie, commercial, music video, interactive game,televisionseriespilot,singleseason(uptotwenty-twoepisodes)ofatelevisionseriesregularlyfilmedinthestate(ifthenumberofepisodespersingleseasonexceedstwenty-two,additionalepisodesforthesameseasonshallconstituteaseparatequalifiedproduction),televisionspecial,singletelevisionepisodethatisnotpartofatelevisionseriesregularlyfilmedorbasedinthestate,nationalmagazineshow,ornationaltalkshow.Forthepurposesofsubsections(d)and(j),eachoftheaforementionedqualifiedproductioncategoriesshallconstituteseparate,individualqualifiedproductions;and

(2) Doesnotinclude:(A) News;(B) Publicaffairsprograms;(C) Non-nationalmagazineortalkshows;(D) Televisedsportingeventsoractivities;(E) Productionsthatsolicitfunds;(F) Productionsproducedprimarilyforindustrial,corporate,institutional,orotherprivatepurposes;and(G) Productionsthatincludeanymaterialorperformanceprohibitedbychapter712.

“Qualifiedproductioncosts”meansthecostsincurredbyaqualifiedproductionwithinthestatethataresubjecttothegeneralexcisetaxunderchapter237orincometaxunderthischapterandthathavenotbeenfinancedbyanyinvestmentsforwhichacreditwasorwillbeclaimedpursuanttosection235-110.9.Qualifiedproductioncostsincludebutarenotlimitedto:

(1) Costsincurredduringpreproductionsuchaslocationscoutingandrelatedservices;(2) Costsofsetconstructionandoperations,purchasesorrentalsofwardrobe,props,accessories,food,office

supplies,transportation,equipment,andrelatedservices;(3) Wagesorsalariesofcast,crew,andmusicians;(4) Costsofphotography,soundsynchronization,lighting,andrelatedservices;(5) Costsofediting,visualeffects,music,otherpost-production,andrelatedservices;(6) Rentalsandfeesforuseoflocalfacilitiesandlocations,includingrentalsandfeesforuseofstateand

countyfacilitiesandlocationsthatarenotsubjecttogeneralexcisetaxunderchapter237orincometaxunderthischapter;

(7) Rentalsofvehiclesandlodgingforcastandcrew;(8) AirfareforflightstoorfromHawaii,andinterislandflights;(9) Insuranceandbonding;(10)ShippingofequipmentandsuppliestoorfromHawaii,andinterislandshipments;and(11)Otherdirectproductioncostsspecifiedbythedepartmentinconsultationwiththedepartmentofbusiness,

economicdevelopment,andtourism;providedthatanygovernment-imposedfines,penalties,orinterestthatareincurredbyaqualifiedproductionwithintheStateshallnotbe“qualifiedproductioncosts.[L1997,c107,§1;amL1998,c156,§11;amL2006,c88,§2;amL2013,c89,§2]

Note

AppliestotaxableyearsbeginningafterDecember31,1996.L1997,c107,§7.The1998amendmentappliestotaxableyearsbeginningafterDecember31,1998.L1998,c156,§13.The2006amendmentiseffectiveJuly1,2006andappliestoqualifiedproductioncostsincurredonorafterJuly1,2006,andbeforeJanuary1,

2016.Act88shallberepealedonJanuary1,2016,andsection235-17,HRS,shallbereenactedintheforminwhichitreadonthedaybeforetheeffectivedateoftheAct.

The2013amendmentiseffectiveonJuly1,2013,andappliestotaxableyearsbeginningafterDecember31,2012.L2013,c89,§6.L2013,c89,§3amendsAct88,L2006§4:



“SECTION4.ThisActshalltakeeffectonJuly1,2006;providedthat:(1)Section2ofthisActshallapplytoqualifiedproductioncostsincurredonorafterJuly1,2006,andbeforeJanuary1,[2016;]2019;and(2)ThisActshallberepealedonJanuary1,[2016,]2019,andsection235-17,HawaiiRevisedStatutes,shallbereenactedintheforminwhich

itreadonthedaybeforetheeffectivedateofthisAct.”

Cross Reference

TaxInformationReleaseNo.98-1,“IncomeTaxExemptionandCreditsAvailableforPersonsEngagedintheMotionPictureandTelevisionFilmProductionBusiness”SupersededbyTIR2006-02relatingtoHRS§235-17.

TaxInformationReleaseNo.2006-02,“RefundableIncomeTaxCreditforPersonsEngagedintheMotionPicture,Television,andDigitalMediaProductionBusiness”



TaxInformationReleaseNo.2010-04,“Interpretationof“QualifiedProduction”forpurposesofTaxCreditClaimsundertheMotionPicture,DigitalMedia,andFilmProductionIncomeTaxCredit,HRS§235-17”

§235-17 Motion picture, digital media, and film production income tax credit. [Section effective January 1, 2019. For section effective until December 31, 2018, see above. Repeal and reenactment on January 1, 2026. L 2017, c 143, §3] (a)Anylawtothecontrarynotwithstanding,thereshallbeallowedtoeachtaxpayersubjecttothetaxesimposedbythischapter,anincometaxcreditthatshallbedeductiblefromthetaxpayer’snetincometaxliability,ifany,imposedbythischapterforthetaxableyearinwhichthecreditisproperlyclaimed.Theamountofthecreditshallbe:

(1) TwentypercentofthequalifiedproductioncostsincurredbyaqualifiedproductioninanycountyoftheStatewithapopulationofoversevenhundredthousand;or

(2) Twenty-fivepercentofthequalifiedproductioncostsincurredbyaqualifiedproductioninanycountyoftheStatewithapopulationofsevenhundredthousandorless.

Aqualifiedproductionoccurringinmorethanonecountymayprorateitsexpendituresbasedupontheamountsspentineachcounty,ifthepopulationbasesdifferenoughtochangethepercentageoftaxcredit.

Inthecaseofapartnership,Scorporation,estate,ortrust,thetaxcreditallowableisforqualifiedproductioncostsincurredbytheentityforthetaxableyear.Thecostuponwhichthetaxcreditiscomputedshallbedeterminedattheentitylevel.Distributionandshareofcreditshallbedeterminedbyrule.

Ifadeductionistakenundersection179(withrespecttoelectiontoexpensedepreciablebusinessassets)oftheInternalRevenueCodeof1986,asamended,notaxcreditshallbeallowedforthosecostsforwhichthedeductionistaken.

Thebasisforeligiblepropertyfordepreciationofacceleratedcostrecoverysystempurposesforstateincometaxesshallbereducedbytheamountofcreditallowableandclaimed.

(b) Thecreditallowedunderthissectionshallbeclaimedagainstthenetincometaxliabilityforthetaxableyear.Forthepurposesofthissection,“netincometaxliability”meansnetincometaxliabilityreducedbyallothercreditsallowedunderthischapter.

(c) If the taxcreditunder this sectionexceeds the taxpayer’s income tax liability, theexcessofcreditsoverliabilityshallberefundedtothetaxpayer;providedthatnorefundsorpaymentonaccountofthetaxcreditsallowedbythissectionshallbemadeforamountslessthan$1.Allclaims,includinganyamendedclaims,fortaxcreditsunderthissectionshallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditmaybeclaimed.Failuretocomplywiththeforegoingprovisionshallconstituteawaiveroftherighttoclaimthecredit.

(d) Toqualifyforthistaxcredit,aproductionshall:(1) Meetthedefinitionofaqualifiedproductionspecifiedinsubsection(m);(2) Havequalifiedproductioncoststotalingatleast$200,000;(3) ProvidetheStateaqualifiedHawaiipromotion,whichshallbeataminimum,ashared-card,end-title

screencredit,whereapplicable;(4) Provideevidenceofreasonableeffortstohirelocaltalentandcrew;(5) Provideevidencewhenmakinganyclaimforproductsorservicesacquiredorrenderedoutsideofthis

StatethatreasonableeffortswereunsuccessfultosecureandusecomparableproductsorserviceswithinthisState;

(6) Provideevidenceoffinancialorin-kindcontributionsoreducationalorworkforcedevelopmentefforts,inpartnershipwithrelatedlocalindustrylabororganizations,educationalinstitutions,orboth,towardthefurtheranceofthelocalfilmandtelevisionanddigitalmediaindustries.

(e) OnorafterJuly1,2006,noqualifiedproductioncostthathasbeenfinancedbyinvestmentsforwhichacreditwasclaimedbyanytaxpayerpursuanttosection235-110.9iseligibleforcreditsunderthissection.

(f) Toreceivethetaxcredit,thetaxpayershallfirstprequalifytheproductionforthecreditbyregisteringwiththedepartmentofbusiness,economicdevelopment,andtourismduringthedevelopmentorpreproductionstage.



(g) Thedirectoroftaxationshallprepareformsasmaybenecessarytoclaimacreditunderthissection.Thedirectormayalsorequirethetaxpayertofurnishinformationtoascertainthevalidityoftheclaimforcreditmadeunderthissectionandmayadoptrulesnecessarytoeffectuatethepurposesofthissectionpursuanttochapter91.

(h) Everytaxpayerclaimingataxcreditunderthissectionforaqualifiedproductionshall,nolaterthanninetydaysfollowingtheendofeachtaxableyear inwhichqualifiedproductioncostswereexpended,submitawritten,sworn statement to the department of business, economic development, and tourism, togetherwith a verificationreviewbyaqualifiedcertifiedpublicaccountantusingproceduresprescribedbythedepartmentofbusiness,economicdevelopment,andtourism,identifying:

(1) Allqualifiedproductioncostsasprovidedbysubsection(a),ifany,incurredintheprevioustaxableyear;(2) Theamountoftaxcreditsclaimedpursuanttothissection,ifany,intheprevioustaxableyear;and(3) Thenumberoftotalhiresversusthenumberoflocalhiresbycategoryandbycounty.

This information may be reported from the department of business, economic development, and tourism to thelegislatureinredactedformpursuanttosubsection(i)(4).

(i) Thedepartmentofbusiness,economicdevelopment,andtourismshall:(1) Maintainrecordsofthenamesofthetaxpayersandqualifiedproductionsthereofclaimingthetaxcredits

undersubsection(a);(2) Obtainandtotaltheaggregateamountsofallqualifiedproductioncostsperqualifiedproductionandper

qualifiedproductionpertaxableyear;(3) Providealettertothedirectoroftaxationspecifyingtheamountofthetaxcreditperqualifiedproduction

foreachtaxableyearthatataxcreditisclaimedandthecumulativeamountofthetaxcreditforallyearsclaimed;and

(4) Submitareporttothelegislaturenolaterthantwentydayspriortotheconveningofeachregularsessiondetailingthenon-aggregatedqualifiedproductioncoststhatformthebasisofthetaxcreditclaimsandexpenditures,itemizedbytaxpayer,inaredactedformattopreservetheconfidentialityofthetaxpayersclaimingthecredit.

Uponeachdeterminationrequiredunderthissubsection,thedepartmentofbusiness,economicdevelopment,andtourismshallissuealettertothetaxpayer,regardingthequalifiedproduction,specifyingthequalifiedproductioncostsand the taxcreditamountqualified for ineach taxableyeara taxcredit isclaimed.The taxpayer foreachqualifiedproductionshallfiletheletterwiththetaxpayer’staxreturnforthequalifiedproductiontothedepartmentoftaxation.Notwithstandingtheauthorityofthedepartmentofbusiness,economicdevelopment,andtourismunderthissection,thedirectoroftaxationmayauditandadjustthetaxcreditamounttoconformtotheinformationfiledbythetaxpayer.

(j) Totaltaxcreditsclaimedperqualifiedproductionshallnotexceed$15,000,000.(k) Qualifiedproductionsshallcomplywithsubsections(d),(e),(f),and(h).(l) The total amount of tax credits allowed under this section in any particular year shall be $35,000,000;

however, if the totalamountofcreditsapplied for inanyparticularyearexceeds theaggregateamountofcreditsallowedforsuchyearunderthissection,theexcessshallbetreatedashavingbeenappliedforinthesubsequentyearandshallbeclaimedinsuchyear;providedthatnoexcessshallbeallowedtobeclaimedafterDecember31,2025.

(m)Forthepurposesofthissection:“Commercial”:(1) Meansanadvertisingmessagethatisfilmedusingfilm,videotape,ordigitalmedia,fordisseminationvia

televisionbroadcastortheatricaldistribution;(2) Includesaseriesofadvertisingmessagesifallpartsareproducedatthesametimeoverthecourseofsix

consecutiveweeks;and(3) DoesnotincludeanadvertisingmessagewithInternet-onlydistribution.

“Digitalmedia”meansproductionmethods andplatformsdirectly related to the creationof cinematic imageryandcontent,specificallyusingdigitalmeans,includingbutnotlimitedtodigitalcameras,digitalsoundequipment,andcomputers,tobedeliveredviafilm,videotape,interactivegameplatform,orotherdigitaldistributionmedia.

“Post-production”meansproductionactivitiesandservicesconductedafterprincipalphotographyiscompleted,includingbutnotlimitedtoediting,filmandvideotransfers,duplication,transcoding,dubbing,subtitling,credits,closedcaptioning,audioproduction,specialeffects(visualandsound),graphics,andanimation.

“Production”meansaseriesofactivitiesthataredirectlyrelatedtothecreationofvisualandcinematicimagerytobedeliveredviafilm,videotape,ordigitalmediaand tobesold,distributed,ordisplayedasentertainmentor theadvertisementofproductsformasspublicconsumption,includingbutnotlimitedtoscripting,casting,setdesignandconstruction,transportation,videography,photography,soundrecording,interactivegamedesign,andpost-production.

“Qualifiedproduction”:(1) Meansaproduction,withexpendituresinthestate,forthetotalorpartialproductionofafeature-length

motion picture, short film, made-for-television movie, commercial, music video, interactive game,televisionseriespilot,singleseason(uptotwenty-twoepisodes)ofatelevisionseriesregularlyfilmedinthestate(ifthenumberofepisodespersingleseasonexceedstwenty-two,additionalepisodesforthesameseasonshallconstituteaseparatequalifiedproduction),televisionspecial,singletelevisionepisodethatis



notpartofatelevisionseriesregularlyfilmedorbasedinthestate,nationalmagazineshow,ornationaltalkshow.Forthepurposesofsubsections(d)and(j),eachoftheaforementionedqualifiedproductioncategoriesshallconstituteseparate,individualqualifiedproductions;and

(2) Doesnotinclude:(A) News;(B) Publicaffairsprograms;(C) Non-nationalmagazineortalkshows;(D) Televisedsportingeventsoractivities;(E) Productionsthatsolicitfunds;(F) Productionsproducedprimarilyforindustrial,corporate,institutional,orotherprivatepurposes;and(G) Productionsthatincludeanymaterialorperformanceprohibitedbychapter712.

“Qualifiedproductioncosts”meansthecostsincurredbyaqualifiedproductionwithinthestatethataresubjecttothegeneralexcisetaxunderchapter237orincometaxunderthischapterandthathavenotbeenfinancedbyanyinvestmentsforwhichacreditwasorwillbeclaimedpursuanttosection235-110.9.Qualifiedproductioncostsincludebutarenotlimitedto:

(1) Costsincurredduringpreproductionsuchaslocationscoutingandrelatedservices;(2) Costsofsetconstructionandoperations,purchasesorrentalsofwardrobe,props,accessories,food,office

supplies,transportation,equipment,andrelatedservices;(3) Wagesorsalariesofcast,crew,andmusicians;(4) Costsofphotography,soundsynchronization,lighting,andrelatedservices;(5) Costsofediting,visualeffects,music,otherpost-production,andrelatedservices;(6) Rentalsandfeesforuseoflocalfacilitiesandlocations,includingrentalsandfeesforuseofstateand

countyfacilitiesandlocationsthatarenotsubjecttogeneralexcisetaxunderchapter237orincometaxunderthischapter;

(7) Rentalsofvehiclesandlodgingforcastandcrew;(8) AirfareforflightstoorfromHawaii,andinterislandflights;(9) Insuranceandbonding;(10)ShippingofequipmentandsuppliestoorfromHawaii,andinterislandshipments;and(11)Otherdirectproductioncostsspecifiedbythedepartmentinconsultationwiththedepartmentofbusiness,

economicdevelopment,andtourism;providedthatanygovernment-imposedfines,penalties,orinterestthatareincurredbyaqualifiedproductionwithintheStateshallnotbe“qualifiedproductioncosts.[L1997,c107,§1;amL1998,c156,§11;amL2006,c88,§2;amL2013,c89,§2;amL2017,c143,§2]

Note

AppliestotaxableyearsbeginningafterDecember31,1996.L1997,c107,§7.The1998amendmentappliestotaxableyearsbeginningafterDecember31,1998.L1998,c156,§13.The2006amendmentiseffectiveJuly1,2006andappliestoqualifiedproductioncostsincurredonorafterJuly1,2006,andbeforeJanuary1,

2016.Act88shallberepealedonJanuary1,2016,andsection235-17,HRS,shallbereenactedintheforminwhichitreadonthedaybeforetheeffectivedateoftheAct.

The2013amendmentiseffectiveonJuly1,2013,andappliestotaxableyearsbeginningafterDecember31,2012.L2013,c89,§6.L2013,c89,§3amendsAct88,L2006§4:“SECTION4.ThisActshalltakeeffectonJuly1,2006;providedthat:(1)Section2ofthisActshallapplytoqualifiedproductioncostsincurredonorafterJuly1,2006,andbeforeJanuary1,[2016;]2019;and(2)ThisActshallberepealedonJanuary1,[2016,]2019,andsection235-17,HawaiiRevisedStatutes,shallbereenactedintheforminwhich

itreadonthedaybeforetheeffectivedateofthisAct.”The2017amendmentiseffectiveonDecember31,2018,andappliestotaxableyearsbeginningafterDecember31,2018.L2017,c143,§9.L2017,c143,§3amendsAct88,L2006§4andAct89,L2013§4:“SECTION4.ThisActshalltakeeffectonJuly1,2006;providedthat:(1)Section2ofthisActshallapplytoqualifiedproductioncostsincurredonorafterJuly1,2006,andbeforeJanuary1,[2016;][2019;]2026

and(2)ThisActshallberepealedonJanuary1,[2016,][2019,]2026,andsection235-17,HawaiiRevisedStatutes,shallbereenactedintheform

inwhichitreadonthedaybeforetheeffectivedateofthisAct.”

Cross Reference

TaxInformationReleaseNo.98-1,“IncomeTaxExemptionandCreditsAvailableforPersonsEngagedintheMotionPictureandTelevisionFilmProductionBusiness”SupersededbyTIR2006-02relatingtoHRS§235-17.

TaxInformationReleaseNo.2006-02,“RefundableIncomeTaxCreditforPersonsEngagedintheMotionPicture,Television,andDigitalMediaProductionBusiness”



TaxInformationReleaseNo.2010-04,“Interpretationof“QualifiedProduction”forpurposesofTaxCreditClaimsundertheMotionPicture,DigitalMedia,andFilmProductionIncomeTaxCredit,HRS§235-17”



§235-17.5 Capital infrastructure tax credit.(a)Thereshallbeallowedtoeachtaxpayersubjecttothetaxesimposedbythischapteracapitalinfrastructuretaxcreditthatshallbedeductiblefromthetaxpayer’snetincometaxliability,ifany,imposedbythischapterforthetaxableyearinwhichthecapitalinfrastructurecostswerepaidorincurred.

(b) Forthepurposeofthissection:“Capitalinfrastructurecosts”meanscapitalexpenditures,asusedinsection263oftheInternalRevenueCode

andtheregulationspromulgatedthereunder,orcapitalexpendituresforrealproperty,fixtures,structures,machinery,equipment,orcapitalassetsthatarepaidorincurredinconnectionwiththedisplacedtenant’smoveofthetenant’scurrent active trade or business to the tenant’s new location within Honolulu harbor; provided that the capitalinfrastructurecostsshallnotincludeamountsforwhichanothercreditisclaimedoranyamountsreceivedinanyformfromtheState.

“Netincometaxliability”meansincometaxliabilityreducedbyallothercreditsallowedunderthischapter.“Qualifiedinfrastructuretenant”meansabusiness:

(1) That currently owns capital or property ormaintains an office, operations, or facilities at the formerKapalamamilitaryreservationsite;

(2) Whoseprincipalbusinessismaritime,andwaterfrontdependent,andisincludedundertheState’splantorelocatethebusinesstopierstwenty-fourthroughtwenty-eightwithinHonoluluharbor;and

(3) ThatwillbedisplacedandrelocatedbytheStatepursuanttotheKapalamacontainerterminalproject.(c) Theamountofthetaxcreditshallbeequaltofiftypercentofthecapitalinfrastructurecostspaidorincurred

by thequalified infrastructure tenantduring the taxableyear,up toamaximumcreditof$2,500,000perqualifiedinfrastructuretenantpertaxableyear.Ifthecapitalinfrastructurecostspaidorincurredbythequalifiedinfrastructuretenantbusinessresultinataxcreditinexcessof$2,500,000inanytaxableyear,theexcesscapitalinfrastructurecostsmaybecarriedovertoasubsequenttaxyearoryears,untilexhausted,forgenerationofthecredit;providedthat:

(1) Aqualifiedinfrastructuretenantmayformaspecialpurposeentityforthepurposesofraisinginvestorcapitalandclaimingthecreditonbehalfofthequalifiedinfrastructuretenant;

(2) Thequalifiedinfrastructuretenant,togetherwithallofitsspecialpurposeentities,includingallpartnersandmembersof thequalified infrastructure tenantand itsspecialpurposeentities,shallnotclaimanycreditinanyonetaxableyearthatexceeds$2,500,000;and

(3) InnoeventshallaqualifiedinfrastructuretenantoranyofitsspecialpurposeentitiesoranyothertaxpayerclaimacreditunderthissectionafterDecember31,2019.

(d) Inthecaseofanentitytaxedasapartnership,creditshallbedeterminedattheentitylevel,butdistributionandshareofthecreditmaybedeterminednotwithstandingsection704orsection706oftheInternalRevenueCode.

(e) Thecreditallowedunderthissectionshallbeclaimedagainstthenetincometaxliabilityforthetaxableyear.Ifthetaxcreditunderthissectionexceedsthetaxpayer’sincometaxliability,theexcessofthetaxcreditoverliabilitymaybeusedasacreditagainstthetaxpayer’snetincometaxliabilityinsubsequentyearsuntilexhausted.Allclaims,includingamendedclaims,forataxcreditunderthissectionshallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditmaybeclaimed.Failuretocomplywiththeforegoingprovisionshallconstituteawaiveroftherighttoclaimthecredit.

(f) ThissectionshallnotapplytotaxableyearsbeginningafterDecember31,2019.(g) Anycreditclaimedunderthissectionshallberecapturedfollowingthecloseofthetaxableyearforwhichthe

creditisclaimedif:(1) Withinthreeyears:

(A) ThequalifiedinfrastructuretenantfailstocontinuethelineofbusinessitconductedasofJuly1,2014;or

(B) Theinterestinthequalifiedinfrastructuretenant,whetherinwholeorinpart,hasbeensold,exchanged,withdrawn,orotherwisedisposedofbythetaxpayerclaimingacreditunderthissection;or

(2) ThequalifiedinfrastructuretenantfailstorelocatefromtheformerKapalamamilitaryreservationsitetoanother location, pursuant to a leasewith the department of transportation,within ninety days of theexecutionofthelease.

Therecaptureshallbeequaltoonehundredpercentoftheamountofthetotaltaxcreditclaimedunderthissectionintheprecedingfivetaxableyears,andshallbeaddedtothetaxpayer’staxliabilityforthetaxableyearinwhichtherecaptureoccurspursuanttothissubsection.

(h) Thedirectoroftaxationshallprepareanyformsthatmaybenecessarytoclaimacreditunderthissection.Thedirectormayalsorequirethetaxpayertofurnishinformationtoascertainthevalidityoftheclaimforcreditmadeunder this section.Thedirectorof taxationmayadopt rules to effectuate thepurposesof this sectionpursuant tochapter91.”

(i) Anytaxpayerclaimingataxcreditunderthissectionshall,withinninetydaysoftheendofthecalendaryearinwhichcostsforwhichthecreditisproperlyclaimable,submitthefollowinginformationtothedepartment’oftaxation:

(1) Theamountoftheeligiblecostsforthatyearforwhichthetaxcreditmaybeclaimed;and

INCOME TAX LAW [§235- ]


(2) Thequalifiedinfrastructuretenantincurringthecosts.Failuretotimelysubmittheinformationshallbesubjecttoapenaltyof$5,000permonthorafractionthereof,nottoexceed$25,000.[L2014,c200,§2;amL2017,c213,§1]

Note

SectionappliestotaxableyearsbeginningafterDecember31,2013.L2014,c200,§6.

[§235-18] Deposit beverage container deposit exemption.ThischaptershallnotapplytoamountsreceivedasadepositbeveragecontainerdepositcollectedunderpartVIIIofchapter342G.[L2004,c241,§1]

[§235-19] Exceptional trees; tax deduction. (a)Subjecttosubsection(b),thereshallbeallowedasadeductionfromgrossincometheamount,nottoexceed$3,000perexceptionaltree,foramountspaid,excludinginterestpaidoraccruedthereon,duringthetaxableyearbyanindividualtaxpayerforexpenditurestomaintain,onthetaxpayer’srealproperty,eachexceptionaltreethathasbeendesignatedbythecountyarboristadvisorycommitteeunderchapter58asanexceptionaltree.

(b) Nodeduction shall be allowed to exceed the amountof expendituresdeemed reasonablynecessaryby acertifiedarborist.Nodeductionshallbeallowedinmorethanonetaxableyearoutofeverythreeconsecutivetaxableyears.

(c) Thedirectoroftaxationshallpreparesuchformsasmaybenecessarytoclaimataxdeductionunderthissection,mayrequireproofoftheclaimforthetaxdeduction,includinganaffidavitsignedbythecertifiedarborist,andmayadoptrulespursuanttochapter91.

(d) Forthepurposeofthissection,theterm“exceptionaltree”shallhavethesamemeaningasdefinedinsection58-3.[L2004,c195,§2]

Note

SectionappliestoamountspaidintaxableyearsbeginningafterDecember31,2003.L2004,c195,§4.

[§235-20] Comfort letters; authority to assess fees; established. Thedepartmentmayassessandcollectafeefortheissuanceofanycomfortletterofthedepartment.Allfeescollectedunderthissectionshallbedepositedintothetaxadministrationspecialfundestablishedundersection235-20.5.[L2004,c215,ptof§3]

Note

L2004,c215,§13provides:“SECTION13.AnycomfortletterorotherwrittencommunicationissuedbythedepartmentoftaxationpriortotheeffectivedateofthisAct

[July1,2004]maycontinuetoberelieduponbythetaxpayertowhomsuchcomfortletterorotherwrittencommunicationwasissued(includingthequalifiedhightechnologybusinessanditsinvestors)andshallberespectedbythedepartmentoftaxation,notwithstandinganyoftheamendmentscontainedinthisAct,providedthattheassumptionsandrepresentationscontainedinsuchcomfortletterorotherwrittencommunicationremaintrueandaccurateinallmaterialrespects.Thehightechnologyprovisionsofsections235-2.4,235-2.45,235-7.3,235-9.5,235-110.51,235-110.9,235-110.91,235-111.5,and237-23.5,HawaiiRevisedStatutes,ineffectatthetimeofthecomfortletterorotherwrittencommunicationshallcontinuetoapplywithoutregardtoanyamendmentstosuchprovisionsunderthisActwithrespecttoanytransactionsorinvestmentsmadeorcommittedpriortotheeffectivedateofthisAct[July1,2004].”

§235-20.5 Tax administration special fund; established. (a)Thereisestablishedataxadministrationspecialfund,intowhichshallbedeposited:

(1) Feescollectedundersections235-20,235-110.9,and235-110.91;(2) Revenuescollectedbythespecialenforcementsectionpursuanttosection231-85;providedthatineach

fiscalyear,ofthetotalrevenuescollectedbythespecialenforcementsection,allrevenuesinexcessof$700,000shallbedepositedintothegeneralfund;and

(3) Finesassessedpursuanttosection237D-4.(b) Themoneysinthefundshallbeusedforthefollowingpurposes:

(1) Issuingcomfortletters,letterrulings,writtenopinions,andotherguidancetotaxpayers;(2) Issuingcertificatesundersections235-110.9and235-110.91;(3) Administeringtheoperationsofthespecialenforcementsection;and(4) Developing, implementing,andproviding taxpayereducationprograms, including taxpublications. [L

2004,c215,ptof§3;amL2007,c206,§3;amL2009,c134,§5;amL2014,c89,§1;amL2015,c204,§2]

[§235- ] Tax credit for flood victims. [Note: section is temporary and uncodified, no title was given section, effective for taxable years after December 31, 2003 and ending before January 1, 2007] (a)ThereshallbeallowedtoeachtaxpayerwhoisnotclaimedorisnototherwiseeligibletobeclaimedasadependentbyanothertaxpayerforfederalorHawaiistateindividualincometaxpurposes,whofilesanetincometaxreturnforataxableyear,aone-timenonrefundable

18-235-20.5

[§235- ] INCOME TAX LAW


floodvictimtaxcredit,exceptasotherwiseprovidedinthisAct.Thetaxcreditshallbedeductiblefromthetaxpayer’snetincometaxliabilityimposedbychapter235.

(b) Theamountofthetaxcreditshallbetenpercentoftheamountexpendedbythetaxpayerforcostsdirectlyrelatedtothedamagedirectlycausedbyheavyrainandfloodingoccurringonthedatesspecifiedinsubsection(c)tothetaxpayer’srealorpersonalproperty;providedthat:

(1) The expenses or costs are not reimbursable by insurance proceeds or disaster relief payments fromgovernmentagenciesornon-profitorganizations;

(2) Thetaxcreditshallnotexceed$10,000pertaxpayer;and(3) Norefundasprovidedinsubsection(f)orpaymentonaccountofthetaxcreditallowedbythisActshall

bemadeforamountslessthan$1.(c) Thetaxcreditshallapplytoataxpayerwhosuffereddamagetothetaxpayer’srealorpersonalpropertythat

issituatedintheState,havingoccurred:(1) OnOctober30of2004inManoa,Oahu;or(2) DuringFebruary20toApril9of2006inKauai,Hawaii,MauiandHonolulucounties.

(d) Toqualifyfortheincometaxcredit,thetaxpayershallcertifytothedepartmentoftaxationthatthetaxpayerisincompliancewithallapplicablefederal,state,andcountystatutes,rules,andregulations.

(e) Toqualifyfortheincometaxcredit,thetaxpayershallsignastatementandprovideinformationdeterminedbythedepartmentoftaxationasnecessarytoclaimthecreditunderpenaltiesofperjury.

(f) Ifthetaxcreditunderthissectionexceedsthetaxpayer’snetincometaxliability,anyexcessofthetaxcreditmaybeusedasacreditagainstthetaxpayer’sincometaxliabilityforthetaxableyearthecreditisclaimed;providedthat tax credits properly claimedby a taxpayer shall be refunded to the taxpayer after being credited against thetaxpayer’sincometaxliabilityforthetaxableyear,ifthetaxpayerqualifiesunderoneofthefollowingtests:

(1) Allofthetaxpayer’sincomeisexemptfromtaxationundersection235-7(a)(2)orsection235-7(a)(3);or(2) Thetaxpayer’sadjustedgrossincomeis$20,000orless.

(g) Inthecaseofapartnership,Scorporation,estate,trust,orassociationofapartmentowners,thetaxcreditallowableisforexpensesincurredandpaidforbytheentityforthetaxableyear.Thecostuponwhichthetaxcreditiscomputedshallbedeterminedattheentitylevel.

(h) Ifadeductionistakenundersection179(withrespecttoelectiontoexpensecertaindepreciablebusinessassets) of the InternalRevenueCodeof 1986, as amended, no tax credit shall be allowed for that portionof theexpensesforwhichthedeductionistaken.

Thebasisofpropertyshallnotbeincreasedbyanyamountforwhichthecreditisallowableandclaimed.Inthealternative, the taxpayershall treat theamountof thecreditallowableandclaimedasa taxable incomeitemfor thetaxableyearinwhichitisproperlyrecognizedunderthemethodofaccountingusedtocomputetaxableincome.

(i) Notaxpayerwhoclaimsthetaxcreditunderthissectionshallclaimanyothercreditordeductionforthesamelossesorotherexpensesorcosts.

(j) Every claim, including amended claims, for the tax credit under this section shall be filed on or beforeDecember31,2007.Failuretomeetthefilingrequirementsofthissubsectionshallconstituteawaiveroftherighttoclaimthetaxcredit.

(k) Ifatanytimeafterclaimingthetaxcredit,thetaxpayernolongerqualifiesforthecreditbecauseofsubsequentrecoveryforexpensesutilizedtocalculatethecredit,thecreditsclaimedshallberecaptured.Therecaptureshallbeequaltoonehundredpercentofthetaxcreditsthatweresubsequentlyineligibleasaresultoflaterrecovery.Theamountoftherecapturedtaxcreditsshallbeaddedtothetaxpayer’staxliabilityforthetaxableyearinwhichtherecaptureoccurs.

(l) Inthecaseoffraud,makingofafalsestatement,orwillfuldisregardforthefacts,associatedwithmakingareturnorotherwiseclaimingthetaxcredit,thereshallbeaddedtotheamountwrongfullyclaimedonareturnapenaltyof50percentoftheamountofsuchcreditclaimed.

(m)Thedirectoroftaxationshallprepareanyformsasmaybenecessarytoclaimataxcreditunderthissection,mayrequireproofoftheclaimforthetaxcredit,andmayadoptruleswithoutregardtochapter91toeffectuatethepurposesofthissection.[L2006,c110,§4]

[§235- ] [Note: section is temporary and uncodified, no title was given section, shall apply to the taxable year 2007.] L2007,c210,§2 (a)Thereshallbeallowedforeachresidentindividualtaxpayerforthetaxableyear2007,arefundableone-timegeneralincometaxcreditthatshallbedeductedfromincometaxliabilitycomputedunderchapter235,HawaiiRevisedStatutes;providedthatnorefundsorpaymentsonaccountofthetaxcreditsallowedbythissectionshallbemadeforamountslessthan$1.

(b) Thereshallbeallowedtoahusbandandwifewhofileajointreturnaone-timegeneralincometaxcreditinaccordancewiththefollowingtable:Iftheadjustedgrossincomeis: Thecreditshallbe:Under$5,000 $160

INCOME TAX LAW [§235- ]


$5,000andoverbutunder$10,000 150$10,000andoverbutunder$15,000 140$15,000andoverbutunder$20,000 130$20,000andoverbutunder$30,000 120$30,000andoverbutunder$40,000 110$40,000andoverbutunder$50,000 100$50,000andoverbutunder$60,000 90$60,000andover 0

(c) Thereshallbeallowedtoeverytaxpayerfilingaheadofhouseholdtaxreturnaone-timegeneralincometaxcreditinaccordancewiththefollowingtable:Iftheadjustedgrossincomeis: Thecreditshallbe:Under$5,000 $140$5,000andoverbutunder$10,000 130$10,000andoverbutunder$15,000 120$15,000andoverbutunder$20,000 110$20,000andoverbutunder$30,000 100$30,000andoverbutunder$40,000 90$40,000andoverbutunder$50,000 80$50,000andoverbutunder$60,000 70$60,000andover 0

(d) There shall be allowed to every (1) unmarried individual (other than a surviving spouse, or the head ofhousehold)and(2)marriedindividualfilingaseparatetaxreturnaone-timegeneralincometaxcreditinaccordancewiththefollowingtable:Iftheadjustedgrossincomeis: Thecreditshallbe:Under$5,000 $65$5,000andoverbutunder$10,000 55$10,000andoverbutunder$15,000 45$15,000andoverbutunder$20,000 35$20,000andoverbutunder$30,000 25$30,000andover 0

L2007,c210,§3(a)Eachtaxpayerthatclaimstheone-timegeneralincometaxcreditshallhavebeenaresidentofthestate,asdefinedinsection235-1,HawaiiRevisedStatutes,foratleastninemonthsregardlessofwhethertheresidentwasphysicallyinthestateforninemonths.

(b) Theone-timegeneralincometaxcreditshallnotbeavailableto:(1) Anypersonwhohasbeenconvictedofa felonyandwhohasbeencommitted toprisonandhasbeen

physicallyconfinedforthefulltaxableyear;(2) Anypersonwhowouldotherwisebeeligibletobeclaimedasadependentbutwhohasbeencommittedto

ayouthcorrectionalfacilityandhasresidedatthefacilityforthefulltaxableyear;or(3) Anymisdemeanantwhohasbeencommittedtojailandhasbeenphysicallyconfinedforthefulltaxable

year.(c) ThetaxcreditclaimedbyaresidenttaxpayerpursuanttothisActshallbedeductiblefromthetaxpayer’s

individual income tax liability for the taxableyear2007. If the taxcreditclaimedbya resident taxpayerexceedstheamountofincometaxpaymentduefromtheresidenttaxpayer,theexcessofcreditsoverpaymentsdueshallberefundedtotheresidenttaxpayer;providedthatataxcreditproperlyclaimedbyaresidentindividualwhohasnoincometaxliabilityshallbepaidtotheresidentindividual.

(d) AllclaimsfortaxcreditsunderthisAct,includinganyamendedclaims,shallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditsmaybeclaimed.Failuretocomplywiththisfilingrequirementshallconstituteawaiveroftherighttoclaimthecredit.

(e) Ahusbandandwifewhodonotfileajointtaxreturn,shallonlybeentitledtoclaimtheone-timegeneralincometaxcredittotheextentthattheywouldhavebeenentitledtotheone-timegeneralincometaxcredithadtheyfiledajointtaxreturn.

(f) ThetaxrefundpaidtoaresidenttaxpayerpursuanttothisActshallnotbeincludedintheresidenttaxpayer’sgrossincome.

(g) ForthepurposethisAct,“adjustedgrossincome”meansadjustedgrossincomeasdefinedbytheInternalRevenueCode.

Note

Act210appliestothetaxableyearbeginningafterDecember31,2006.L2007,c210,§5.

[§235- ] INCOME TAX LAW


[§235- ] [Note: section is temporary and uncodified, no title was given section, shall apply to the taxable year 2008.] L2008,c58,§2 (a)Thereshallbeallowedeachresidentindividualtaxpayerwhofilesanindividualincometaxreturnforthetaxableyear2008andwhoisnotclaimedorisnototherwiseeligibletobeclaimedasadependentbyanothertaxpayerforfederalorHawaiistateindividualincometaxpurposes,ageneralincometaxcreditof$1,whichshallbedeductedfromincometaxliabilitycomputedunderchapter235,HawaiiRevisedStatutes;providedthataresidentindividualwhohasnoincomeornoincometaxableunderchapter235,HawaiiRevisedStatutes,andwhoisnotclaimedorisnototherwiseeligibletobeclaimedasadependentbyataxpayerforfederalorHawaiistateindividualincometaxpurposesmayclaimthiscredit.

Eachresidentindividualtaxpayermayclaimthegeneralincometaxcreditmultipliedbythenumberofqualifiedexemptionstowhichthetaxpayerisentitled.

Eachpersonforwhomthegeneralincometaxcreditisclaimedshallhavebeenaresidentofthestate,asdefinedin section235-1,HawaiiRevisedStatutes, forat leastninemonths regardlessofwhether thequalified residentwasphysicallyinthestateforninemonths.Multipleexemptionsshallnotbegrantedforthegeneralincometaxcreditbecauseofageordeficienciesinvision,hearing,orotherdisability.

Thegeneralincometaxcreditshallnotbeavailableto:(1) Anypersonwhohasbeenconvictedofa felonyandwhohasbeencommitted toprisonandhasbeen



year.ThetaxcreditclaimedbyaresidenttaxpayerpursuanttothisActshallbedeductiblefromtheresidenttaxpayer’s

individualincometaxliabilityforthetaxableyear2008.Ifthetaxcreditclaimedbyaresidenttaxpayerexceedstheamountofincometaxpaymentduefromtheresidenttaxpayer,theexcessofcreditsoverpaymentsdueshallberefundedtotheresident taxpayer;providedthata taxcreditproperlyclaimedbyaresident individualwhohasnoincometaxliabilityshallbepaidtotheresidentindividual.

AllclaimsfortaxcreditsunderthisAct,includinganyamendedclaims,shallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditsmaybeclaimed.Failuretocomplywiththisfilingrequirementshallconstituteawaiveroftherighttoclaimthecredit.

(b) ThissectionimplementstheprovisionsofarticleVII,section6,oftheHawaiiConstitution,enactedbythe1978constitutionalconvention,whichreadsasfollows:

DISPOSITIONOFEXCESSREVENUES

Section 6.Wheneverthestategeneralfundbalanceatthecloseofeachoftwosuccessivefiscalyearsexceedsfivepercentofgeneralfundrevenuesforeachofthetwofiscalyears,thelegislatureinthenextregularsessionshallprovideforataxrefundortaxcredittothetaxpayersoftheState,asprovidedbylaw.[L2008,c58,§2.]

[§235- ] [Note: section is temporary and uncodified, no title was given section, shall apply to the taxable year 2009.]L2009,c84,§2 (a)Thereshallbeallowedtoeachresidentindividualtaxpayer,whofilesanindividualincometaxreturnforthetaxableyear2009,andwhoisnotclaimedorisnototherwiseeligibletobeclaimedasadependentbyanothertaxpayerforfederalorHawaiistateindividualincometaxpurposes,ageneralincometaxcreditof$1thatshallbedeductedfromincometaxliabilitycomputedunderchapter235,HawaiiRevisedStatutes;providedthataresidentindividualwhohasnoincomeornoincometaxableunderchapter235,HawaiiRevisedStatutes,andwhoisnotclaimedorisnototherwiseeligibletobeclaimedasadependentbyataxpayerforfederalorHawaiistateindividualincometaxpurposes,mayclaimthiscredit.

Eachresidentindividualtaxpayermayclaimthegeneralincometaxcreditmultipliedbythenumberofqualifiedexemptionstowhichthetaxpayerisentitled.

Eachpersonforwhomthegeneralincometaxcreditisclaimedshallhavebeenaresidentofthestate,asdefinedin section235-1,HawaiiRevisedStatutes, forat leastninemonths regardlessofwhether thequalified residentwasphysicallyinthestateforninemonths.Multipleexemptionsshallnotbegrantedforthegeneralincometaxcreditbecauseofageordeficienciesinvision,hearing,orotherdisability.

Thegeneralincometaxcreditshallnotbeavailableto:(1) Anypersonwhohasbeenconvictedofa felonyandwhohasbeencommitted toprisonandhasbeen



year.



ThetaxcreditclaimedbyaresidenttaxpayerpursuanttothisActshallbedeductiblefromtheresidenttaxpayer’sindividualincometaxliabilityforthetaxableyear2009.Ifthetaxcreditclaimedbyaresidenttaxpayerexceedstheamountofincometaxpaymentduefromtheresidenttaxpayer,theexcessofcreditsoverpaymentsdueshallberefundedtotheresident taxpayer;providedthata taxcreditproperlyclaimedbyaresident individualwhohasnoincometaxliabilityshallbepaidtotheresidentindividual.

AllclaimsfortaxcreditsunderthisAct,includinganyamendedclaims,shallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditsmaybeclaimed.Failuretocomplywiththisfilingrequirementshallconstituteawaiveroftherighttoclaimthecredit.

(b)ThissectionimplementstheprovisionsofarticleVII,section6,oftheHawaiiConstitution,proposedbythe1978constitutionalconvention,andenactedbythevotersonNovember7,1978,whichreadsasfollows:

DISPOSITIONOFEXCESSREVENUES

Section 6.Wheneverthestategeneralfundbalanceatthecloseofeachoftwosuccessivefiscalyearsexceedsfivepercentofgeneralfundrevenuesforeachofthetwofiscalyears,thelegislatureinthenextregularsessionshallprovideforataxrefundortaxcredittothetaxpayersoftheState,asprovidedbylaw.[L2009,c84,§2.]

§235- Itemized deductions; limitations. [Note: section is temporary and uncodified, shall apply to taxable years beginning after December 31, 2010 and shall be repealed on January 1, 2016 and not apply to taxable years beginning after December 31, 2015. L 2011, c 97, §6] Notwithstandinganyother law to thecontrary, itemized taxdeductionsclaimedpursuanttothischaptershallnotexceedthelesserof:

(1) Thelimitationonitemizeddeductionsundersection68oftheInternalRevenueCode;or(2) Anyofthefollowingthatmaybeapplicable:

(A) $25,000forataxpayerfilingasinglereturnoramarriedpersonfilingseparatelywithafederaladjustedgrossincomeof$100,000ormore;

(B) $37,500forataxpayerfilingasaheadofhouseholdwithafederaladjustedgrossincomeof$150,000ormore;and

(C) $50,000 for a taxpayerfilinga joint returnor as a surviving spousewith a federal adjustedgrossincomeof$200,000ormore;

provided that thecapamountsestablished in thisparagraphshallnotapply tocharitablecontributionsdeductibleunderthischapter.[L2011,c97,§3;amL2013,c256,§1]

PART II. UNIFORM DIVISION OF INCOME FOR TAX PURPOSES

§235-21 Definitions. Asusedinthispart,unlessthecontextotherwiserequires:“Businessincome”meansincomearisingfromtransactionsandactivityintheregularcourseofthetaxpayer’strade

orbusinessandincludesincomefromtangibleandintangiblepropertyiftheacquisition,management,anddispositionofthepropertyconstituteintegralpartsofthetaxpayer’sregulartradeorbusinessoperations.

“Commercialdomicile”meanstheprincipalplacefromwhichthetradeorbusinessofthetaxpayerisdirectedormanaged.

“Compensation”meanswages,salaries,commissions,andanyotherformofremunerationpaidtoemployeesforpersonalservices.

“Nonbusinessincome”meansallincomeotherthanbusinessincome.“Publicutility”hasthemeaninggiventhatterminsection269-1.“Sales”meansallgrossreceiptsofthetaxpayernotallocatedundersections235-24to235-28.“State”meansanystateof theUnitedStates, theDistrictofColumbia, theCommonwealthofPuertoRico,any

territoryorpossessionoftheUnitedStates,andanyforeigncountryorpoliticalsubdivisionthereof.[L1967,c33,ptof§1;HRS§235-21]

Revision Note

Numericdesignationsdeleted.

§235-22 Taxpayers affected. AnytaxpayerhavingincomefrombusinessactivitywhichistaxablebothwithinandwithoutthisState,otherthanactivityasapublicutilityortherenderingofpurelypersonalservicesbyanindividual,shallallocateandapportionthetaxpayer’snetincomeasprovidedinthispart.[L1967,c33,ptof§1;HRS§235-22;amimpL1984,c90,§1;gench1985]

§235-23 Taxable in another state. Forpurposesofallocationandapportionmentof incomeunder thispart, ataxpayeristaxableinanotherstateif:

18-235-21

18-235-22

18-235-23



(1) Inthatstatethetaxpayerissubjecttoanetincometax,afranchisetaxmeasuredbynetincome,afranchisetaxfortheprivilegeofdoingbusiness,oracorporatestocktax,or

(2) Thatstatehasjurisdictiontosubjectthetaxpayertoanetincometaxregardlessofwhether,infact,thestatedoesordoesnot.[L1967,c33,ptof§1;HRS§235-23;amimpL1984,c90,§1;gench1985]

§235-24 Specified nonbusiness income. Rentsandroyaltiesfromrealortangiblepersonalproperty,capitalgains,interest,dividends,orpatentorcopyrightroyalties,totheextentthattheyconstitutenonbusinessincome,shallbeallocatedasprovidedinsections235-25to235-27.[L1967,c33,ptof§1;HRS§235-24]

§235-25 Rents; royalties. (a)NetrentsandroyaltiesfromrealpropertylocatedinthisStateareallocabletothisState.

(b) NetrentsandroyaltiesfromtangiblepersonalpropertyareallocabletothisState:(1) IfandtotheextentthatthepropertyisutilizedinthisState,or(2) Intheirentiretyifthetaxpayer’scommercialdomicileisinthisStateandthetaxpayerisnotorganized

underthelawsofortaxableinthestateinwhichthepropertyisutilized.(c) Theextentofutilizationoftangiblepersonalpropertyinastateisdeterminedbymultiplyingtherentsand

royaltiesbyafraction,thenumeratorofwhichisthenumberofdaysofphysicallocationofthepropertyinthestateduringtherentalorroyaltyperiodinthetaxableyearandthedenominatorofwhichisthenumberofdaysofphysicallocationofthepropertyeverywhereduringallrentalorroyaltyperiodsinthetaxableyear.Ifthephysicallocationofthepropertyduringtherentalorroyaltyperiodisunknownorunascertainablebythetaxpayer,tangiblepersonalproperty isutilized in thestate inwhich thepropertywas locatedat the time the rentalor royaltypayerobtainedpossession.[L1967,c33,ptof§1;HRS§235-25]

Cross Reference

TaxInformationReleaseNo.2010-01,“MilitarySpousesResidencyReliefAct(“MSRRA”)”

§235-26 Allocation of capital gains and losses. (a)CapitalgainsandlossesfromsalesofrealpropertylocatedinthisStateareallocabletothisState.

(b) CapitalgainsandlossesfromsalesoftangiblepersonalpropertyareallocabletothisStateif:(1) ThepropertyhadasitusinthisStateatthetimeofthesale;or(2) Thetaxpayer’scommercialdomicileisinthisStateandthetaxpayerisnottaxableinthestateinwhich

thepropertyhadasitus.(c) Except in the case of the sale of a partnership interest, capital gains and losses from sales of intangible

personalpropertyareallocabletothisStateifthetaxpayer’scommercialdomicileisinthisState.(d) GainorlossfromthesaleofapartnershipinterestisallocabletothisStateintheratiooftheoriginalcostof

partnershiptangiblepropertyintheStatetotheoriginalcostofpartnershiptangiblepropertyeverywhere,determinedatthetimeofthesale.Ifmorethanfiftypercentofthevalueofapartnership’sassetsconsistsofintangibles,gainorlossfromthesaleofthepartnershipinterestshallbeallocatedtothisStateinaccordancewiththesalesfactorofthepartnershipforitsfirstfulltaxperiodimmediatelyprecedingitstaxperiodduringwhichthepartnershipinterestwassold.[L1967,c33,ptof§1;HRS§235-26;amL1989,c19,§1]

Cross Reference


§235-27 Allocation of interest and dividends. InterestanddividendsareallocabletothisStateifthetaxpayer’scommercialdomicileisinthisState.[L1967,c33,ptof§1;HRS§235-27]

§235-28 Allocation of patent and copyright royalties. (a)Patentandcopyright royaltiesareallocable to thisState:

(1) IfandtotheextentthatthepatentorcopyrightisutilizedbythepayerinthisState,or(2) Ifandtotheextentthatthepatentorcopyrightisutilizedbythepayerinastateinwhichthetaxpayeris

nottaxableandthetaxpayer’scommercialdomicileisinthisState.(b) Apatentisutilizedinastatetotheextentthatitisemployedinproduction,fabrication,manufacturing,or

otherprocessinginthestateortotheextentthatapatentedproductisproducedinthestate.Ifthebasisofreceiptsfrompatentroyaltiesdoesnotpermitallocationtostatesoriftheaccountingproceduresdonotreflectstatesofutilization,thepatentisutilizedinthestateinwhichthetaxpayer’scommercialdomicileislocated.

(c) Acopyrightisutilizedinastatetotheextentthatprintingorotherpublicationoriginatesinthestate.Ifthebasisofreceiptsfromcopyrightroyaltiesdoesnotpermitallocationtostatesoriftheaccountingproceduresdonotreflectstatesofutilization,thecopyrightisutilizedinthestateinwhichthetaxpayer’scommercialdomicileislocated.[L1967,c33,ptof§1;HRS§235-28]



Cross Reference


§235-29 Apportionment of business income; percentage. AllbusinessincomeshallbeapportionedtothisStatebymultiplyingtheincomebyafraction,thenumeratorofwhichisthepropertyfactorplusthepayrollfactorplusthesalesfactor,andthedenominatorofwhichisthree.[L1967,c33,ptof§1;HRS§235-29]

§235-30 Apportionment; property factor. Thepropertyfactorisafraction,thenumeratorofwhichistheaveragevalueofthetaxpayer’srealandtangiblepersonalpropertyownedorrentedandusedinthisStateduringthetaxperiodandthedenominatorofwhichistheaveragevalueofallthetaxpayer’srealandtangiblepersonalpropertyownedorrentedandusedduringthetaxperiod.[L1967,c33,ptof§1;HRS§235-30]

§235-31 Apportionment; property factor; owned and used property. Propertyownedbythetaxpayerisvaluedatitsoriginalcost.Propertyrentedbythetaxpayerisvaluedateighttimesthenetannualrentalrate.Netannualrentalrateistheannualrentalratepaidbythetaxpayerlessanyannualrentalratereceivedbythetaxpayerfromsubrentals.[L1967,c33,ptof§1;HRS§235-31]

§235-32 Apportionment; property factor; average value. Theaveragevalueofpropertyshallbedeterminedbyaveragingthevaluesatthebeginningandendingofthetaxperiodbutthedirectoroftaxationmayrequiretheaveragingofmonthlyvaluesduringthetaxperiodifreasonablyrequiredtoreflectproperlytheaveragevalueofthetaxpayer’sproperty.[L1967,c33,ptof§1;HRS§235-32]

§235-33 Apportionment; payroll factor. The payroll factor is a fraction, the numerator ofwhich is the totalamountpaidinthisStateduringthetaxperiodbythetaxpayerforcompensation,andthedenominatorofwhichisthetotalcompensationpaideverywhereduringthetaxperiod.[L1967,c33,ptof§1;HRS§235-33]

§235-34 Compensation; where paid. CompensationispaidinthisStateif:(1) Theindividual’sserviceisperformedentirelywithintheState;(2) Theindividual’sserviceisperformedbothwithinandwithouttheState,buttheserviceperformedwithout

theStateisincidentaltotheindividual’sservicewithintheState;or(3) SomeoftheserviceisperformedintheStateand:

(A) Thebaseofoperationsor,ifthereisnobaseofoperations,theplacefromwhichtheserviceisdirectedorcontrolledisintheState;or

(B) Thebaseofoperationsortheplacefromwhichtheserviceisdirectedorcontrolledisnotinanystateinwhichsomepartoftheserviceisperformed,buttheindividual’sresidenceisinthisState.[L1967,c33,ptof§1;HRS§235-34;amL2017,c12,§41]

§235-35 Apportionment; sales factor. Thesalesfactorisafraction,thenumeratorofwhichisthetotalsalesofthetaxpayerinthisStateduringthetaxperiod,andthedenominatorofwhichisthetotalsalesofthetaxpayereverywhereduringthetaxperiod.[L1967,c33,ptof§1;HRS§235-35]

§235-36 Apportionment; sales factor; tangible personalty. SalesoftangiblepersonalpropertyareinthisStateif:(1) Thepropertyisdeliveredorshippedtoapurchaser,otherthantheUnitedStatesgovernment,withinthis

Stateregardlessofthef.o.b.pointorotherconditionsofthesale;or(2) Thepropertyisshippedfromanoffice,store,warehouse,factory,orotherplaceofstorageinthisStateand

the:(A) PurchaseristheUnitedStatesgovernment;or(B) Taxpayerisnottaxableinthestateofthepurchaser.[L1967,c33,ptof§1;HRS§235-36;amL2017,

c12,§42]

§235-37 Apportionment; sales factor; nontangible personalty. Sales, other than sales of tangible personalproperty,areinthisStateif:

(1) Theincome-producingactivityisperformedinthisState;or(2) Theincome-producingactivityisperformedbothinandoutsidethisStateandagreaterproportionofthe

income-producingactivityisperformedinthisStatethaninanyotherstate,basedoncostsofperformance.[L1967,c33,ptof§1;HRS§235-37]

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§235-38 Equitable adjustment of formula. If theallocationandapportionmentprovisionsof thispartdonotfairlyrepresenttheextentofthetaxpayer’sbusinessactivityinthisState,thetaxpayermaypetitionfororthedirectoroftaxationmayrequire,inrespecttoalloranypartofthetaxpayer’sbusinessactivity,ifreasonable:

(1) Separateaccounting;(2) Theexclusionofanyoneormoreofthefactors;(3) Theinclusionofoneormoreadditionalfactorswhichwillfairlyrepresentthetaxpayer’sbusinessactivity

inthisState;or(4) The employment of any othermethod to effectuate an equitable allocation and apportionment of the

taxpayer’sincome.[L1967,c33,ptof§1;HRS§235-38]

[§235-38.5] Application. Itistheintentofthelegislaturethatinadministeringthischapter,thispart,andsections235-4and235-5orasamemberoforadministeringthemultistatetaxcompactunderchapter255thedepartmentoftaxationshallnotuseorallowtheuseoftheworldwidemethodofunitarytaxationupheldinContainerCorporationofAmericav.TheFranchiseTaxBoard,463U.S.159.Itistheintentofthelegislaturethatthedepartmentoftaxationshallcontinuetoapplythischapter,part,sections235-4and235-5,andchapter255astheywereappliedbeforetheabovecasewasdecided.[L1984,c53,§2]

§235-39 Citation of part. Thispartmaybecitedasthe“UniformDivisionofIncomeforTaxPurposesAct”.[L1967,c33,ptof§1;HRS§235-39]

PART III. INDIVIDUAL INCOME TAX

§235-51 Tax imposed on individuals; rates. (a) Thereisherebyimposedonthetaxableincomeofevery:(1) Taxpayerwhofilesajointreturnundersection235-93;and(2) Survivingspouse,ataxdeterminedinaccordancewiththefollowingtable:InthecaseofanytaxableyearbeginningafterDecember31,2001:

Ifthetaxableincomeis: Thetaxshallbe:Notover$4,000 1.40%oftaxableincomeOver$4,000but notover$8,000

$56.00plus3.20%of excessover$4,000

Over$8,000but notover$16,000





$1,136.00plus6.80%of excessover$24,000







Over$80,000 $5,356.00plus8.25%of excessover$80,000

InthecaseofanytaxableyearbeginningafterDecember31,2006:Ifthetaxableincomeis: Thetaxshallbe:Notover$4,800 1.40%oftaxableincomeOver$4,800but notover$9,600












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(b) Thereisherebyimposedonthetaxableincomeofeveryheadofahouseholdataxdeterminedinaccordancewiththefollowingtable:InthecaseofanytaxableyearbeginningafterDecember31,2001:Ifthetaxableincomeis: Thetaxshallbe:Notover$3,000 1.40%oftaxableincomeOver$3,000but notover$6,000





















































(c) Thereisherebyimposedonthetaxableincomeof(1)everyunmarriedindividual(otherthanasurvivingspouse,ortheheadofahousehold)and(2)onthetaxableincomeofeverymarriedindividualwhodoesnotmakea single return jointlywith the individual’s spouseunder section235-93a taxdetermined inaccordancewith thefollowingtable:






















































(d) The tax imposed by section 235-2.45 on estates and trusts shall be determined in accordance with thefollowingtable:
















(e) Anytaxpayer,otherthanacorporation,actingasabusinessentityinmorethanonestatewhoisrequiredbythischaptertofileareturnmayelecttoreportandpayataxof.5percentofthetaxpayer’sannualgrosssalesifthe:

(1) Taxpayer’sonlyactivitiesinthisStateconsistofsales;



(2) Taxpayerdoesnotownorrentrealestateortangiblepersonalproperty;and(3) Taxpayer’sannualgrosssalesinorintothisStateduringthetaxyearisnotinexcessof$100,000.

(f) Ifataxpayerhasanetcapitalgainforanytaxableyeartowhichthissubsectionapplies,thenthetaximposedbythissectionshallnotexceedthesumof:

(1) Thetaxcomputedattheratesandinthesamemannerasifthissubsectionhadnotbeenenactedonthegreaterof:(A) Thetaxableincomereducedbytheamountofnetcapitalgain,or(B) Theamountoftaxableincometaxedataratebelow7.25percent,plus

(2) Ataxof7.25percentoftheamountoftaxableincomeinexcessoftheamountdeterminedunderparagraph(1).

Thissubsectionshallapplytoindividuals,estates,andtrustsfortaxableyearsbeginningafterDecember31,1986.[LSp1957,c1,ptof§2;amL1965,c155,§31(b),(c);Supp,§121-8;amL1967,c250,§1;HRS§235-51;amL1974,c10,§1;amL1978,c173,§2(10);amL1979,c62,§2(9);amL1982,c22,§1(2);amL1987,c239,§1(11);amL1988,c102,§3;amL1989,c321,§3;L1998,c157,§2;amL2001,c199,§4;amL2006,c110,§3;amL2007c9§11;amL2009,c60§2;amL2011,c97,§4;amL2017,c12,§43andc107,§2]

Note

The 2011 amendment to L 2009, c 60 amendment applies to taxable years beginning afterDecember 31, 2008 and shall be repealed onDecember31,2015andsection235-51(a),(b),and(c),HawaiiRevisedStatutes,shallbereenactedintheforminwhichitreadonthedaybeforetheeffectivedateofAct97,SLH2011.L2011,c97,§4.

Cross Reference

TaxInformationReleaseNo.57-78,“AdoptionofInternalRevenueCode”OBSOLETETaxInformationReleaseNo.99-4.“ApplicationoftheFranchiseTax,GeneralExciseTax,andIncomeTaxtoMortgageLoanCompanies,

IncludingMortgageLoanCompaniesOrganizedasPassthroughEntitiesandSoleProprietorships”


RuleofStrictConstructioninTaxCases,aQuestionofClassificationorExemption,ArthurB.Reinwald,11HBJ98.

Case Notes

Intangibles,situs.31H.264,aff’d47F.2d869.Incidenceofincometaxesnotproperforjury’sconsiderationinawardingdamages.49H.42,410P.2d976.Statuesimposingtaxesarestrictlyconstruedinfavoroftaxpayer.56H.321,536P.2d91.

§235-52 Tax in case of joint return or return of surviving spouse. Inthecaseofajointreturnofahusbandandwifeundersection235-93,thetaximposed,asnearasmaybe,bythischaptershallbetwicethetaxwhichwouldbeimposedifthetaxableincomewerecutinhalf.Forpurposesofthissectionandsection235-53,areturnofasurvivingspouse,asdefinedintheInternalRevenueCode,shallbetreatedasajointreturnofahusbandandwifeundersection235-93.[LSp1957,c1,ptof§2;Supp,§121-9;HRS§235-52;amL1982,c22,§1(3);amL1987,c239,§1(12)]

Case Notes

Jointreturn,jointresponsibilityfortaxdeficiency.49H.688,427P.2d86.

§235-53 Tax tables for individuals. (a)Impositionoftaxtabletax:(1) Ingeneral.Inlieuofthetaximposedbysection235-51,thereisherebyimposedforeachtaxableyearon

thetaxableincomeofeveryindividual:(A) Whodoesnotitemizetheindividual’sdeductionsforthetaxableyear;and(B) Whosetaxableincomeforsuchtaxableyeardoesnotexceedtheceilingamount,

ataxdeterminedundertables,applicabletosuchtaxableyear,whichshallbeprescribedbythedirector.Inthetablessoprescribed,theamountsoftaxshallbecomputedonthebasisoftheratesprescribedbysection235-51.

(2) Ceilingamountdefined.Forpurposesofparagraph(1),theterm“ceilingamount”means,withrespecttoanytaxpayer,theamount(notlessthan$20,000)determinedbythedirectorforthetaxratecategoryinwhichsuchtaxpayerfalls.

(3) Authoritytoprescribetablesfortaxpayerswhoitemizedeductions.Thedirectormayprovidethat thissection shall apply also for any taxable year to individualswho itemize their deductions.Any tablesprescribedundertheprecedingsentenceshallbeonthebasisoftaxableincome.

(b) Sectioninapplicabletocertainindividuals.Thissectionshallnotapplyto:(1) Anindividualmakingareturnforaperiodoflessthantwelvemonthsonaccountofachangeinannual

accountingperiod,and(2) Anestateortrust.

(c) Taxtreatedasimposedbysection235-51.Forpurposesofthischapter,thetaximposedbythissectionshallbetreatedastaximposedbysection235-51.

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(d) Taxableincome.Wheneveritisnecessarytodeterminethetaxableincomeofanindividualtowhomthissectionapplies,thetaxableincomeshallbedeterminedundersection235-2.4(a).[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-10;HRS§235-53;amL1968,c8,§2;amL1977,c46,§1;amL1981,c208,§3;amL1987,c239,§§1(13),(14)]

§235-54 Exemptions. (a) [This subsection (a) is effective until December 31, 2012. For subsection (a) effective on January 1, 2013, see below.]Incomputingthetaxableincomeofanyindividual,thereshallbededucted,inlieuofthepersonalexemptionsallowedbytheInternalRevenueCodeof1986,asamended,andexceptasprovidedinsubsection(c),personalexemptionscomputedasfollows:AscertainthenumberofexemptionswhichtheindividualcanlawfullyclaimundertheInternalRevenueCode,addanadditionalexemptionforthetaxpayerorthetaxpayer’sspousewhoissixty-fiveyearsofageorolderwithinthetaxableyear,andmultiplythatnumberby$1,040,fortaxableyearsbeginningafterDecember31,1984.AnonresidentshallproratethepersonalexemptionsonaccountofincomefromsourcesoutsidetheStateasprovidedinsection235-5.Inthecaseofanindividualwithrespecttowhomanexemptionunderthissectionisallowabletoanothertaxpayerforataxableyearbeginninginthecalendaryearinwhichtheindividual’staxableyearbegins,thepersonalexemptionamountapplicabletosuchindividualunderthissubsectionforsuchindividual’staxableyearshallbezero.

(a) [Subsection effective January 1, 2013. For subsection effective until December 31, 2012, see above.] Incomputingthetaxableincomeofanyindividual,thereshallbededucted,inlieuofthepersonalexemptionsallowedbytheInternalRevenueCodeof1986,asamended,andexceptasprovidedinsubsection(c),personalexemptionscomputedasfollows:AscertainthenumberofexemptionswhichtheindividualcanlawfullyclaimundertheInternalRevenueCode,addanadditionalexemptionforthetaxpayerorthetaxpayer’sspousewhoissixty-fiveyearsofageorolderwithinthetaxableyear,andmultiplythatnumberby$1,144,fortaxableyearsbeginningafterDecember31,1984.Anonresidentshallproratethepersonalexemptionsonaccountofincomefromsourcesoutsidethestateasprovidedinsection235-5.Inthecaseofanindividualwithrespecttowhomanexemptionunderthissectionisallowabletoanothertaxpayerforataxableyearbeginninginthecalendaryearinwhichtheindividual’staxableyearbegins,thepersonalexemptionamountapplicabletosuchindividualunderthissubsectionforsuchindividual’staxableyearshallbezero.

(b) Incomputingthetaxableincomeofanestateortrustthereshallbeallowed,inlieuofthedeductionsallowedundersubsection(a),thefollowing:

(1) Anestateshallbeallowedadeductionof$400.(2) Atrustwhich,underitsgoverninginstrument,isrequiredtodistributeallofitsincomecurrentlyshallbe

allowedadeductionof$200.(3) Allothertrustsshallbeallowedadeductionof$80.

(c) Thephaseoutunder section151(d)(3)of the InternalRevenueCodeof1986,asamended, shallapply tothissection;providedthatthethresholdincomeamountsundersection151(d)(3)(C)oftheInternalRevenueCodeof1986,asamended,shallbereducedbytwenty-fivepercentforthepurposesofthissubsection;providedfurtherthatthethresholdincomeamountsundersection151(d)(3)(C)oftheInternalRevenueCodeof1986,asamended,usedtodeterminethetwenty-fivepercentreductionunderthissubsectionshallbemaintainedattheamountsinplaceonJuly1,2008.

(d) Ablindperson,adeafperson,andanypersontotallydisabled,inlieuofthepersonalexemptionsallowedbytheInternalRevenueCode,shallbeallowed,andthereshallbedeductedincomputingthetaxableincomeofablindperson,adeafperson,oratotallydisabledperson,insteadoftheexemptionsprovidedbysubsection(a),theamountof$7,000.[LSp1957,c1,ptof§2;amL1960,c4,§1;Supp,§121-11;HRS§235-54;amL1970,c90,§2andc180,§2;amL1978,c181,§1;amL1980,c241,§2;amL1985,c78,§1;amL1987,c239,§1(15);amL1999,c253,§4;amL2009,c60,§3;amLSp2009,c14,§1;amL2011,c97,§4]

Note

TheL2009,c60amendmentofsubsection(a)appliestotaxableyearsbeginningafterDecember31,2012.L2011,c97,§4.EffectofL2009,c60amendmentonunderpayments.L2009,c60,§4.

TheLSp2009,c14amendmentappliestotaxableyearsbeginningafterDecember31,2008.LSp2009,c14,§3.

Cross Reference

Tax InformationReleaseNo. 89-3, “StateTaxBenefitsAvailable toPersonsWith ImpairedSight, ImpairedHearing, orWhoAreTotallyDisabled”

TaxInformationReleaseNo.90-10,“ClarificationofTaxationandtheEligibilityforPersonalExemptions&CreditsofResidents&NonresidentsintheMilitaryandSpousesandDependentsofPersonsintheMilitary” SupplementedandsupersededinpartbyTIR97-1

TaxInformationReleaseNo.92-3,“IncomeTaxIssuesAffectingNonresidentAliens”TaxInformationReleaseNo.94-2,“StateTaxBenefitsAvailabletoPersonsTotallyDisabled”TaxInformationReleaseNo.97-1,“DeterminationofResidenceStatus”


RuleofStrictConstructioninTaxCases,aQuestionofClassificationorExemption,ArthurB.Reinwald,11HBJ98.

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Case Notes

Statutesgrantingexemptionsarestrictlyconstruedinfavoroftaxpayer.56H.321,536P.2d91.

§235-55 Tax credits for resident taxpayers. (a)Wheneveranindividualorpersonliabletothetaxesimposeduponindividuals,whoisaresidentoftheStateorwhohasfiledajointresidentreturnundersection235-93,hasbecomeliableforincometaxestoastate,ortotheDistrictofColumbia,PuertoRico,oranyotherterritoryorpossessionoftheUnitedStates,ortoaforeigncountryuponanypartoftheindividual’sorperson’staxableincomeforthetaxableyear,derivedorreceivedfromsourceswithouttheStateandtaxedunderthelawsofsuchotherjurisdictionirrespectiveoftheresidenceordomicileoftherecipient,thereshallbecreditedagainstthetaxpayablebytheindividualorpersonunderthischapterthetaxsopaidbytheindividualorpersontotheotherjurisdictionupontheindividual’sorperson’sproducingforthedepartmentoftaxationsatisfactoryevidence:

(1) Ofsuchtaxpayment;and(2) That the lawsof theother jurisdictiondonotallowthe individualorpersonacreditagainst the taxes

imposedbysuchjurisdictionforthetaxespaidorpayableunderthischapter,ordoallowsuchcreditinanamountwhichhasbeendeductedincomputingtheamountofcreditsoughtunderthissection.

(b) Theapplicationofsuchcredit,however:(1) ShallnotbeallowedwithrespecttoanytaxableincomeoranytaxwhichundersubchapterNofchapter

1oftheInternalRevenueCodeof1954(whichisapplicableforfederalpurposesbutnotforstatepurposes)isormaybethesubjectofanexclusion,exemption,ortaxcredit;and

(2) Shallnotoperatetoreducethetaxpayableunderthischaptertoanamountlessthanthatwhichwouldhavebeenpayable had the taxpayer been taxable only on the income fromproperty owned, personalservicesperformed,tradeorbusinesscarriedon,andothersourcesintheState.

(c) Ifanytaxespaidtoanotherjurisdictionforwhichataxpayerhasbeenallowedacreditunderthissectionareatanytimecreditedorrefundedtothetaxpayer,suchfactshallbereportedbythetaxpayertothedepartmentwithintwentydaysafterthecreditorrefund.Failuretomakesuchreportshallbedeemedfailuretomakeareturnandsubjecttothepenaltiesimposedbylawinsuchcases.Ataxequaltothecreditallowedforthetaxessocreditedorrefundedshallbedueandpayablefromthetaxpayeruponnoticeanddemandfromthedepartment.Iftheamountofsuchtaxisnotpaidwithintendaysfromthedateofthenoticeanddemand,thetaxpayershallbesubjecttotheusualpenaltiesandinterestfordelinquencyinpayment.

(d) Nothingin thissectionshallbeconstruedtopermitacreditagainst the taxes imposedbythischapteronaccountoffederalincometaxes.[LSp1957,c1,ptof§2;amL1959,c277,§9(a);amLSp19592d,c1,§16;Supp,§121-12;HRS§235-55;amimpL1984,c90,§1;gench1985;amL1996,c187,§5]

Cross Reference

TaxInformationReleaseNo.83-2,“TreatmentofTaxCreditsforStateIncomeTaxPurposes”TaxInformationReleaseNo.90-10,“ClarificationofTaxationandtheEligibilityforPersonalExemptions&CreditsofResidents&Nonresidents

intheMilitaryandSpousesandDependentsofPersonsintheMilitary” SupplementedandsupersededinpartbyTIR97-1TaxInformationReleaseNo.99-4.“ApplicationoftheFranchiseTax,GeneralExciseTax,andIncomeTaxtoMortgageLoanCompanies,

IncludingMortgageLoanCompaniesOrganizedasPassthroughEntitiesandSoleProprietorships”TaxInformationReleaseNo.97-1,“DeterminationofResidenceStatus”

§235-55.5 REPEALED. L1990,c187,§2.Cross Reference

Forpresentprovision,see§235-55.8.

§235-55.6 Expenses for household and dependent care services necessary for gainful employment. (a)Allowanceofcredit.

(1) Ingeneral.Foreachresidenttaxpayer,whofilesanindividualincometaxreturnforataxableyear,andwhoisnotclaimedorisnototherwiseeligibletobeclaimedasadependentbyanothertaxpayerforfederalorHawaiistateindividualincometaxpurposes,whomaintainsahouseholdwhichincludesasamemberoneormorequalifying individuals(asdefinedinsubsection(b)(1)), thereshallbeallowedasacreditagainstthetaximposedbythischapterforthetaxableyearanamountequaltotheapplicablepercentageoftheemployment-relatedexpenses(asdefinedinsubsection(b)(2))paidbytheindividualduringthetaxableyear.Ifthetaxcreditclaimedbyaresidenttaxpayerexceedstheamountofincometaxpaymentduefromtheresidenttaxpayer,theexcessofthecreditoverpaymentsdueshallberefundedtotheresidenttaxpayer;providedthattaxcreditproperlyclaimedbyaresidentindividualwhohasnoincometaxliabilityshallbepaidtotheresidentindividual;andprovidedfurtherthatnorefundsorpaymentonaccountofthetaxcreditallowedbythissectionshallbemadeforamountslessthan$1.

(2) Applicable percentage. For purposes of paragraph (1), the taxpayer’s applicable percentage shall bedeterminedasfollows:

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Adjustedgrossincome ApplicablePercentageNotover$25,000 25%Over$25,000butnotover$30,000 24%Over$30,000butnotover$35,000 23%Over$35,000butnotover$40,000 22%Over$40,000butnotover$45,000 21%Over$45,000butnotover$50,000 20%Over$50,000 15%

(b) Definitionsofqualifyingindividualandemployment-relatedexpenses.Forpurposesofthissection:(1) Qualifyingindividual.Theterm“qualifyingindividual”means:

(A) Adependentofthetaxpayerwhoisundertheageofthirteenandwithrespecttowhomthetaxpayerisentitledtoadeductionundersection235-54(a),

(B) Adependentofthetaxpayerwhoisphysicallyormentallyincapableofcaringforoneself,or(C) Thespouseofthetaxpayer,ifthespouseisphysicallyormentallyincapableofcaringforoneself.

(2) Employment-relatedexpenses.(A) Ingeneral.Theterm“employment-relatedexpenses”meansamountspaidforthefollowingexpenses,

butonlyifsuchexpensesareincurredtoenablethetaxpayertobegainfullyemployedforanyperiodforwhichthereareoneormorequalifyingindividualswithrespecttothetaxpayer:

(i)Expensesforhouseholdservices,and (ii)Expensesforthecareofaqualifyingindividual. Suchtermshallnotincludeanyamountpaidforservicesoutsidethetaxpayer’shouseholdatacamp

wherethequalifyingindividualstaysovernight.(B) Exception. Employment-related expenses described in subparagraph (A) which are incurred for

servicesoutsidethetaxpayer’shouseholdshallbetakenintoaccountonlyifincurredforthecareof: (i)Aqualifyingindividualdescribedinparagraph(1)(A),or (ii)Aqualifyingindividual(notdescribedinparagraph(1)(A))whoregularlyspendsatleasteight

hourseachdayinthetaxpayer’shousehold.(C) Dependent care centers. Employment-related expenses described in subparagraph (A) which are

incurredforservicesprovidedoutsidethetaxpayer’shouseholdbyadependentcarecenter(asdefinedinsubparagraph(D))shallbetakenintoaccountonlyif:

(i)Suchcentercomplieswithallapplicablelaws,rules,andregulationsofthisState,ifthecenterislocatedwithinthejurisdictionofthisState;or

(ii)Suchcentercomplieswithallapplicablelaws,rules,andregulationsofthejurisdictioninwhichthecenterislocated,ifthecenterislocatedoutsidetheState;and

(iii)Therequirementsofsubparagraph(B)aremet.(D) Dependentcarecenterdefined.Forpurposesofthisparagraph,theterm“dependentcarecenter”means

anyfacilitywhich: (i)Providescareformorethansixindividuals(otherthanindividualswhoresideatthefacility),and (ii)Receivesafee,payment,orgrantforprovidingservicesforanyoftheindividuals(regardlessof

whethersuchfacilityisoperatedforprofit).(c) Dollar limit on amount creditable.The amount of the employment-related expenses incurred during any

taxableyearwhichmaybetakenintoaccountundersubsection(a)shallnotexceed:(1) $2,400ifthereisonequalifyingindividualwithrespecttothetaxpayerforsuchtaxableyear,or(2) $4,800iftherearetwoormorequalifyingindividualswithrespecttothetaxpayerforsuchtaxableyear.

Theamountdeterminedunderparagraph(1)or (2) (whichever isapplicable)shallbereducedby theaggregateamountexcludablefromgrossincomeundersection129(withrespecttodependentcareassistanceprograms)oftheInternalRevenueCodeforthetaxableyear.

(d) Earnedincomelimitation.(1) In general. Except as otherwise provided in this subsection, the amount of the employment-related

expensesincurredduringanytaxableyearwhichmaybetakenintoaccountundersubsection(a)shallnotexceed:(A) In thecaseofan individualwhoisnotmarriedat thecloseofsuchyear,suchindividual’searned

incomeforsuchyear,or(B) Inthecaseofanindividualwhoismarriedatthecloseofsuchyear,thelesserofsuchindividual’s

earnedincomeortheearnedincomeoftheindividual’sspouseforsuchyear.



(2) Specialruleforspousewhoisastudentorincapableofcaringforoneself.Inthecaseofaspousewhoisastudentoraqualifiedindividualdescribedinsubsection(b)(1)(C),forpurposesofparagraph(1),suchspouseshallbedeemedforeachmonthduringwhichsuchspouseisafull-timestudentataneducationalinstitution,orissuchaqualifyingindividual,tobegainfullyemployedandtohaveearnedincomeofnotlessthan:(A) $200ifsubsection(c)(1)appliesforthetaxableyear,or(B) $400ifsubsection(c)(2)appliesforthetaxableyear.

Inthecaseofanyhusbandandwife,thisparagraphshallapplywithrespecttoonlyonespouseforanyonemonth.(e) Specialrules.Forpurposesofthissection:

(1) Maintaininghousehold.Anindividualshallbetreatedasmaintainingahouseholdforanyperiodonlyifoverhalfthecostofmaintainingthehouseholdfortheperiodisfurnishedbytheindividual(or, if theindividualismarriedduringtheperiod,isfurnishedbytheindividualandtheindividual’sspouse).

(2) Marriedcouplesmustfilejointreturn.Ifthetaxpayerismarriedatthecloseofthetaxableyear,thecreditshallbeallowedundersubsection(a)onlyifthetaxpayerandthetaxpayer’sspousefileajointreturnforthetaxableyear.

(3) Maritalstatus.Anindividuallegallyseparatedfromtheindividual’sspouseunderadecreeofdivorceorofseparatemaintenanceshallnotbeconsideredasmarried.

(4) Certainmarriedindividualslivingapart.If:(A) Anindividualwhoismarriedandwhofilesaseparatereturn: (i)Maintainsastheindividual’shomeahouseholdthatconstitutesformorethanone-halfof the

taxableyeartheprincipalplaceofabodeofaqualifyingindividual,and (ii)Furnishesoverhalfofthecostofmaintainingthehouseholdduringthetaxableyear,and(B) Duringthelastsixmonthsofthetaxableyeartheindividual’sspouseisnotamemberofthehousehold,

theindividualshallnotbeconsideredasmarried.(5) Specialdependencytestincaseofdivorcedparents,etc.If:

(A) Paragraph(2)or(4)ofsection152(e)oftheInternalRevenueCodeof1986,asamended,appliestoanychildwithrespecttoanycalendaryear,and

(B) Thechildisunderagethirteenorisphysicallyormentallyincompetentofcaringforthechild’sself, inthecaseofanytaxableyearbeginninginthecalendaryear,thechildshallbetreatedasaqualifying

individualdescribedinsubsection(b)(1)(A)or(B)(whicheverisappropriate)withrespecttothecustodialparent(withinthemeaningofsection152(e)(1)oftheInternalRevenueCodeof1986,asamended),andshallnotbetreatedasaqualifyingindividualwithrespecttothenoncustodialparent.

(6) Paymentstorelatedindividuals.Nocreditshallbeallowedundersubsection(a)foranyamountpaidbythetaxpayertoanindividual:(A) Withrespecttowhom,forthetaxableyear,adeductionundersection151(c)oftheInternalRevenue

Codeof1986,asamended(relatingtodeductionforpersonalexemptionsfordependents)isallowableeithertothetaxpayerorthetaxpayer’sspouse,or

(B) Whoisachildofthetaxpayer(withinthemeaningofsection151(c)(3)oftheInternalRevenueCodeof1986,asamended)whohasnotattainedtheageofnineteenatthecloseofthetaxableyear.

Forpurposesofthisparagraph,theterm“taxableyear”meansthetaxableyearofthetaxpayerinwhichtheserviceisperformed.

(7) Student.Theterm“student”meansanindividualwho,duringeachoffivecalendarmonthsduringthetaxableyear,isafull-timestudentataneducationalorganization.

(8) Educationalorganization.Theterm“educationalorganization”meansaschooloperatedbythedepartmentofeducationunderchapter302A,aneducationalorganizationdescribedinsection170(b)(1)(A)(ii)oftheInternalRevenueCodeof1986,asamended,orauniversity,college,orcommunitycollege.

(9) Identifying information required with respect to service provider. No credit shall be allowed undersubsection(a)foranyamountpaidtoanypersonunless:(A) Thename,address,taxpayeridentificationnumber,andgeneralexcisetaxlicensenumberoftheperson

areincludedonthereturnclaimingthecredit,(B) IfthepersonislocatedoutsidetheState,thename,address,andtaxpayeridentificationnumber,ifany,

ofthepersonandastatementindicatingthattheserviceproviderislocatedoutsidetheStateandthatthegeneralexcisetaxlicenseand,ifapplicable,thetaxpayeridentificationnumbersarenotrequired,or

(C) Ifthepersonisanorganizationdescribedinsection501(c)(3)oftheInternalRevenueCodeandexemptfromtaxundersection501(a)oftheInternalRevenueCode,thenameandaddressofthepersonareincludedonthereturnclaimingthecredit.

Inthecaseofafailuretoprovidetheinformationrequiredundertheprecedingsentence,theprecedingsentenceshallnotapplyifitisshownthatthetaxpayerexercisedduediligenceinattemptingtoprovidetheinformationsorequired.

INCOME TAX LAW [§235-55.75]


(f) Rules.Thedirectoroftaxationshallprescribesuchrulesunderchapter91asmaybenecessarytocarryoutthepurposesofthissection.[L1977,c196,§2;amL1979,c62,§2(10);amL1981,c234,§1;amL1982,c25,§3;amimpL1984,c90,§1;gench1985;amL1985,c19,§2;amL1987,c239,§1(16);amL1988,c102,§4;amL1989,c13,§5,c321,§4andc322,§1;amL1993,c73,§§2,3;amL1996,c89,§10;amL2016,c235,§1]

Note


Cross Reference

TaxInformationReleaseNo.83-2,“TreatmentofTaxCreditsforStateIncomeTaxPurposes”

§235-55.7 Income tax credit for low-income household renters. (a)Asusedinthissection:(1) “Adjustedgrossincome”isdefinedbysection235-1.(2) “Qualifiedexemption”includesthoseexemptionspermittedunderthischapter;providedthatapersonfor

whomexemption isclaimedhasphysically resided in theState formore thanninemonthsduring thetaxableyear;andprovidedthatmultipleexemptionshallnotbegrantedbecauseofdeficienciesinvision,hearing,orotherdisability.

(3) “Rent”meanstheamountpaidincashinanytaxableyearfortheoccupancyofadwellingplacewhichisusedbyaresidenttaxpayerortheresidenttaxpayer’simmediatefamilyastheprincipalresidenceinthisState.Rentislimitedtotheamountpaidfortheoccupancyofthedwellingplaceonly,andisexclusiveofchargesforutilities,parkingstalls,storageofgoods,yardservices,furniture,furnishings,andthelike.Rentshallnotincludeanyrentalclaimedasadeductionfromgrossincomeoradjustedgrossincomeforincometaxpurposes,anygroundrentalpaidforuseoflandonly,andanyrentallowanceorsubsidiesreceived.

(b) EachresidenttaxpayerwhooccupiesandpaysrentforrealpropertywithintheStateastheresidenttaxpayer’sresidenceortheresidenceoftheresidenttaxpayer’simmediatefamilywhichisnotpartiallyorwhollyexemptedfromrealpropertytax,whoisnoteligibletobeclaimedasadependentforfederalorstateincometaxesbyanother,andwhofilesanindividualnetincometaxreturnforataxableyear,mayclaimataxcreditunderthissectionagainsttheresidenttaxpayer’sHawaiistateindividualnetincometax.

(c) Eachtaxpayerwithanadjustedgrossincomeoflessthan$30,000whohaspaidmorethan$1,000inrentduringthetaxableyearforwhichthecreditisclaimedmayclaimataxcreditof$50multipliedbythenumberofqualifiedexemptionstowhichthetaxpayerisentitled;providedeachtaxpayersixty-fiveyearsofageorovermayclaimdoublethetaxcredit;andprovidedthataresidentindividualwhohasnoincomeornoincometaxableunderthischaptermayalsoclaimthetaxcreditassetforthinthissection.

(d) Ifarentalunitisoccupiedbytwoormoreindividuals,andmorethanoneindividualisabletoqualifyasaclaimant,theclaimforcreditshallbebaseduponaproratashareoftherentpaid.

(e) Thetaxcreditsshallbedeductiblefromthetaxpayer’sindividualnetincometaxforthetaxyearinwhichthecreditsareproperlyclaimed;providedthatahusbandandwifefilingseparatereturnsforataxableyearforwhichajointreturncouldhavebeenmadebythemshallclaimonlythetaxcreditstowhichtheywouldhavebeenentitledhadajointreturnbeenfiled.Intheeventtheallowedtaxcreditsexceedtheamountoftheincometaxpaymentsduefromthetaxpayer,theexcessofcreditsoverpaymentsdueshallberefundedtothetaxpayer;providedthatallowedtaxcreditsproperlyclaimedbyanindividualwhohasnoincometaxliabilityshallbepaidtotheindividual;andprovidedfurtherthatnorefundsorpaymentsonaccountofthetaxcreditsallowedbythissectionshallbemadeforamountslessthan$1.

(f) Thedirectoroftaxationshallprepareandprescribetheappropriateformorformstobeusedherein,mayrequireproofoftheclaimfortaxcredits,andmayadoptrulespursuanttochapter91.

(g) Alloftheprovisionsrelatingtoassessmentsandrefundsunderthischapterandundersection231-23(d)(1)shallapplytothetaxcreditshereunder.

(h) Claimsfortaxcreditsunderthissection,includinganyamendedclaimsthereof,shallbefiledonorbeforetheendofthetwelfthmonthfollowingthetaxableyearforwhichthecreditmaybeclaimed.[LSp19771st,c15,§1;amL1981,c230,§1;amimpL1984,c90,§1;gench1985;amL1989,c321,§5;amL1990,c98,§1]

Revision Note

Insubsection(g),“231-23(c)(1)”substitutedfor“231-23(d)(1)”.

Cross Reference

Foradditionaltaxcredits,see§§235-110.6,110.7,110.8.TaxInformationReleaseNo.83-2,“TreatmentofTaxCreditsforStateIncomeTaxPurposes”

[§235-55.75] Earned income tax credit. (a)Eachqualifyingindividualtaxpayermayclaimanonrefundableearnedincometaxcredit.Thetaxcredit,fortheappropriatetaxableyear,shallbetwentypercentofthefederalearnedincometax

18-235-55.7



creditallowedandproperlyclaimedundersection32oftheInternalRevenueCodeandreportedassuchontheindividual’sfederalincometaxreturn.

(b) Forapart-yearresident,thetaxcreditshallequaltheamountofthetaxcreditcalculatedinsubsection(a)multipliedbytheratioofHawaiiadjustedgrossincometofederaladjustedgrossincome.

(c) Forpurposesofthissection,“qualifyingindividualtaxpayer”meansataxpayerthat:(1) Filesafederalincometaxreturnforthetaxableyearclaimingtheearnedincometaxcreditundersection

32oftheInternalRevenueCode;and(2) Files aHawaii income tax returnusing thefiling statususedon the federal income tax return for the

taxableyearandclaimingthesamedependentsclaimedonthefederalincometaxreturnforthetaxableyear.

(d) Thecreditallowedunderthissectionshallbeclaimedagainstthenetincometaxliabilityforthetaxableyear.Ifthetaxcreditunderthissectionexceedsthetaxpayer’sincometaxliability,theexcessofthetaxcreditoverliabilitymaybeusedasacreditagainstthetaxpayer’snetincometaxliabilityinsubsequentyearsuntilexhausted.Allclaims,includingamendedclaims,forataxcreditunderthissectionshallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditmaybeclaimed.Failuretocomplywiththeforegoingprovisionshallconstituteawaiveroftherighttoclaimthecredit.

(e) Nocreditshallbeallowedunderthissectionforanytaxableyearinthedisallowanceperiod.Forpurposesofthissubsection,thedisallowanceperiodis:

(1) Theperiodoftentaxableyearsafterthemostrecenttaxableyearforwhichtherewasafinaladministrativeorjudicialdecisionthatthetaxpayer’sclaimforcreditunderthissectionwasduetofraud;and

(2) Theperiodoftwotaxableyearsafterthemostrecenttaxableyearforwhichtherewasafinaladministrativeorjudicialdecisiondisallowingthetaxpayer’sclaimforcredit.

(f) Thedirectoroftaxation:(1) Shallprepareanyformsnecessarytoclaimataxcreditunderthissection;(2) Mayrequireproofoftheclaimforthetaxcredit;(3) Shallalerteligibletaxpayersofthetaxcreditusingappropriateandavailablemeans;(4) Shallprepareanannualpublicreporttothelegislatureandthegovernorcontainingthe:

(A) Numberofcreditsgrantedforthepriorcalendaryear;(B) Totalamountofthecreditsgranted;and(C) Averagevalueofthecreditsgrantedtotaxpayerswhoseearnedincomefallswithinvariousincome

ranges;and(5) Mayadoptrulespursuanttochapter91toeffectuatethissection.

(g) ThissectionshallapplytotaxableyearsbeginningafterDecember31,2017,butshallnotapplytotaxableyearsbeginningafterDecember31,2022.[L2017,c107,§1]

§235-55.8 REPEALED.L1998,c157,§3.Note

Application.L1998,c157,§7.

§235-55.85 Refundable food/excise tax credit. (a)Each individual taxpayer,whofiles an individual income taxreturnforataxableyear,andwhoisnotclaimedorisnototherwiseeligibletobeclaimedasadependentbyanothertaxpayerforfederalorHawaiistateindividualincometaxpurposes,mayclaimarefundablefood/excisetaxcreditagainstthetaxpayer’sindividualincometaxliabilityforthetaxableyearforwhichtheindividualincometaxreturnisbeingfiled;providedthatanindividualwhohasnoincomeornoincometaxableunderthischapterandwhoisnotclaimedorisnototherwiseeligibletobeclaimedasadependentbyataxpayerforfederalorHawaiistateindividualincometaxpurposesmayclaimthiscredit.

(b) Eachindividualtaxpayermayclaimarefundablefood/excisetaxcreditmultipliedbythenumberofqualifiedexemptionstowhichthetaxpayerisentitledinaccordancewiththetablebelow;providedthatahusbandandwifefilingseparatetaxreturnsforataxableyearforwhichajointreturncouldhavebeenfiledbythemshallclaimonlythetaxcredittowhichtheywouldhavebeenentitledhadajointreturnbeenfiled.Adjustedgrossincomefortaxpayersfilingasinglereturn

Creditperexemption

Under$5,000 $110$5,000under$10,000 $100$10,000under$15,000 $ 85$15,000under$20,000 $ 70$20,000under$30,000 $ 55$30,000andover $ 0

18-235-55.8



Adjustedgrossincomeforheadsofhousehold,marriedindividualsfilingseparatereturns,andmarriedcouplesfilingjointreturns

Creditperexemption

Under$5,000 $110$5,000under$10,000 $100$10,000under$15,000 $ 85$15,000under$20,000 $ 70$20,000under$30,000 $ 55$30,000under$40,000 $ 45$40,000under$50,000 $ 35$50,000andover $ 0

(c) Forthepurposesofthissection,aqualifiedexemptionisdefinedtoincludethoseexemptionspermittedunderthischapter;providedthatnoadditionalexemptionmaybeclaimedbyataxpayerwhoissixty-fiveyearsofageorolder;providedthatapersonforwhomexemptionisclaimedhasbeenphysicallypresentintheStateformorethanninemonthsduringthetaxableyear;andprovidedfurtherthatmultipleexemptionsshallnotbegrantedbecauseofdeficienciesinvisionorhearing,orotherdisability.Forpurposesofclaimingthiscreditonly,aminorchildreceivingsupportfromthedepartmentofhumanservicesoftheState,socialsecuritysurvivor’sbenefits,andthelike,maybeconsideredadependentandaqualifiedexemptionoftheparentorguardian.

(d) Thetaxcreditunderthissectionshallnotbeavailableto:(1) Anypersonwhohasbeenconvictedofa felonyandwhohasbeencommitted toprisonandhasbeen



year.(e) The tax credits claimed by a taxpayer pursuant to this section shall be deductible from the taxpayer’s

individualincometaxliability,ifany,forthetaxyearinwhichtheyareproperlyclaimed.Ifthetaxcreditsclaimedbyataxpayerexceedtheamountofincometaxpaymentduefromthetaxpayer,theexcessofcreditsoverpaymentsdueshallberefundedtothetaxpayer;providedthattaxcreditsproperlyclaimedbyaindividualwhohasnoincometaxliabilityshallbepaidtotheindividual;andprovidedfurtherthatnorefundsorpaymentonaccountofthetaxcreditsallowedbythissectionshallbemadeforamountslessthan$1.

(f) Allclaimsfortaxcreditsunderthissection,includinganyamendedclaims,shallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditsmaybeclaimed.Failuretocomplywiththeforegoingprovisionshallconstituteawaiveroftherighttoclaimthecredit.

(g) For thepurposesof thissection,“adjustedgross income”meansadjustedgross incomeasdefinedbytheInternalRevenueCode.[L1998,c157,§1;amL2007,c211,§1;amL2015,c223,§2;amL2017,c107,§3]

Note

The2015amendmentshallapplytotaxableyearsbeginningafterDecember31,2015.L2015,c223,§4.

§235-55.9 REPEALED. L2000,c18,§7.

§235-55.91 Credit for employment of vocational rehabilitation referrals. (a) There shall be allowed to eachtaxpayersubjecttothetaximposedbythischapter,acreditforemploymentofvocationalrehabilitationreferralswhichshallbedeductiblefromthetaxpayer’snetincometaxliability,ifany,imposedbythischapterforthetaxableyearinwhichthecreditisproperlyclaimed.

(b) Theamountofthecreditdeterminedunderthissectionforthetaxableyearshallbeequaltotwentypercentofthequalifiedfirst-yearwagesforthatyear.Theamountofthequalifiedfirst-yearwageswhichmaybetakenintoaccountwithrespecttoanyindividualshallnotexceed$6,000.

(c) Forpurposesofthissection:“Hiringdate”meansthedaythevocationalrehabilitationreferralishiredbytheemployer.“Qualifiedfirst-yearwages”means,withrespecttoanyvocationalrehabilitationreferral,qualifiedwagesattributable

toservicerenderedduringtheone-yearperiodbeginningwiththedaytheindividualbeginsworkfortheemployer.“Qualifiedwages”meansthewagespaidorincurredbytheemployerduringthetaxableyeartoanindividualwho

isavocationalrehabilitationreferralandmorethanone-halfofthewagespaidorincurredforsuchanindividualisforservicesperformedinatradeorbusinessoftheemployer.

“Vocational rehabilitation referral”means any individualwho is certifiedby thedepartmentof human servicesvocationalrehabilitationandservicesfortheblinddivisioninconsultationwiththeHawaiistateemploymentserviceofthedepartmentoflaborandindustrialrelationsas:



(1) Havingaphysicalormentaldisabilitywhich,forsuchindividual,constitutesorresultsinasubstantialhandicaptoemployment;and

(2) Having been referred to the employer upon completion of (orwhile receiving) rehabilitative servicespursuantto:(A) An individualized written rehabilitation plan under the State’s plan for vocational rehabilitation

servicesapprovedundertheRehabilitationActof1973,asamended;or(B) Aprogramofvocationalrehabilitationcarriedoutunderchapter31ofTitle38,UnitedStatesCode;or(C) Anindividualworkplandevelopedandimplementedbyanemploymentnetworkpursuanttosubsection

(g)ofsection1148oftheSocialSecurityAct,asamended,withrespecttowhichtherequirementsofsuchsubsectionaremet.

“Wages”hasthemeaninggiventosuchtermbysection3306(b)oftheInternalRevenueCode(determinedwithoutregardtoanydollarlimitationcontainedintheInternalRevenueCodesection).“Wages”shallnotinclude:

(1) Amountspaidorincurredbyanemployerforanyperiodtoanyvocationalrehabilitationreferralforwhomtheemployerreceivesstateorfederallyfundedpaymentsforon-the-jobtrainingoftheindividualfortheperiod;

(2) Amountspaidtoanemployer(howeverutilizedbytheemployer)foranyvocationalrehabilitationreferralunderaprogramestablishedundersection414oftheSocialSecurityAct;and

(3) If theprincipalplaceofemployment isataplantorfacility,andthereisastrikeor lockout involvingvocationalrehabilitationreferralsattheplantorfacility,amountspaidorincurredbytheemployertothevocational rehabilitation referral for serviceswhich are the same as, or substantially similar to, thoseservicesperformedbyemployeesparticipatingin,oraffectedby,thestrikeorlockoutduringtheperiodofstrikeorlockout.

(d) Thefollowingshallapplytocertificationsofvocationalrehabilitationreferrals:(1) Anindividualshallnotbetreatedasavocationalrehabilitationreferralunless,onorbeforethedayon

whichtheindividualbeginsworkfortheemployer,theemployer:(A) Has received a certification from the department of human services vocational rehabilitation and

servicesfortheblinddivisionthattheindividualisaqualifiedvocationalrehabilitationreferral;or(B) Hasrequestedinwritingthecertificationfromthedepartmentofhumanservicesvocationalrehabilitation

andservicesfortheblinddivisionthattheindividualisaqualifiedvocationalrehabilitationreferral. Forpurposesoftheprecedingsentence,ifonorbeforethedayonwhichtheindividualbeginsworkfor

theemployer,theindividualhasreceivedfromthedepartmentofhumanservicesvocationalrehabilitationandservicesfortheblinddivisionawrittenpreliminarydeterminationthattheindividualisavocationalrehabilitationreferral,then“thefifthday”shallbesubstitutedfor“theday”intheprecedingsentence.

(2) Ifanindividualhasbeencertifiedasavocationalrehabilitationreferralandthecertificationisincorrectbecauseitwasbasedonfalseinformationprovidedbytheindividual,thecertificationshallberevokedandwagespaidbytheemployerafterthedateonwhichnoticeofrevocationisreceivedbytheemployershallnotbetreatedasqualifiedwages.

(3) Inanyrequestforacertificationofanindividualasavocationalrehabilitationreferral,theemployershallcertifythatagoodfaitheffortwasmadetodeterminethatsuchindividualisavocationalrehabilitationreferral.

(e) Thefollowingwagespaidtovocationalrehabilitationreferralsareineligibletobeclaimedbytheemployerforthiscredit:

(1) Nowagesshallbetakenintoaccountunderthissectionwithrespecttoavocationalrehabilitationreferralwho:(A) Bearsanyoftherelationshipsdescribedinsection152(d)(2)(A)to(G)oftheInternalRevenueCodeto

thetaxpayer,or,ifthetaxpayerisacorporation,toanindividualwhoowns,directlyorindirectly,morethanfiftypercentinvalueoftheoutstandingstockofthecorporation(determinedwiththeapplicationofsection267(c)oftheInternalRevenueCode);

(B) Ifthetaxpayerisanestateortrust,isagrantor,beneficiary,orfiduciaryoftheestateortrust,orisanindividualwhobearsanyoftherelationshipsdescribedinsection152(d)(2)(A)to(G)oftheInternalRevenueCodetoagrantor,beneficiary,orfiduciaryoftheestateortrust;or

(C) Isadependent(describedinsection152(d)(2)(H)oftheInternalRevenueCode)ofthetaxpayer,or,ifthetaxpayerisacorporation,ofanindividualdescribedinsubparagraph(A),or,ifthetaxpayerisanestateortrust,ofagrantor,beneficiary,orfiduciaryoftheestateortrust.

(2) Nowages shall be taken into account under this sectionwith respect to any vocational rehabilitationreferralif,priortothehiringdateoftheindividual,theindividualhadbeenemployedbytheemployeratanytimeduringwhichtheindividualwasnotavocationalrehabilitationreferral.

(3) Nowages shall be taken into account under this sectionwith respect to any vocational rehabilitationreferralunlesssuchindividualeither:(A) Isemployedbytheemployeratleastninetydays;or



(B) Hascompletedatleastonehundred-twentyhoursofservicesperformedfortheemployer.(f) In the case of a successor employer referred to in section3306(b)(1) of the InternalRevenueCode, the

determinationoftheamountofthetaxcreditallowableunderthissectionwithrespecttowagespaidbythesuccessoremployershallbemadeinthesamemannerasifthewageswerepaidbythepredecessoremployerreferredtointhesection.

(g) Nocreditshallbedeterminedunderthissectionwithrespecttowagespaidbyanemployertoavocationalrehabilitation referral for services performed by the individual for another person unless the amount reasonablyexpectedtobereceivedbytheemployerfortheservicesfromtheotherpersonexceedsthewagespaidbytheemployertotheindividualforsuchservices.

(h) Thecreditallowedunderthissectionshallbeclaimedagainstnetincometaxliabilityforthetaxableyear.Ataxcreditunderthissectionwhichexceedsthetaxpayer’sincometaxliabilitymaybeusedasacreditagainstthetaxpayer’sincometaxliabilityinsubsequentyearsuntilexhausted.

(i) Allclaimsfortaxcreditsunderthissection,includinganyamendedclaims,shallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditsmaybeclaimed.Failuretocomplywiththeforegoingprovisionshallconstituteawaiveroftherighttoclaimthecredit.

(j) Nodeductionshallbeallowedforthatportionofthewagesorsalariespaidorincurredforthetaxableyearthatisequaltotheamountofthecreditdeterminedunderthissection.

(k) Thedirectoroftaxationmayadoptanyrulesunderchapter91andformsnecessarytocarryoutthissection.[L1990,c289,§1;amL1991,c137,§1;amL2008,c93,§5;amL2015,c53,§1]

Note

The2008amendmentappliestotaxableyearsbeginningafterDecember31,2007;providedthattheretroactiveandprospectiveeffectivedatescontainedinthecongressionalactsrelatingtotheInternalRevenueCodeandenactedduring2007shallbeoperativeforchapter235.L2008,c93,§7.

§§235-56, 56.5, and 57 REPEALED. L1974,c221,§§1(2),(3),and(4).

§§235-58, 58.1, and 58.2 REPEALED. L1978,c173,§2(11).

§235-59 Decedents. Inrespectofadecedent,thedeterminationoftheincomeofthetaxableperiodinwhichfallsthedateofthedecedent’sdeath,andthedeterminationoftheincomeoftheestateandofthepersonswhoacquirerightsfromthedecedentorbyreasonofthedecedent’sdeath,shallbegovernedbytheInternalRevenueCode.[LSp1957,c1,ptof§2;Supp,§121-14;HRS§235-59;amimpL1984,c90,§1;gench1985]

§235-60 REPEALED. L1978,c173,§2(12).

WITHHOLDING AND COLLECTION OF TAX AT SOURCE

§235-61 Withholding of tax on wages. (a)Asusedinthissection:“Employee”includesanofficerorelectedofficial,oranyotheremployee.“Employer”means:(1) Thepersonorgovernmentforwhomanindividualperformsorperformedanyservice,ofwhatevernature,

astheemployeeofthatpersonorgovernment;(2) Thepersonhavingcontrolofthepaymentofthewagesiftheemployerasheretoforedefineddoesnothave

controlthereof;and(3) AnypersonsubjecttothejurisdictionoftheStateandpayingwagesonbehalfofanemployerasheretofore

definediftheemployerisnotsubjecttothejurisdictionoftheState;providedthatthetermemployershallnotincludeanygovernmentthatisnotsubjecttothelawsoftheStateexcept

as,andtotheextentthat,itconsentstotheapplicationofsections235-61to235-67toit.“Wages”meanswages,commissions,fees,salaries,bonuses,andeveryandallotherkindsofremunerationfor,or

compensationattributableto,servicesperformedbyanemployeeorfortheemployee’semployer,includingthecashvalueofallremunerationpaidinanymediumotherthancashandthecost-of-livingallowancesandotherpaymentsincludedingrossincomebysection235-7(b),butexcludingincomeexcludedfromgrossincomebysection235-7orotherprovisionsofthischapter.

(b) Everyemployer,asdefinedherein,makingpaymentofwages,ashereindefined,toemployees,shalldeductandwithholdfromsuchwagesanamountoftaxdeterminedasprovidedinthissection.

(c) For eachwithholdingperiod (whetherweekly,biweekly,monthly, orotherwise) the amountof tax tobewithheldunderthissectionshallbeataratethat,forthetaxableyear,willyieldthetaximposedbysection235-51uponeachemployee’sannualwage,asestimatedfromtheemployee’scurrentwageinanywithholdingperiod,butfor

18-235-61



thepurposesofthissubsectionoftheratesprovidedbysection235-51themaximumtobetakenintoconsiderationshallbeeightpercent.Thetaxforthetaxableyearshallbecalculateduponthefollowingassumptions:

(1) That the employee’s annualwage, as estimated from the employee’s currentwage in thewithholdingperiod,willbetheemployee’ssoleincomeforthetaxableyear;

(2) Thattherewillbenodeductionstherefromindeterminingadjustedgrossincome;(3) That indetermining taxable income there shall be a standarddeduction allowance,which shall be an

amountequaltooneexemption(ormorethanoneexemptionifsoprescribedbythedirector)unlessthetaxpayer:(A) Ismarriedandthetaxpayer’sspouseisanemployeereceivingwagessubjecttowithholding;or(B) Haswithholdingexemptioncertificatesineffectwithrespecttomorethanoneemployer.

Forthepurposesofthissection,anystandarddeductionallowanceunderthisparagraphshallbetreatedasifitweredenominatedawithholdingexemption;

(4) Thatindeterminingtaxableincometherealsowillbedeductedtheamountofexemptionsandwithholdingallowancesgrantedtotheemployeeinthecomputationoftaxableincome,asshownbyacertificatetobefiledwiththeemployerasprovidedbysubsection(f);and

(5) Ifitappearsfromthecertificatefiledpursuanttosubsection(f)thattheemployee,undersection235-93,isentitledtomakeajointreturn,thattheemployeeandtheemployee’sspousewillsoelect.

(d) Alternatively,attheelectionoftheemployer,theemployermaydeductandwithholdfromeachemployeeanamountoftaxdeterminedonthebasisoftablestobepreparedandfurnishedbythedepartmentoftaxation,whichamountoftaxshallbesubstantiallyequivalenttotheamountoftaxprovidedbysubsection(c)hereof.

(e) The department, by rule, may require the deduction and withholding of tax from any remuneration orcompensationpaidfororattributabletoservicesthatarenotsubjecttothegeneralexcisetaximposedbychapter237,whetherornotsuchwithholdingisprovidedforhereinabove.Everypersonsorequiredtodeductandwithholdtax,orfromwhomtaxisrequiredtobedeductedandwithheld,shallbesubjecttosections235-61to235-67,andeverypersonsorequiredtodeductandwithholdtaxshallbedeemedanemployerforthepurposesofthischapter.

Thedepartment,byrule,mayexemptanyemployerfromtherequirementofdeductionandwithholdingoftaxes,eventhoughtherequirementisimposedbythissection,ifandtotheextentthatthedepartmentfindstherequirementundulyonerousorimpracticableofenforcement.

(f) Onorbeforethedateofthecommencementofemploymentwithanemployer,theemployeeshallfurnishtheemployerwithasignedcertificaterelatingtothenumberofexemptionswhichtheemployeeclaims,whichshallinnoeventexceedthenumbertowhichtheemployeeisentitledonthebasisoftheexistingfacts,andalsoshowingwhethertheemployeeismarriedandis,undersection235-93,entitledtomakeajointreturn.Thecertificateshallbeinsuchformandcontainsuchinformationasmaybeprescribedbythedepartment.

If,onanydayduringthecalendaryear,thereisachangeintheemployee’smaritalstatusandtheemployeenolongerisentitledtomakeajointreturn,orthenumberofexemptionstowhichtheemployeeisentitledislessthanthenumberofexemptionsclaimedbytheemployeeonthecertificatethenineffectwithrespecttotheemployee,theemployeeshallwithintendaysthereafterfurnishtheemployerwithanewcertificateshowingtheemployee’spresentmaritalstatus,orrelatingtothenumberofexemptionswhichtheemployeethenclaims,whichshallinnoeventexceedthenumbertowhichtheemployeeisentitledonthebasisoftheexistingfacts.If,onanydayduringthecalendaryear,thereisachangeintheemployee’smaritalstatusandthoughpreviouslynotentitledtomakeajointreturntheemployeenowissoentitled,orthenumberofexemptionstowhichtheemployeeisentitledisgreaterthanthenumberofexemptionsclaimed,theemployeemayfurnishtheemployerwithanewcertificateshowingtheemployee’spresentmaritalstatus,orrelatingtothenumberofexemptionswhichtheemployeethenclaims,whichshallinnoeventexceedthenumbertowhichtheemployeeisentitledonthebasisoftheexistingfacts.

SuchcertificateshalltakeeffectatthetimessetforthintheInternalRevenueCode.(g) In determining the deduction allowed by subsection (c)(4) an employee shall be entitled towithholding

allowancesoradditionalreductionsinwithholdingunder thissubsection.Indeterminingthenumberofadditionalwithholdingallowancesortheamountofadditionalreductionsinwithholdingunderthissubsection,theemployeemay take intoaccount (to theextentand in themannerprovidedby rules)estimated itemizeddeductionsand taxcreditsallowableunderthischapter;andsuchadditionaldeductionsandotheritemsasmaybespecifiedbythedirectorinrules.Forthepurposesofthissubsectionafractionalnumbershallnotbetakenintoaccountunlessitamountstoone-halformore,inwhichcaseitshallbeincreasedtothenextwholenumber.

(1) Asusedinthissubsection,unlessthecontextotherwiserequires:(A) “Estimateditemizeddeductions”meanstheaggregateamountwhichtheemployeereasonablyexpects

willbeallowedasdeductionsundersections235-2.3,235-2.4,235-2.45and235-7,other thanthedeductionsreferredtoinInternalRevenueCodesection151andthosedeductionsrequiredtobetakenintoaccountindeterminingadjustedgrossincomeunderInternalRevenueCodesection62(a)(withtheexceptionofparagraph10thereof)fortheestimationyear.Innocaseshalltheaggregateamountbegreaterthanthesumof:

(i)Theamountofthedeductionsreflectedintheemployee’snetincometaxreturnforthetaxable

18-235-61-03

18-235-61-09



yearprecedingtheestimationyearof(ifareturnhasnotbeenfiledfortheprecedingtaxableyearatthetimethewithholdingexemptioncertificateisfurnishedtheemployer)thesecondtaxableyearprecedingtheestimationyear;or

(ii)Theamountofestimateditemizeddeductionsandtaxcreditsallowableunderthischapterandanyadditionaldeductionstowhichentitled;and

(iii)Theamountoftheemployee’sdeterminableadditionaldeductionsfortheestimationyear.(B) “Estimatedwages”meanstheaggregateamountwhichtheemployeereasonablyexpectswillconstitute

wagesfortheestimationyear;(C) “Determinableadditionaldeductions”meansthoseestimateditemizeddeductionswhich: (i)Areinexcessofthedeductionsreferredtoinsubparagraph(A)reflectedontheemployee’snet

incometaxreturnforthetaxableyearprecedingtheestimationyear;and (ii)Aredemonstrablyattributabletoanidentifiableeventduringtheestimationyearorthepreceding

taxable year which can reasonably be expected to cause an increase in the amount of suchdeductionsonthenetincometaxreturnfortheestimationyear.

(D) “Estimationyear”,inthecaseofanemployeewhofilestheemployee’sreturnonthebasisofacalendaryear,meansthecalendaryearinwhichthewagesarepaid;providedthatinthecaseofanemployeewhofilestheemployee’sreturnonabasisotherthanthecalendaryear,theemployee’sestimationyear,andtheamountsdeductedandwithheldtobegovernedbytheestimationyear,shallbedeterminedunderrulesprescribedbythedirectoroftaxation.

(2) Underthissubsection,thefollowingspecialrulesshallapply:(A) Marriedindividuals.Thenumberofwithholdingallowancestowhichahusbandandwifeareentitled

underthissubsectionshallbedeterminedonthebasisoftheircombinedwagesanddeductions.Thissubparagraphshallnotapplytoahusbandandwifewhofiledseparatereturnsforthetaxableyearprecedingtheestimationyearandwhoreasonablyexpecttofileseparatereturnsfortheestimationyear;

(B) Limitation. In the case of employeeswhose estimatedwages are at levels at which the amountsdeductedandwithheldunderthischaptergenerallyareinsufficient(takingintoaccountareasonableallowancefordeductionsandexceptions)tooffsettheliabilityfortaxunderthischapterwithrespecttothewagesfromwhichtheamountsaredeductedandwithheld,thedirectormaybyrulereducethewithholdingallowancestowhichthoseemployeeswould,butforthissubparagraph,beentitledunderthissubsection;

(C) Treatmentofallowances.Forpurposesofthischapter,anywithholdingallowanceunderthissubsectionshallbetreatedasifitweredenominatedawithholdingexemption.

(3) Thedirectormayprescribetablesbyruleunderchapter91pursuanttowhichemployeesshalldeterminethenumberofwithholdingallowancestowhichtheyareentitledunderthissubsection.

(h) Thedirectoroftaxationmayadoptbyruleunderchapter91therulesandregulationspromulgatedbytheUnitedStatesSecretaryofTreasuryoradelegateoftheSecretaryrelatingtotheprovisionsofsubtitleC,chapter24oftheInternalRevenueCodeoperativeinthissection.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;amL1965,c155,§31(d);Supp,§121-16;HRS§235-61;amL1981,c138,§1;amL1982,c23,§1;amL1983,c206,§2;amimpL1984,c90,§1;gench1985;amL1987,c239,§1(17),(18);amL1993,c73,§4;amL1995,c92,§7;amL1996,c187,§6;amL2001,c199,§5;amL2017,c12,§44]

Cross Reference

TaxInformationReleaseNo.33-71,“WithholdingofHawaiiIncomeTaxes”TaxInformationReleaseNo.82-3,“StateIncomeTaxWithholdingonSickPayIncludingTemporaryDisabilityInsurance”TaxInformationReleaseNo.95-4,“EmployeeWithholdingCertificates”Tax InformationReleaseNo.2007-03,“ImpositionofHawaiiState IncomeTaxon IncomeEarnedbyNonresidentMerchantSeamenand

WithholdingObligationsofEmployersofNonresidentMerchantSeamen”TaxInformationReleaseNo.2010-01,“MilitarySpousesResidencyReliefAct(“MSRRA”)”

Case Notes

Statutedidnot apply,wheredefendantsUnitedStates, directorof taxation, anddirectorof labor and industrial relations sought taxes thatprincipal(subcontractor)failedtoremitatthetimeitcontrolleditsfundsandpaymentofwages;becauseunpaidtaxesaccruedwhenprincipalhadcontroloveritspaymentofwages,plaintiffsurety(whichissuedsubcontractor’sperformanceandpaymentbond)maynotbeheldliableforthesefunds.67F.Supp.2d1183.

§235-62 Return and payment of withheld taxes. (a)Everyemployerrequiredbythischaptertowithholdtaxesonwagespaidinanyquarterofthecalendaryearshallmakeareturnofsuchwagestothedepartmentoftaxationonorbeforethefifteenthdayofthecalendarmonthfollowingthecloseofeachsuchquarterforwhichthetaxeshavebeenwithheld.

(b) Thereturnshallbeinsuchform,includingcomputerprintoutsorotherelectronicformats,andcontainsuchinformationasmaybeprescribedbythedirectoroftaxation.ThereturnshallbefiledwiththedirectoratthefirsttaxationdistrictinHonolulu.



(c) Everyreturnrequiredunderthissectionshallbeaccompaniedbyaremissionofthecompleteamountoftaxwithheld,asreportedinthereturn;providedthateachemployerwhoseliabilityfortaxeswithheldexceeds$40,000annually shall remit the complete amountof taxwithheldon a semi-weekly schedule; provided further that eachemployerwhoseliabilityfortaxeswithheldexceeeds$5,000butdoesnotexceed$40,000annuallyshallremitthecompleteamountoftaxwithheldonamonthlyschedule.Notwithstandingthetaxliabilitythresholdinthissubsection,thedirectoroftaxationisauthorizedtorequireanyemployerwhoisrequiredtoremitanywithheldtaxestothefederalgovernmentonasemi-weeklyschedule,toremitthecompleteamountoftaxwithheldtothedepartmentonasemi-weeklyschedule.Thedirectoroftaxationmaygrantanexemptiontotherequirementtoremitthecompleteamountoftaxwithheldonasemi-weeklyscheduleforgoodcause.

(d) Ifthedirectorbelievescollectionofthetaxmaybeinjeopardy,thedirectormayrequireanypersonrequiredtomakeareturnunderthissectiontomakesuchreturnandpaysuchtaxatanytime.

(e) Thedirector, forgoodcause,mayextend the time formaking returnsandpayments,butnotbeyond thefifteenthdayofthesecondmonthfollowingtheregularduedateofthereturn.Withrespecttowagespaidoutofpublicmoneys,thedirector,inthedirector’sdiscretion,mayprescribespecialformsfor,anddifferentproceduresandtimesforthefilingof,thereturnsbyemployerspayingthewages,ormaywaivethefilingofanyreturnsupontheconditionsandsubjecttorulesthedirectormayprescribe.

(f) Forpurposesofthissection,“semi-weeklyschedule”means:(1) Onorbefore the followingWednesday ifwageswerepaidon the immediatelyprecedingWednesday,

Thursday,orFriday;or(2) OnorbeforethefollowingFridayifwageswerepaidontheimmediatelyprecedingSaturday,Sunday,

Monday,orTuesday.Inadditiontotheallowancesprovidedundersection231-21,eachemployershallhaveatleastthreebankingdays

followingthecloseofthesemi-weeklyperiodbywhichtoremitthetaxeswithheldasprovidedforinsection6302oftheInternalRevenueCode.

(g) Forthepurposesofthissection,“monthlyschedule”meansonorbeferethefifteenthdayofthecalendarmonthfollowingthemonthforwhichthetaxeshavebeenwithheld.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;amL1964,c24,§2;Supp,§121-17;amL1966,c19,§3;amL1967,c26,§2andc37,§1;HRS§235-62;amL1970,c37,§2;amL1980,c211,§2;amL1981,c138,§2;amimpL1984,c90,§1;gench1985;amL1992,c38,§1;amLSp20013d,c8,§2;amL2004,c113,§3;amL2005,c27,§2;amL2009,c196,§3;amL2017,c7,§2]

Note

The2009amendmentappliestoreturnsandpaymentsdueafterMay31,2009.L2009,c196,§8.

Cross Reference


TaxInformationReleaseNo.2004-1,“Act113,SessionLawsofHawaii2004,RelatingtoIncomeTaxWithholding”TaxAnnouncement 2005-01, “Instructions on Filing Federal Schedule B (Form 941), Report of Tax Liability for Semiweekly Schedule

Depositors,forHawaiiWithholdingTaxPurposes”

§235-63 Statements to employees. Everyemployerrequiredtodeductandwithholdanytaxonthewagesofanyemployeeshallfurnishtoeachemployeeinrespectoftheemployee’semploymentduringthecalendaryear,onorbeforeJanuary31ofthesucceedingyear,oriftheemployee’semploymentisterminatedbeforethecloseofacalendaryear,withinthirtydaysafterthedateofreceiptofawrittenrequestfromtheemployeeifsuchthirty-dayperiodendsbeforeJanuary31,awrittenstatement,showingtheperiodcoveredbythestatement, thewagespaidbytheemployertotheemployeeduringsuchperiod,andtheamountofthetaxdeductedandwithheldorpaidinrespectofsuchwages.EachsuchemployershallfileonorbeforethelastdayofFebruaryfollowingthecloseofthecalendaryearaduplicatecopyofeachsuchstatement.Thedepartmentoftaxationmaygranttoanyemployerareasonableextensionoftime,notinexcessofsixtydays,withrespecttoanystatementrequiredbythissectiontobefurnishedtoanemployeeorfiled,andmaybyregulationprovideforthefurnishingorfilingofstatementsatsuchothertimesandcontainingsuchotherinformationasmayberequiredfortheadministrationofthischapter.Thedepartmentshallprescribetheformofthestatementrequiredbythissectionandmayadoptanyfederalformappropriateforthepurpose.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-18;HRS§235-63;amL1980,c236,§1;amL1983,c88,§3;amimpL1984,c90,§1;gench1985]

§235-64 Taxes withheld by employer held in trust; employer’s liability. (a)Alltaxeswithheldbyanyemployerundersection235-61shallbeheldintrustbytheemployerfortheStateandforthepaymentofthesametothecollectorinthemannerandatthetimerequiredbythischapter.Ifanyemployerfails,neglects,orrefusestodeductandwithholdfromthewagespaidtoanemployee,ortopayover,theamountoftaxrequired,theemployershallbeliabletopaytotheStatetheamountofthetax.Anemployermayrecoverfromanemployeeanyamountwhichtheemployershouldhavewithheldbutdidnotwithholdfromtheemployee’swages,iftheemployerhasbeenrequiredtopayandhaspaidtheamounttotheStateoutoftheemployer’sownfundspursuanttothissection.



(b) Inadditionto theliability imposedbysubsection(a) ifanyemployerfails,neglects,orrefuses todeductandwithholdfromthewagespaidtoanyemployee,ortopayover,theamountoftaxrequired,anypersonexcludingthosewhohaveonlyministerialduties,whoisunderadutytodeductandwithholdortopayover,theamountoftaxrequired,andwhowilfullyfailstoperformsuchduty,shallbeliabletotheStatefortheamountofthetax.Theliabilitymaybeassessedandcollectedinthesamemannerastheliabilityimposedbysubsection(a);providedthattwoormorepersonsmaybeassessedunderthissubsectionjointlyorinthealternative,butthetaxshallbecollectedonlyoncewithrespecttothesamewages.Thevoluntaryorinvoluntarydissolutionoftheemployer,orthewithdrawalandsurrenderofitsrighttoengageinbusinesswithinthisStateshallnotdischargetheliabilityherebyimposed.[LSp1957,c1,ptof§2;amL1959,c277,§11;Supp,§121-19;HRS§235-64;amL1974,c11,§1;amimpL1984,c90,§1;gench1985;amL1990,c82,§1;amL2002,c153,§4]

Note

The2002amendmentappliestowithholdingrequirementsforpayrollperiodsbeginningonorafterJuly1,2002. L2002,c153,§7(2).

§235-65 REPEALED.L1995,c92,§22.

§235-66 Further withholdings at source; crediting of withheld taxes. (a) The department of taxation byregulation,may require the deduction andwithholding of tax from any gross incomeor adjusted gross incomeof anonresident,inordertocollectthetaximposedbythischapteronthenonresident.

(b) Incomeuponwhich any tax has beenwithheld at the source under sections 235-61 to 235-64, or underregulationsadoptedpursuanttosubsection(a),shallbeincludedinthereturnoftherecipientofsuchincome,butanyamountoftaxsowithheldshallbecreditedagainsttheamountofincometaxascomputedinthereturn,andifinexcessofthetaxdueforthetaxableyearshallberefundedasprovidedinsection235-110.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-21;HRS§235-66]

§235-67 Indemnity of withholder. Everypersonrequiredtowithholdataxundersections235-61to235-64,orunderregulationsadoptedpursuanttosection235-66(a),ismadeliableforsuchtaxandisrelievedofliabilityfororupontheclaimordemandofanyotherpersonfortheamountofanypaymentstothedepartmentoftaxationmadeinaccordancewithsuchsections.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-22;HRS§235-67]

§235-68 Withholding of tax on the disposition of real property by nonresident persons. (a)Asusedinthissection:

“Nonresidentperson”meanseverypersonotherthanaresidentperson.“Property”or“realproperty”hasthemeaningasthesametermisdefinedinsection231-1.“Residentperson”meansany:(1) Individualincludedinthedefinitionofresidentinsection235-1;(2) Corporationincorporatedorgrantedacertificateofauthorityunderchapter414,414D,or415A;(3) Partnershipformedorregisteredunderchapter425or425E;(4) Foreignpartnershipqualifiedtotransactbusinesspursuanttochapter425or425E;(5) Limitedliabilitycompanyformedunderchapter428oranyforeignlimitedliabilitycompanyregistered

underchapter428;providedthatifasinglememberlimitedliabilitycompanyhasnotelectedtobetaxedasacorporation,thesinglememberlimitedliabilitycompanyshallbedisregardedforpurposesofthissectionandthissectionshallbeappliedasifthesolememberisthetransferor;

(6) Limitedliabilitypartnershipformedunderchapter425;(7) Foreignlimitedliabilitypartnershipqualifiedtotransactbusinessunderchapter425;(8) Trustincludedinthedefinitionofresidenttrustinsection235-1;or(9) Estateincludedinthedefinitionofresidentestateinsection235-1.

“Transferee”meansanyperson,theStateandthecountiesandtheirrespectivesubdivisions,agencies,authorities,andboards,acquiringrealpropertywhichislocatedinHawaii.

“Transferor”meansanypersondisposingrealpropertythatislocatedinHawaii.(b) Unlessotherwiseprovidedinthissection,everytransfereeshalldeductandwithholdataxequaltofiveper

centoftheamountrealizedonthedispositionofHawaiirealproperty.Everypersonrequiredtowithholdataxunderthissectionismadeliableforthetaxandisrelievedofliabilityfororupontheclaimordemandofanyotherpersonfortheamountofanypaymentstothedepartmentmadeinaccordancewiththissection.

(c) Every transferee requiredby this section towithhold taxunder subsection (b) shallmakea returnof theamountwithheldtothedepartmentoftaxationnotmorethantwentydaysfollowingthetransferdate.

(d) No person shall be required to deduct and withhold any amount under subsection (b), if the transferorfurnishestothetransfereeanaffidavitbythetransferorstatingthetransferor’staxpayeridentificationnumberand:

(1) Thetransferorisaresidentperson;or

18-235-66



(2) ThatbyreasonofanonrecognitionprovisionoftheInternalRevenueCodeasoperativeunderthischapterortheprovisionsofanyUnitedStatestreaty,thetransferorisnotrequiredtorecognizeanygainorlosswithrespecttothetransfer;

(3) Abriefdescriptionofthetransfer;and(4) Abriefsummaryofthelawandfactssupportingtheclaimthatrecognitionofgainorlossisnotrequired

withrespecttothetransfer.Thissubsectionshallnotapplyifthetransfereehasactualknowledgethattheaffidavitreferredtointhissubsectionisfalse.

(e) Anapplicationforawithholdingcertificatemaybesubmittedby the transferor to thedepartmentsettingforth:

(1) Thename,address,andtaxpayeridentificationnumber,ifany,ofthepartiestothetransactionandthelocationandgeneraldescriptionoftherealpropertytobetransferred;and

(2) Acalculationandwrittenjustificationshowingthatthetransferorwillnotrealizeanygainwithrespecttothetransfer;or

(3) A calculation and written justification showing that there will be insufficient proceeds to pay thewithholdingrequiredundersubsection(b)afterpaymentofallcosts,includingsellingexpensesandtheamountofanymortgageorliensecuredbytheproperty.

Uponreceiptoftheapplication,thedepartmentshalldeterminewhetherthetransferorhasrealizedorwillrealizeanygainwithrespecttothetransfer,orwhethertherewillbeinsufficientproceedstopaythewithholding.Ifthedepartmentissatisfiedthatnogainwillberealizedorthattherewillbeinsufficientproceedstopaythewithholding,itshallissueawithholdingcertificatestatingtheamounttobewithheld,ifany.

Thesubmissionofanapplicationforawithholdingcertificatetothedepartmentdoesnotrelievethetransfereeofitsobligationtowithholdortomakeareturnofthetaxundersubsections(b)and(c).

(f) Nopersonshallberequiredtodeductandwithholdanyamountundersubsection(b)ifoneormoreindividualtransferors furnishes to the transferee an affidavit by the transferor stating the transferor’s taxpayer identificationnumber,thatfortheyearprecedingthedateofthetransferthepropertyhasbeenusedbythetransferorasaprincipalresidence,andthattheamountrealizedforthepropertydoesnotexceed$300,000.

(g) Thedepartmentmayenterintowrittenagreementswithpersonswhoengageinmorethanonerealpropertytransactioninacalendaryearorotherpersonstowhommeetingthewithholdingrequirementsofthissectionarenotpracticable.Thewrittenagreementsmayallowtheuseofawithholdingmethodotherthanthatprescribedbythissectionormaywaivethewithholdingrequirementunderthissection.[L1990,c213,§1;amL1991,c279,§1;amL1995,c92,§8;amL1997,c178,§2;amL2002,c40,§6;amL2003,c210,§3;amL2005,c23,§1]

Note

Chapter415referredtoindefinitionof“residentperson”isrepealed.Forpresentprovisions,seechapter414.EffectiveJuly1,2002,chapter415Breferredtoindefinitionof“residentperson”isrepealed.ForprovisionseffectiveJuly1,2002,seechapter

414D.L2005,c23,§3provides:“SECTION3.ThisActshalltakeeffectuponitsapproval[April22,2005]andapplytotaxableyearsbeginningafterDecember31,2004;

providedthatnothinginthisActshallbeconstruedtocreateanyinferencewithrespecttothepropertaxtreatmentofsinglememberlimitedliabilitycompaniesfortaxableyearspriortothetaxableyearbeginningonJanuary1,2005.”

Cross Reference

TaxInformationReleaseNo.2002-2,“WithholdingofStateIncomeTaxesonDispositionofHawaiiRealProperty” SupersededbyTIRNo.2017-01

TaxInformationReleaseNo.2017-01,“WithholdingofStateIncomeTaxesonDispositionofHawaiiRealProperty”

[§235-69] Voluntary deduction and withholding of state income tax from unemployment compensation. An individualreceivingunemploymentcompensationbenefitsunderchapter383mayelecttohavestateincometaxdeductedandwithheldfromtheindividual’spaymentofunemploymentcompensationattherateoffivepercentinaccordancewithsection383-163.6.[L1996,c157,§1]

PART IV. CORPORATION INCOME TAX

§235-71 Tax on corporations; rates; credit of shareholder of regulated investment company. (a)Ataxattherateshereinprovidedshallbeassessed,levied,collected,andpaidforeachtaxableyearonthetaxableincomeofeverycorporation,includingacorporationcarryingonbusinessinpartnership,exceptthatinthecaseofaregulatedinvestmentcompanythetaxisasprovidedbysubsection(b)andfurtherthatinthecaseofarealestateinvestmenttrustasdefinedinsection856oftheInternalRevenueCodeof1954thetaxisasprovidedinsubsection(d).“Corporation”includesanyprofessionalcorporationincorporatedpursuanttochapter415A.

18-235-71



Thetaxonalltaxableincomeshallbeattherateof4.4percentifthetaxableincomeisnotover$25,000,5.4percentifover$25,000butnotover$100,000,andonallover$100,000,6.4percent.

(b) Inthecaseofaregulatedinvestmentcompanythereisimposedonthetaxableincome,computedasprovidedinsections852and855oftheInternalRevenueCodebutwiththechangesandadjustmentsmadebythischapter(withoutprejudicetothegeneralityoftheforegoing,thedeductionfordividendspaidislimitedtosuchamountofdividendsasisattributabletoincometaxableunderthischapter),ataxconsistinginthesumofthefollowing:4.4percentifthetaxableincomeisnotover$25,000,5.4percentifover$25,000butnotover$100,000,andonallover$100,000,6.4percent.

(c) Inthecaseofashareholderofaregulatedinvestmentcompanythereisherebyallowedacreditintheamountofthetaximposedontheamountofcapitalgainswhichbysection852(b)(3)(D)oftheInternalRevenueCodeisrequiredtobeincludedintheshareholder’sreturnandonwhichtherehasbeenpaidtotheStatebytheregulatedinvestmentcompanythetaxattherateimposedbysubsection(b);theamountofthiscreditmaybeappliedorrefundedasprovidedinsection235-110.

(d) Inthecaseofarealestateinvestmenttrustthereisimposedonthetaxableincome,computedasprovidedinsections857and858oftheInternalRevenueCodebutwiththechangesandadjustmentsmadebythischapter(withoutprejudicetothegeneralityoftheforegoing,thedeductionfordividendspaidislimitedtosuchamountofdividendsasisattributabletoincometaxableunderthischapter),ataxconsistinginthesumofthefollowing:4.4percentifthetaxableincomeisnotover$25,000,5.4percentifover$25,000butnotover$100,000,andonallover$100,000,6.4percent.Inadditiontoanyotherpenaltyprovidedbylawanyrealestateinvestmenttrustwhosetaxliabilityforany taxable year is deemed to be increasedpursuant to section859(b)(2)(A)or 860(c)(1)(A) afterDecember31,1978,(relatingtointerestandadditionstotaxdeterminedwithrespecttotheamountofthedeductionfordeficiencydividendsallowed)oftheInternalRevenueCodeshallpayapenaltyinanamountequaltotheamountofinterestforwhichsuchtrustisliablethatisattributablesolelytosuchincrease.Thepenaltypayableunderthissubsectionwithrespecttoanydeterminationshallnotexceedone-halfoftheamountofthedeductionallowedbysection859(a),or860(a)afterDecember31,1978,oftheInternalRevenueCodeforsuchtaxableyear.

(e) AnycorporationactingasabusinessentityinmorethanonestateandwhichisrequiredbythischaptertofileareturnandwhoseonlyactivitiesinthisStateconsistofsalesandwhichdoesnotownorrentrealestateortangiblepersonalpropertyandwhoseannualgrosssalesinorintothisStateduringthetaxyeararenotinexcessof$100,000mayelecttoreportandpayataxof.5percentofsuchannualgrosssales.[LSp1957,c1,ptof§2;amL1965,c155,§§10,11,12andc201,§6;Supp,§121-23;HRS§235-71;amL1969,c226,§5;amL1974,c10,§2;amL1978,c173,§2(13);amL1979,c62,§2(11);amL1983,c167,§18;amL1985,c270,§4;amL1987,c239,§1(19);amL1988,c10,§1(3),(4)]

Cross Reference

Professionalcorporation,seechapter415A.TaxInformationReleaseNo.57-78,“AdoptionofInternalRevenueCode”OBSOLETETaxInformationReleaseNo.87-4,“CorporationTaxRatesfor1987”

§235-71.5 Alternative tax for corporations. Section1201(withrespecttoalternativetaxforcorporations)oftheInternalRevenueCodeof1986,asamendedasofDecember31,1996,shallbeoperativeforthepurposesofthischapterandshallbeappliedassetforthinthissection.Ifforanytaxableyearacorporation,regulatedinvestmentcompany,orrealestateinvestmenttrusthasanetcapitalgain,then,inlieuofthetaximposedbysection235-71,thereisherebyimposedatax(ifsuchtaxislessthanthetaximposedundersection235-71)whichshallconsistofthesumof:

(1) Ataxcomputedonthetaxableincomereducedbytheamountofthenetcapitalgain,attheratesandinthemannerasifthissectionhadnotbeenenacted,plus

(2) Thesumof:(A) 3.08percentofthelesserof: (i)Thenetcapitalgaindeterminedbyincludingonlythegainorlosswhichisproperlytakeninto

accountfortheportionofthetaxableyearbeforeApril1,1987(i.e.,theamountinparagraph(1)),or

(ii)Thenetcapitalgainforthetaxableyear,plus(B) 4percentoftheexcess(ifany)of: (i)Thenetcapitalgainforthetaxableyear,over (ii)Theamountofthenetcapitalgaintakenintoaccountundersubparagraph(A).[L1988,c10,

§1(1);amL1998,c113,§3]

§235-72 Corporations carrying on business in partnership. CorporationscarryingonbusinessinpartnershipshallbetreatedinthesamemannerbythischapterastheyaretreatedbytheInternalRevenueCode.[LSp1957,c1,ptof§2;Supp,§121-24;HRS§235-72;amL1978,c173,§2(14)]



Cross Reference

TaxInformationReleaseNo.57-78,“AdoptionofInternalRevenueCode”OBSOLETE

PART V. ELECTION BY SMALL BUSINESS CORPORATION

§§235-81 to 89 REPEALED. L1978,c173,§2(15).

PART VI. RETURNS AND PAYMENTS; ADMINISTRATION

§235-91 REPEALED. L1978,c173,§2(16).

[§235-91.5] Income tax credits; ordering of credit claims. Notwithstandinganyotherlawtothecontraryprovidingfortheuseofanincometaxcreditunderthischapter,intheoffsettingofataxpayer’sincometaxliability,taxcreditsthatmayberefundedorpaidtothetaxpayerwhohasnoincometaxliabilityshallbeusedfirst,followedbynonrefundabletaxcreditsthatmaybeusedascreditagainsttaxesinsubsequentyearsuntilexhausted.[L2010,c21,§2]

Note

AppliestotaxableyearsbeginningonorafterJanuary1,2010.L2010,c21,§4.

§235-92 Returns, who shall make. Foreachtaxableyear,returnsshallbemadebythefollowingpersonstothedepartmentoftaxationinsuchformandmannerasitshallprescribe:

(1) EverypersondoingbusinessintheStateduringthetaxableyear,whetherornotthepersonderivesanytaxableincometherefrom.Asusedinthisparagraph“doingbusiness”includesallactivitiesengagedinorcausedtobeengagedinwiththeobjectofgainoreconomicbenefit,directorindirect,exceptpersonalservicesperformedasanemployeeunderthedirectionandcontrolofanemployer.EverypersonreceivingrentsfrompropertyownedintheStateisclassedas“doingbusiness”andshallmakeareturnwhetherornotthepersonderivestaxableincometherefrom.

(2) Everycorporationhavingforthetaxableyeargrossincomesubjecttotaxationunderthischapter;providedthatanaffiliatedgroupofdomesticcorporationsmaymakeandfileaconsolidatedreturnforthetaxableyearinlieuofseparatetaxreturnsinthemannerandtotheextent,sofarasapplicable,setforthinsections1501through1505and1552oftheInternalRevenueCodeof1954,asamended.

(3) Everyindividual,estate,ortrusthavingforthetaxableyeargrossincomesubjecttotaxationunderthischapter,exceptasexemptedfromthefilingofareturnbyregulationsofthedepartment.

Thedepartmentmaybyregulationexcusethefilingofareturnbyanindividual,estate,ortrustincasesnotcomingwithinparagraph (1),where thegross incomeandexemptionsare such thatno tax is expected toaccrueunder thischapter,oraresuchthatsubstantiallyallthetaxwillhavebeencollectedthroughtaxwithholdingsoratthesource.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-26;HRS§235-92;amL1968,c24,§2;amL1978,c173,§2(17);amimpL1984,c90,§1;gench1985]

Cross Reference

TaxInformationReleaseNo.57-78,“AdoptionofInternalRevenueCode”OBSOLETETaxInformationReleaseNo.65-79,“StateTaxationofHomeownersAssociationsforIncome,GeneralExciseandUseTaxes”Tax InformationReleaseNo.97-2,“FilingofaCombinedHawaii IncomeTaxReturnbyaUnitaryBusinessasPartofaUnitaryGroup”

REVISEDTaxInformationReleaseNo.2001-1,“TheApplicationofCertainHawaiiTaxestoQualifiedSubchapterSSubsidiaryCorporations,Qualified

SubchapterSTrusts,andElectingSmallBusinessTrusts”

§235-93 Joint returns. (a)Ahusbandandwife,havingthatstatusforpurposesoftheInternalRevenueCodeandentitledtomakeajointfederalreturnforthetaxableyear,maymakeasinglereturnjointlyoftaxesunderthischapterforthetaxableyear.Inthatcasethetaxshallbecomputedontheiraggregateincomeasprovidedinsection235-52,andtheliabilitywithrespecttothetaxshallbejointandseveral.Forpurposesofthischapter“aggregateincome”meanstheincomeofbothspouseswithoutregardtosourceintheState.

(b) Ifanindividualhasfiledaseparatereturnforataxableyearforwhichajointreturncouldhavebeenmadebythetaxpayerandthetaxpayer’sspouse,anelectionthereaftertomakeajointreturnforthetaxableyearshallbemadeonlyuponcompliancewithrulesofthedepartmentoftaxation,whichmaylimittheelectionandprescribethetermsandprovisionsapplicableinsuchcasesasnearlyasmaybeinconformitywiththeInternalRevenueCode.

(c) Thefilingofajointreturnaftertheindividualhasfiledaseparatereturnwithoutfullpaymentoftheamountshownastaxonthejointreturnmaybeelected;providedallotherrequirementsforthefilingofajointreturnunderthissectionandtherulesofthedepartmentarecompliedwith.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-27;HRS§235-93;amL1974,c9,§2;amL1982,c22,§1(4);amL1997,c297,§4]

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Cross Reference

TaxInformationReleaseNo.92-3,“IncomeTaxIssuesAffectingNonresidentAliens”TaxInformationReleaseNo.97-1,“DeterminationofResidenceStatus”


TaxJusticeandSame-SexDomesticPartnerHealthBenefits:AnAnalysisoftheTaxEquityForHealthPlanBeneficiariesAct.32UHL.Rev.73(2009).

[§235-93.4] Effect of civil union. AllprovisionsoftheInternalRevenueCodereferredtointhischapterthatapplytoahusbandandwife,spouses,orpersoninalegalmaritalrelationshipshallbedeemedtoapplyinthischaptertopartnersinacivilunionwiththesameforceandeffectasiftheywere“husbandandwife”,“spouses”,orothertermsthatdescribepersonsinalegalmaritalrelationship.[L2011,c1,§4]

Note



Civilunionpartnershaveallthesamerights,benefits,protections,andresponsibilitiesunderthelawasmarriedcoupleswhoareoftheoppositegender;civilunionpartnershave thesame taxfilingstatusoptionsasmarriedcoupleswhoareof theoppositegender forHawaii income taxpurposesfortaxableyearsbeginningafterDecember31,2011.Att.Gen.Op.11-2.


§235-93.5 REPEALED. L1999,c198,§3.

§235-94 Returns by agent, guardian, etc.; liability of fiduciaries. (a)Returnsofdecedents.Ifanindividualisdeceased,thereturnoftheindividualrequiredundersection235-92shallbemadebytheindividual’spersonalrepresentativeorotherpersonchargedwiththecareofpropertyofthedecedent.

(b) Persons under a disability. If an individual is unable tomake a return required under section 235-92 or235-97,thereturnoftheindividualshallbemadebyadulyauthorizedagent,theindividual’scommittee,guardian,fiduciary,orotherpersonchargedwiththecareofthepersonorpropertyoftheindividual.Theprecedingsentenceshallnotapplyinthecaseofareceiverappointedbyauthorityoflawinpossessionofonlyapartofthepropertyofanindividual.

(c) Receivers, trustees, and assignees for corporations. In a casewhere a receiver, trustee in bankruptcy, orassignee,byorderofacourtofcompetentjurisdiction,byoperationoflaw,orotherwise,haspossessionoforholdstitletoallorsubstantiallyallthepropertyorbusinessofacorporation,whetherornotthepropertyorbusinessisbeingoperated,suchreceiver,trustee,orassigneeshallmakethereturnofincomeforthecorporationinthesamemannerandformascorporationsarerequiredtomakesuchreturns.

(d) Returnsofestatesandtrusts.Returnsofanestateoratrustshallbemadebythefiduciarythereof.(e) Jointfiduciaries.Undersuchregulationsasthedepartmentoftaxationmayprescribe,areturnmadebyone

oftwoormorejointfiduciariesshallbesufficientcompliancewiththerequirementofthissection.Areturnmadepursuanttothissubsectionshallcontainastatementthatthefiduciaryhassufficientknowledgeoftheaffairsofthepersonforwhomthereturnismadetoenablethefiduciarytomakethereturn,andthereturnis,tothebestofthefiduciary’sknowledgeandbelief,trueandcorrect.

(f) Liability offiduciaries.A tax imposedupon afiduciary shall be a charge upon the property held by thefiduciaryinthatcapacity.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-28;HRS§235-94;amL1976,c200,ptof§1;amimpL1984,c90,§1;gench1985]

§235-94.5 REPEALED. L1990,c16,§4.

§235-95 Partnership returns. Everypartnershipshallmakeareturnforeachtaxableyearuponformsprescribedbythedepartmentoftaxation,itemizingitsgrossincomeandallowabledeductionsandincludingthenamesandaddressesofthepersonswhowouldbeentitledtoshareintheincomeifdistributedandtheamountofeachdistributiveshare.Thereturnshallbeauthenticatedbythesignatureofanyoneofthepartners,underthepenaltiesprovidedbysection231-36,andthefactthatapartner’snameissignedonthereturnshallbeprimafacieevidencethatsuchpartnerisauthorizedtosignthereturnonbehalfofthepartnership.Allprovisionsofthischapterrelatingtoreturnsshallbeapplicabletopartnershipreturnsexceptasspecificallyotherwisestatedinthissection.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-29;HRS§235-95;amL1995,c92,§9]

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Cross Reference

TaxInformationReleaseNo.97-4,“Applicationof theBusinessEntityClassificationRulesUnder the“Check-the-box”Regulationsto theHawaiiIncomeTaxandOtherTaxes”


§235-96 Returns by persons making payments. Bydulypromulgatedregulationsthedepartmentoftaxationmayrequirethatanyindividual,partnership,corporation,jointstockcompany,association,insurancecompany,orotherperson,beingaresidentorhavingaplaceofbusinessinthisState,inwhatevercapacityacting,includinglesseesormortgagorsofrealandpersonalproperty,fiduciaries,employers,andallofficersandemployeesoftheStateorofanypoliticalsubdivisionthereof,havingthecontrol,receipt,custody,disposal,orpaymentofanyannuityorinterestondepositsorfundsheldintrust,includingtaxableincomefromendowmentpolicies,otherinterest(exceptinterestcouponspayabletobearer),dividends,wages,rentals,royalties,premiums,orotheremoluments,gains,profits,andincome,paidorpayableduringanyyeartoanyperson,shall,onsuchdateordatesasthedepartmentshallfromtimetotimedesignate,makeareturntothedepartmentfurnishingtheinformationrequiredbytheregulations.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-30;HRS§235-96]

[§235-96.5] Returns relating to unemployment. (a) The state department of labor and industrial relations shallsubmitareturntothedepartmentoftaxationaccordingtotheformsorrulesprescribedbythedirectoroftaxationsettingforththeaggregateamountsofpaymentsofunemploymentcompensationandthenameandaddressoftheindividualtowhompaidunderchapters383to385.

(b) Thedepartmentoflaborandindustrialrelationsshallfurnishtoeachindividualwhosenameissetforthinsuchreturnawrittenstatementshowing:

(1) Thenameandaddressofthedepartmentoflaborandindustrialrelations;and(2) Theaggregateamountofpaymentstotheindividualasshownonsuchreturn.

ThewrittenstatementrequiredbythissubsectionshallbefurnishedtotheindividualonorbeforeJanuary31oftheyearfollowingthecalendaryearforwhichthereturnundersubsection(a)wasmade.Nostatementshallberequiredtobefurnishedtoanyindividualunderthissubsectioniftheaggregateamountofpaymentstosuchindividualshownonthereturnmadeundersubsection(a)islessthan$10.[L1979,c62,§2(4)]

§235-97 Estimates; tax payments; returns.(a)(1) Individuals, corporations (including S corporations), estates, and trusts, shall annually furnish the

departmentoftaxationwithadeclarationofestimatedtaxforthecurrenttaxableyear.Declarationsofestimated tax,exceptasotherwiseprovidedby rule, shallbegovernedby theprovisionsas to returnscontainedinsections235-94,235-98,235-99,and235-128.Thedeclarationsshallbemadeonestimatedtaxpaymentvoucherforms.Thepaymentvouchershallbefiled,inthecaseoftaxpayersonthecalendaryearbasis,onorbeforeApril20.Inthecaseofahusbandandwifewhoareentitledtosubmitajointpaymentvoucherforfederalpurposes,asinglepaymentvouchermaybesubmittedbythemjointly,inwhichcase the liabilitywithrespect to theestimated taxshallbe jointandseveral; ifa jointpaymentvoucherissubmittedbutajointincometaxreturnisnotmadeforthetaxableyear,theestimatedtaxfortheyearmaybetreatedastheestimatedtaxofeitherthehusbandorthewifeormaybedividedbetweenthem.

(2) Eachtaxpayershalltransmit,withthepaymentvoucher,paymentofone-quarteroftheestimatedtaxforthecurrenttaxableyear.Indeterminingthisquarterlypaymentandallotherinstallments,therefirstshallbedeductedfromthetotalestimatedtaxtheamountofestimatedtaxwithholdingorcollectionatsourceforthetaxableyear.Thereafter,onthetwentiethdayofJuneandSeptember,thetaxpayershalltransmitwiththepaymentvoucher,paymentofone-quarteroftheestimatedtax.Thefourthquarterpaymentoftheestimated tax shall be transmittedwith thepaymentvoucherby January20of theyear following thetaxableyearforwhichtheestimatewasmade.

(3) Taxpayersoperatingonafiscalyearbasisshallmakesimilarestimatesandtaxpayments,onorbeforethetwentiethdayofthefourthmonthofthefiscalyearandperiodicallythereaftersoastoconformtothepaymentsandreturnsrequiredinthecaseofthoseonacalendaryearbasis.

(4) Thedepartmentbyrulemayexcuseindividualsfromfilinganestimateinthosecaseswherethegrossincomeandexemptionsaresuch thatno tax isexpected toaccrueunder thischapter,oraresuch thatsubstantiallyallthetaxwillbecollectedthroughtaxwithholdingoratthesource.

(5) Inthecaseofaforeigncorporation,thedepartmentmayexcusethefilingofanestimateandthepaymentofestimatedtaxifitissatisfiedthatlessthanfifteenpercentofthecorporation’sbusinessforthetaxableyearwillbeattributabletotheState.Forthepurposesofthisparagraph,fifteenpercentofacorporation’sbusinessshallbedeemedattributabletotheStateiffifteenpercentormoreoftheentiregrossincomeofthecorporation(whichforthepurposesofthisparagraphmeansgrossincomecomputedwithoutregard

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tosourceintheState)isattributabletotheStateundersections235-21to235-39orotherprovisionsofthischapter.

(6) Inthecaseofataxpayerwhosetaxliabilityislessthan$500,thefilingofanestimateandthepaymentofestimatedtaxshallnotberequired.

(b) Netincomereturnsforthetaxableyearshallbefiledwiththedepartmentonorbeforethetwentiethdayofthefourthmonthfollowingthecloseofthetaxableyear,andshallbeaccompaniedbypaymentofthebalanceofthetaxforthetaxableyear,ortheentiretaxforthetaxableyear,asthecasemaybe.Thesereturnsshallbefiledbothbypersonsrequiredtomakedeclarationsofestimatedtaxpursuanttothissectionandbypersonsnotrequiredtomakedeclarationsofestimatedtax.

(c) Attheelectionofthetaxpayer,anyinstallmentoftheestimatedtaxmaybepaidpriortothedateprescribedforitspayment.

(d) Apersonwho,undertheregulationsofthedepartmentadoptedpursuanttosubsection(a)(4),isrelievedoffilinganestimate,shalliftheregulationsceasetoapplybyreasonofachangeofcircumstancesduringthetaxableyear,filetherequiredestimateonthefirstquarterlypaymentdateprescribedforpaymentofestimatedtaxes,followingsuch change of circumstances, and pay the estimated tax in equal installments computedby allocating the entireamountshownbytheestimateforthecurrenttaxableyeartotheremainingquarterlypaymentdates.

(e) Anamendmentofanestimatemaybefiled,underregulationsprescribedbythedepartment.Ifanamendmentisfiled,theremaininginstallments,ifany,shallberatablyincreasedordecreasedtoreflecttheincreaseordecreaseintheestimate.Theamendedestimatemaybeaccompaniedbypaymentoftheamountofunderpayment,ifany,andifsothisshallbeconsideredindeterminingtheperiodoftheunderpaymentasprovidedinsubsection(g).

(f) Inthecaseofanyunderpaymentofestimatedtax,exceptasprovidedbythissubsection,thereshallbeaddedtothetaxforthetaxableyearanamountdeterminedattherateoftwo-thirdsofonepercentamonthorfractionofamonthupontheamountoftheunderpaymentfortheperiodoftheunderpayment.

(1) Theamountoftheunderpaymentshallbetheexcessof:(A) Therequiredinstallment,over(B) Theamount,ifany,oftheinstallmentpaidonorbeforetheduedatefortheinstallment.

(2) The period of the underpayment shall run from the due date for the installment towhichever of thefollowingdatesistheearlier:(A) Thetwentiethdayofthefourthmonthfollowingthecloseofthetaxableyear,or(B) Withrespecttoanyportionoftheunderpayment,thedateonwhichtheportionispaid.Forpurposes

ofthisparagraph,apaymentofestimatedtaxonanyinstallmentdateshallbecreditedagainstunpaidrequiredinstallmentsintheorderinwhichtheinstallmentsarerequiredtobepaid.

(3) Forthepurposesofthissection,theterm“tax”meansthetaximposedunderthischapterreducedbyanycreditsavailabletothetaxpayerotherthanthecreditforamountswithheldfromthetaxpayer’swagesortaxeswithheld at the source, if any, or estimated tax payments or payments remittedwith extensionrequestsforthetaxableyear.

(4) Sections6654(d),(e)(2),(e)(3),(h),(i),(j),(k),and(l),(withrespecttofailurebyanindividualtopayestimated income tax), and 6655(d), (e), (g)(2), (g)(3), (g)(4), and (i) (with respect to failure by acorporationtopayestimatedincometax)oftheInternalRevenueCode,asofthedatesetforthinsection235-2.3(a),shallbeoperativeforthepurposesofthissection;providedthattheduedatescontainedinanyoftheprecedingInternalRevenueCodesectionsshallbedeemedtobethetwentiethdayoftheapplicablemonth;andprovidedfurtherthat,forpurposesofthischapterinapplyingsection6654(d),therequiredannualpaymentshallbethelesserofsixtypercentofthetaxshownonthereturnforthetaxableyear(or,ifnoreturnisfiled,sixtypercentofthetaxforthetaxableyear)oronehundredpercentofthetaxshownonthereturnoftheindividualfortheprecedingtaxableyear.

(g) Theamountsoftaxeswithheldfromwagesorcollectedatsourceshallbedeemedpaymentsofestimatedtax,andanequalpartofanysuchamountshallbedeemedpaidoneachinstallmentdateforthetaxableyear,unlessthetaxpayerestablishesthedatesonwhichallamountswereactuallywithheldorcollected,inwhichcasetheamountssowithheldorcollectedshallbedeemedpaymentsofestimatedtaxonthedatesonwhichsuchamountswereactuallywithheldorcollected.[LSp1957,c1,ptof§2;amL1959,c277,§12;amLSp19592d,c1,§16;Supp,§121-31;amL1967,c134,§4;HRS§235-97;amL1979,c62,§2(12);amimpL1984,c90,§1;gench1985;amL1990,c16,§3;amL1991,c20,§1;amL1993,c73,§§5,6;amL1995,c67,§1;amL1998,c113,§4;amL2002,c190,§1;amL2003,c14,§1]

Revision Note

Insubsection(d),“(a)(4)”substitutedfor“(a)(5)”.

Note




§235-98 Returns; form, verification and authentication, time of filing. Returnsshallbe insuchformas thedepartmentoftaxationmayprescribefromtimetotimeandshallbeverifiedbywrittendeclarationsthatthestatementsthereinmadearesubject tothepenaltiesprescribedinsection231-36.Corporatereturnsshallbeauthenticatedbythesignatureofthepresident,vicepresident,treasurer,assistanttreasurer,chiefaccountingofficer,oranyotherofficerdulyauthorizedsotoact,underthepenaltiesprescribedbysection231-36.Thefactthatanindividual’snameissignedonthecorporationreturnshallbeprimafacieevidencethattheindividualisauthorizedtosignthereturnonbehalfofthecorporation.

Thedepartmentmaygrantareasonableextensionoftimeforfilingreturnsundersuchrulesasitshallprescribe.Exceptasotherwiseprovidedbystatuteforcasesinwhichexceptionalcircumstancesrequireadditionaltime,includingcasesofpersonswhoareoutsidetheUnitedStates,noextensionoftimeforfilingreturnsshallbeformorethansixmonthsinordertoexpeditethetimelydeterminationoftaxliabilityandthetimelyremissionoftaxes.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-32;HRS§235-98;amL1995,c92,§10;amL2003,c14,§2]

Note


Cross Reference

TaxInformationReleaseNo.97-4,“Applicationof theBusinessEntityClassificationRulesUnder the“Check-the-box”Regulationsto theHawaiiIncomeTaxandOtherTaxes”

§235-99 Same; place for filing. Returnsshallbefiledwiththecollectorforthetaxationdistrictinwhichislocatedthelegalresidenceorprincipalplaceofbusinessofthepersonmakingthereturn,or,ifsuchpersonhasnolegalresidenceorprincipalplaceofbusinessintheState,thenwiththecollectoratHonolulu.[LSp1957,c1,ptof§2;Supp,§121-33;amL1967,c37,§1;HRS§235-99]

§235-100 Persons in military service. Thecollectionfromanypersonin themilitaryserviceofanytaxontheincomeofsuchperson,whetherfallingduepriortoorduringtheperson’speriodofmilitaryservice(whichterm,asusedinthissection,shallhavethesamemeaningasintheSoldiers’andSailors’CivilReliefActof1940,asamended),shallbedeferredforaperiodextendingnotmorethansixmonthsaftertheterminationoftheperson’speriodofmilitaryserviceifsuchperson’sabilitytopaysuchtaxismateriallyimpairedbyreasonofsuchservice.Nointerestonanyamountoftax,collectionofwhichisdeferredforanyperiodunderthissection,andnopenaltyfornonpaymentofsuchamountduringsuchperiod, shallaccrue for suchperiodofdefermentby reasonof suchnonpayment.The runningofanystatuteoflimitationsagainstthecollectionofsuchtaxbydistraintorotherwiseshallbesuspendedfortheperiodofmilitaryserviceofanyindividualthecollectionofwhosetaxisdeferredunderthissection,andforanadditionalperiodofninemonthsbeginningwiththedayfollowingtheperiodofmilitaryservice.[LSp1957,c1,ptof§2;Supp,§121-34;HRS§235-100;amimpL1984,c90,§1;gench1985]

Cross Reference

Civilreliefforstatemilitaryforce,see§657D-43.TaxInformationReleaseNo.2003-2,“ExtensionofDeadlinesandOtherTaxReliefforMembersoftheArmedForces,Reserves,andHawaii

NationalGuard”

[§235-100.5] Abatement of income taxes of members of armed forces on death. [SectionretroactivetoAugust2,1990.]Section692(withrespecttoincometaxesofmembersofarmedforcesondeath)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapterandthedepartmentshallhavetheauthoritytoabateincometaxesasprovidedinsection692.

Forthepurposesofthissection“memberoftheArmedForcesoftheUnitedStates”shallhavethesamemeaningasprovidedbysection7701(a)(15)oftheInternalRevenueCode.[L1991,c208,§3]

Cross Reference

TaxInformationReleaseNo.2003-2,“ExtensionofDeadlinesandOtherTaxReliefforMembersoftheArmedForces,Reserves,andHawaiiNationalGuard”

§235-101 Federal returns and assessments, when copies are required. (a)Inprescribingtheformofreturnthedepartmentoftaxationmayrequirethatapersonwhoisrequiredtofileafederalincometaxreturnincludeintheperson’sreturnareconciliationofthereturnwiththeperson’sfederalreturn,orthatthepersonfurnishwiththereturnandasapartthereofacopyofthefederalreturn.

(b) It shallbe thedutyofeverypersonwho is requiredbysection235-92 tomakea return, to report to thedepartment,astoanytaxableyeargovernedbythischapter,if:

(1) TheamountoftaxableincomeasreturnedtotheUnitedStatesischanged,corrected,oradjustedbyanofficeroftheUnitedStatesorothercompetentauthority;

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(2) AchangeintaxableincomeresultsfromarenegotiationofacontractwiththeUnitedStatesorasubcontractthereunder;

(3) ArecomputationoftheincometaximposedbytheUnitedStatesundertheInternalRevenueCoderesultsfromanycause;or

(4) AnamendedincometaxreturnismadetotheUnitedStates.Thereportshallbemadewithinninetydaysafterthechange,correction,adjustment,orrecomputationisfinally

determinedortheamendedreturnisfiled,asthecasemaybe.Thereportrequiredbythissubsectionshallbemadeintheformofanamendmentoftheperson’sreturnfiledunderthischapter.TheamendedreturnshallbeaccompaniedbyacopyofthedocumentissuedbytheUnitedStatesunderparagraphs(1)to(3).ThestatutoryperiodfortheassessmentofanydeficiencyorthedeterminationofanyrefundattributabletothisreportshallnotexpirebeforetheexpirationofoneyearfromthedatethedepartmentisnotifiedbythetaxpayerortheInternalRevenueService,whicheverisearlier,ofthereportinwriting.Beforetheexpirationofthisone-yearperiod,thedepartmentandthetaxpayermayagreeinwritingtotheextensionofthisperiod.Theperiodsoagreeduponmaybefurtherextendedbysubsequentagreementsinwritingmadebeforetheexpirationoftheperiodpreviouslyagreedupon.

(c) Whenever, in theopinionof thedepartment, it isnecessary toexamineany federal income tax returnofanytaxpayeroranydetermination,assessment,orreportrelatedthereto, thedepartmentmaycompel thetaxpayertoproduceforinspectionacopyofanyfederalreturn,copiesofallstatementsandschedulesinsupportthereof,andcopiesofalldeterminations,assessments,andreportsrelatedthereto.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-35;HRS§235-101;amL1978,c173,§2(18);amimpL1984,c90,§1;gench1985;amL1989,c18,§1;amL1993,c31,§1;amL2017,c12,§45]

Cross Reference

TaxInformationReleaseNo.57-78,“AdoptionofInternalRevenueCode”OBSOLETE

§235-102 Records and special returns. (a)Records.Everypersonliabletoanytaximposedbythischapterorforthecollectionordeductionthereofatsource,shallkeepfull,complete,regular,andaccuratebooksofaccountinwhichalltheperson’stransactionsshallbeenteredinregularorder;providedthatthedirectoroftaxationmay,byregulation,provideforthekeepingofsimpleraccountsincaseswhere,byreasonofthesmallnessoftheincomeorotherwise,unduehardshiporexpensewillbecausedbythekeepingoffullbooksofaccount.Allbooksofaccountrequiredtobekeptbythischaptershallbepreservedforaperiodofthreeyears,exceptthatthedirectormay,inwriting,consenttotheirdestructionwithinsuchperiodormayrequirethattheybekeptlonger.

(b) Specialreturnsandstatements.Wheneveritisnecessary,inthejudgmentofthedirector,thedirectormayrequire any taxpayer, or person liable for the collectionor deductionof tax at source, bynotice servedupon thetaxpayerorotherperson,tomakesuchreturnsorrendersuchsignedstatementsasthedirectordeemssufficienttoshowwhetherornotthetaxpayerorotherpersonisliableunderthischapter.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;amL1963,c45,§4(a);Supp,§121-36;HRS§235-102;amL1969,c274,§1;amimpL1984,c90,§1;gench1985]

Cross Reference

TaxInformationReleaseNo.2002-1,“AuditofNetIncome,GeneralExcise,andUseTaxReturns;AppealRights;ClaimsforRefund;andPaymenttoStateUnderProtest”

Case Notes

Cited:33H.766.

§235-102.5 Income check-off authorized. (a)Anyindividualwhosestateincometaxliabilityforanytaxableyearis$3ormoremaydesignate$3oftheliabilitytobepaidovertotheHawaiielectioncampaignfund,anyotherlawtothecontrarynotwithstanding,whensubmittingastateincometaxreturntothedepartment.Inthecaseofajointreturnofahusbandandwifehavingastateincometaxliabilityof$6ormore,eachspousemaydesignatethat$3bepaidtothefund.Thedirectoroftaxationshallrevisetheindividualstateincometaxformtoallowthedesignationofcontributionstothefundonthefaceofthetaxreturnandimmediatelyabovethesignaturelines.Anexplanationshallbeincludedwhichclearlystatesthatthecheck-offdoesnotconstituteanadditionaltaxliability.Ifnodesignationwasmadeontheoriginaltaxreturnwhenfiled,adesignationmaybemadebytheindividualonanamendedreturnfiledwithintwentymonthsandtendaysaftertheduedatefortheoriginalreturnforsuchtaxableyear.Adesignationoncemadewhetherbyanoriginaloramendedreturnmaynotberevoked.

(b) Notwithstandinganylawtothecontrary,anyindividualwhosestateincometaxrefundforanytaxableyearis$2ormoremaydesignate$2oftherefundtobedepositedintotheschool-levelminorrepairsandmaintenancespecialfundestablishedbysection302A-1504.5,whensubmittingastateincometaxreturntothedepartment.Inthecaseofajointreturnofahusbandandwifehavingastateincometaxrefundof$4ormore,eachspousemaydesignatethat$2bedepositedintothespecialfund.Thedirectoroftaxationshallrevisetheindividualstateincometaxreturnformtoallowthedesignationofcontributionstothespecialfundonthefaceofthetaxreturnandimmediatelyabovethe

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[235-102.6] INCOME TAX LAW


signaturelines.Ifnodesignationwasmadeontheoriginaltaxreturnwhenfiled,adesignationmaybemadebytheindividualonanamendedreturnfiledwithintwentymonthsandtendaysaftertheduedatefortheoriginalreturnforsuchtaxableyear.Adesignationoncemade,whetherbyanoriginaloramendedreturn,maynotberevoked.

(c) Notwithstandinganylawtothecontrary,anyindividualwhosestateincometaxrefundforanytaxableyearis$2ormoremaydesignate$2oftherefundtobepaidovertothelibrariesspecialfundestablishedbysection312-3.6,whensubmittingastateincometaxreturntothedepartment.Inthecaseofajointreturnofahusbandandwifehavingastateincometaxrefundof$4ormore,eachspousemaydesignatethat$2bedepositedintothespecialfund.Thedirectoroftaxationshallrevisetheindividualstateincometaxformtoallowthedesignationofcontributionstothefundonthefaceofthetaxreturnandimmediatelyabovethesignaturelines.Ifnodesignationwasmadeontheoriginaltaxreturnwhenfiled,adesignationmaybemadebytheindividualonanamendedreturnfiledwithintwentymonthsandtendaysaftertheduedatefortheoriginalreturnforsuchtaxableyear.Adesignationoncemade,whetherbyanoriginaloramendedreturn,maynotberevoked.

(d) Notwithstandinganylawtothecontrary,anyindividualwhosestateincometaxrefundforanytaxableyearis$5ormoremaydesignate$5oftherefundtobepaidoverasfollows:

(1) One-thirdtotheHawaiichildren’strustfundundersection350B-2;and(2) Two-thirdstobedividedequallyamong:

(A) Thedomesticviolencepreventionspecialfundunderthedepartmentofhealthinsection321-1.3;(B) Thespouseandchildabusespecialaccountunderthedepartmentofhumanservicesinsection346-

7.5;and(C) Thespouseandchildabusespecialaccountunderthejudiciaryinsection601-3.6.

Whendesignatedbyataxpayersubmittingastateincometaxreturntothedepartment,thedepartmentofbudgetandfinanceshallallocatethemoneysamongtheseveralfundsasprovidedinthissubsection.Inthecaseofajointreturnofahusbandandwifehavingastateincometaxrefundof$10ormore,eachspousemaydesignatethat$5bepaidoverasprovidedinthissubsection.Thedirectoroftaxationshallrevisetheindividualstateincometaxformtoallowthedesignationofcontributionspursuanttothissubsectiononthefaceofthetaxreturnandimmediatelyabovethesignaturelines.Ifnodesignationwasmadeontheoriginaltaxreturnwhenfiled,adesignationmaybemadebytheindividualonanamendedreturnfiledwithintwentymonthsandtendaysaftertheduedatefortheoriginalreturnforsuchtaxableyear.Adesignationoncemade,whetherbyanoriginaloramendedreturn,maynotberevoked.[L1979,c224,§4;amL1991,c112,§1;amL2001,c311,§3;amL2002,c16,§9;amL2003,c193,§2;amL2004,c228,§1;amL2008,c244,§34]

[235-102.6] Refund splitting. (a)Anyindividualtaxpayerrequiredtomakeareturnunderthischaptershallbeentitledtodirectthedepositofanincometaxrefundintoamaximumofthreecheckingorsavingsaccountsatafinancialinstitution;providedthatataxpayerdesignatingthedirectdepositshallhaveelectronicallyfiledthetaxpayer’sreturnforfederalandstateincometaxesandmadeasimilardirectdepositelectronicdesignationtothesamecheckingorsavingsaccountsontheelectronicreturn.

(b) Thedepartmentoftaxationshallbeauthorizedtomodifyandreviseitsreturnsandcomputersystemstocarryoutthepurposesofthissection.[L2008,c202,§2]

Note


§235-103 Distortion of income. Whenataxpayersoconductsbusinessaseitherdirectlyorindirectlytobenefitstockholdersthereof,oranyotherpersoninterestedtherein,bysellingproductsorthegoodsorcommoditiesinwhichthetaxpayerdealsatlessthanthefairpricethatcouldbeobtainedforthem,orwhereacorporation,asubstantialportionofthecapitalstockofwhichisownedeitherdirectlyorindirectlybyanothercorporation,acquiresordisposesoftheproductsofthecorporationsoowningasubstantialportionofitsstockinsuchmannerastocreatealossorimproperincometoeitherofthecorporations,orwhereapartnershiporindividualownsaninterestinanothercorporationorbusinesseitherdirectlyorindirectlyandacquiresanddisposesoftheproductsofsuchotherbusinessinsuchmannerastocreatealossorimproperincometoeitherofthebusinesses,andgenerallyinallcaseswheredifferentformsofbusinessenterpriseareusedinconjunctionwithoneanotherforthepurpose,amongothers,ofdivertingprofitsreasonablyandproperlymadebyonefactoragencyorsegmentofthebusinesstoanother,thedirectoroftaxationmaydeterminetheamountoftaxuponeitherorbothoftheenterprisesforthetaxableyear,havingdueregardtothereasonableprofitswhichbutforsucharrangement,understanding,businessdevice,ororganizationmightorcouldhaveaccruedtoeitherorbothoftheenterprises.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-37;HRS§235-103;amimpL1984,c90,§1;gench1985]

§235-104 Penalties. Penaltiesandinterestshallbeaddedtoandbecomepartofthetax,whenandasprovidedbysections231-39and235-97.Thepenaltiesandinterestprovidedbysection231-39shallapplytoemployersaswellastaxpayers.[LSp1957,c1,ptof§2;Supp,§121-38;HRS§235-104]



Case Notes

Whenpenaltyapplied.33H.766.

§235-105 Failure to keep records, render returns, or make reports by responsible persons. The penaltiesprovidedbysections231-34,231-35,and231-36shallapplytoanyperson,whetheractingasprincipal,agent,officer,ordirectorforoneself,itself,oranotherpersonandshallapplytoeachsingleviolation.Thesepenaltiesshallbeinadditiontootherpenaltiesprovidedbylaw.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-39;HRS§235-105;amimpL1984,c90,§1;gench1985;amL1995,c92,§11]

Cross Reference

Classificationofoffenseandauthorizedpunishment,see§§701-107,706-640,663.TaxInformationReleaseNo.2002-1,“AuditofNetIncome,GeneralExcise,andUseTaxReturns;AppealRights;ClaimsforRefund;and

PaymenttoStateUnderProtest”

§235-106 REPEALED.L1995,c92,§23.

§235-107 Procedure upon failure to file return. Ifanytaxpayeroremployerliabletomakeandfileareturnunderthischapter fails,neglects,or refuses tomakeandfilea returnas requiredwithin the timeprescribed,ordeclines toauthenticateareturnifmade,thedepartmentoftaxationshallmakeareturnforthetaxpayeroremployerfromthebestinformationobtainableandshalllevyandassessagainstthetaxpayeroremployerthetaxupontheamountoftaxableincome,orthetaxrequiredtobewithheldfromwagesandpaidover,asshownbysuchreturn,towhichshallbeaddedthepenaltiesandinterestprovidedbysection231-39.Theassessmentshallbepresumedtobecorrectuntilandunless,uponanappealdulytakenasprovidedinthischapter,thecontraryshallbeclearlyprovedbythetaxpayeroremployerandtheburdenofproofuponappealshallbeuponthetaxpayeroremployertodisprovethecorrectnessoftheassessment.Noticeoftheassessmentshallbegiven,andanappealtherefrommaybetaken,inthemannerandwithinthetimeprovidedinsection235-108(b)andsection235-114.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-41;HRS§235-107]

§235-108 Audit of return; procedure; additional taxes. (a)Audit.Thedirectoroftaxationoraresponsiblepersondesignatedbythedirectortoactinthepremisesforthepurposeofverificationorauditofareturnmadebythetaxpayeroremployer,orforthepurposeofmakingareturnwherenonehasbeenmade,isauthorizedandempoweredtoexamineallaccountbooks,bankbooks,bankstatements,records,vouchers,copiesoffederaltaxreturns,andanyandallotherdocumentsandevidenceshavinganyrelevancytothedeterminationoftheincomeorwagesasrequiredtobereturnedunderthischapter,andthedirectormayemploythedirector’spowersundersection231-7forsuchpurposes.

(b) Additional taxes.If thedepartmentof taxationdiscoversfromtheexaminationof thereturnorotherwisethat income,or the liabilityofanemployer in respectofwages,or anyportion thereof,hasnotbeenassessed, itmayassessthesameandgivenoticetothetaxpayeroremployeroftheassessment,andthetaxpayeroremployershallthereuponhaveanopportunitywithinthirtydaystoconferwiththedepartmentastotheproposedassessment.Aftertheexpirationofthirtydaysfromsuchnotificationthedepartmentshallassesstheincomeofthetaxpayer,orthe liabilityof theemployer inrespectofwages,oranyportion thereofwhich itbelieveshasnotheretoforebeenassessed,andshallgivenoticetothetaxpayeroremployeroftheamountofthetaxandinterestandpenaltiesifany,andtheamountthereofshallbepaidwithintwentydaysafterthedatethenoticewasmailed,properlyaddressedtothetaxpayeroremployeratthetaxpayer’soremployer’slastknownaddressorplaceofbusiness.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-42;HRS§235-108;amimpL1984,c90,§1;gench1985]

Case Notes

Assessornotboundtotakereturnastrue.16H.796.Methodofcomputingdeprecationnotreflectiveofincome.18H.530.Reassessmentproperwhenincomeinpreviousyearunreported.28H.261.

§235-109 Jeopardy assessments, security for payment, etc. Section231-24shallapplytothetaxesimposedbythischapter,bothinrespectoftaxpayersandemployers.[LSp1957,c1,ptof§2;Supp,§121-43;HRS§235-109]

§235-109.5 REPEALED. L2017,c3,§5.

§235-110 Credits and refunds. (a) If the taxpayerhaspaid as an installmentof the taxmore than the amountdeterminedtobethecorrectamountofsuchinstallment,theoverpaymentshallbecreditedagainsttheunpaidinstallments,ifany.Iftheamountalreadypaid,whetherornotonthebasisofinstallments,exceedstheamountdeterminedtobethecorrectamountofthetax,theamountofthecreditshallberefundedinthemannerprovidedinsection231-23(c).Withinthemeaningofthissubsection,eachamountoftaxdeductedandwithheldfromataxpayer’swagesisaninstallmentoftaxes

18-235-109



paidbythetaxpayer.Arefundorcreditshallbemadetoanemployeronlytotheextentthattheamountofoverpaymentclaimedbytheemployerasacreditorrefundwasnotdeductedandwithheldbytheemployer.

(b) Thissectiondoesnotapply in thecaseofapaymentmadepursuant toanassessmentby thedepartmentof taxationundersection235-107or235-108(b).Norefundoroverpaymentcreditmaybehadunder thissectioninanyeventunlesstheoriginalpaymentofthetaxwasduetothelawhavingbeeninterpretedorappliedinrespectofthetaxpayerconcerneddifferentlythaninrespectofthetaxpayersgenerally.Astoalltaxpaymentsforwhicharefundorcreditisnotauthorizedbythissection(includingwithoutprejudicetothegeneralityoftheforegoingcasesofunconstitutionality)theremediesprovidedbyappealorundersection40-35areexclusive.However,nothinginthissubsectionshallbedeemedapplicabletoacreditorrefundauthorizedbysections235-55,235-66,or235-71,orresultingfromthetaxasreturnedbeinglessthanthetaxasestimated;inanyofthesecasesacreditorrefundisauthorizedeventhoughthetaxforthetaxableyearremainssubjecttodeterminationbythedepartmentandassessmentasprovidedbylaw.

(c) Anyrefundearnedunderthissectionshallbemadeinthemannerprovidedinsection231-23(c).[LSp1957,c1,ptof§2;amL1959,c277,§13;amLSp19592d,c1,§16;amL1963,c45,§§4(b),(c),(d);Supp,§121-44;HRS§235-110]

Revision Note

Insubsections(a)and(c),“231-23(c)”substitutedfor“231-23(d)”.

Cross Reference



LevyonunclaimedwarrantsbyInternalRevenueServicefordelinquentfederaltaxesshouldbehonored.Att.Gen.Op.62-4.

§235-110.2 Credit for school repair and maintenance. (a)Thereshallbeallowedtoeachtaxpayerlicensedunderchapter444,460J,or464,whoissubjecttothetaximposedbythischapter,anddoesnotowetheStatedelinquenttaxes,penalties,orinterest,acreditforcontributionsofin-kindservicesfortherepairandmaintenanceofpublicschoolsprovidedbythelicensedtaxpayerinHawaii.Thecreditshallbedeductiblefromthetaxpayer’snetincometaxliability, ifany,imposedbythischapterforthetaxableyearinwhichthecreditisproperlyclaimed.

(b) Theamountofthecreditdeterminedunderthissectionforthetaxableyearshallbeequaltotenpercentofthevalueofcontributionsofin-kindservicestotheHawaiischoolrepairandmaintenancefundforthattaxableyear;provided that theaggregatevalueof thecontributionsof in-kind servicesclaimedbya taxpayer shallnot exceed$40,000.

(c) Forpurposesofthissection:“Publicschools”hasthesamemeaningasdefinedinsection302A-101.“Valueofcontributionsof in-kindservices”means thefairmarketvalueofuncompensatedservicesor laboras

determinedandcertifiedbythedepartmentofaccountingandgeneralservices.(d) Thecreditallowedunderthissectionshallbeclaimedagainstnetincometaxliabilityforthetaxableyear.

Ataxcreditunderthissectionwhichexceedsthetaxpayer’sincometaxliabilitymaybeusedasacreditagainstthetaxpayer’sincometaxliabilityinsubsequentyearsuntilexhausted.

(e) Allclaimsfortaxcreditsunderthissection,includinganyamendedclaims,shallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditsmaybeclaimed.Failuretocomplywiththeforegoingprovisionshallconstituteawaiveroftherighttoclaimthecredit.

(f) Thedepartmentofeducationshallmaintainrecordsofthenamesoftaxpayerseligibleforthecreditandthetotalvalueofin-kindservicescontributedfortherepairandmaintenanceofpublicschoolsforthetaxableyear.Allcontributionsshallbeverifiedbythedepartmentofeducation.Thedepartmentofeducationshalltotalallcontributionsthatthedepartmentofeducationcertifies.Uponeachdetermination,thedepartmentofeducationshallissueacertificatetothetaxpayercertifying:

(1) Theamountofthecontribution;(2) Thatthetaxpayerislicensedunderchapter444,460J,or464;and(3) Thatthetaxpayerhasobtainedacurrentandvalidcertificatesignedbythedirectoroftaxation,showing

thatthetaxpayerdoesnotowetheStateanydelinquenttaxes,penalties,orinterest.The taxpayer shallfile the certificate from thedepartment of educationwith the taxpayer’s tax returnwith the

departmentoftaxation.Whenthetotalamountofcertifiedcontributionsreaches$2,500,000,thedepartmentofeducationshallimmediatelydiscontinuecertifyingcontributionsandnotifythedepartmentoftaxation.Innoinstanceshallthetotalamountofcertifiedcontributionsexceed$2,500,000foreachtaxableyear.

(g) TheStateshallprovidenotmorethan$250,000intaxcreditsforcontributionsofin-kindservicesinHawaiifortherepairandmaintenanceofpublicschools.



(h) Thedirectoroftaxationshallprepareanyformsthatmaybenecessarytoallowacredittobeclaimedunderthissection.[L2001,c309,§2;amL2004,c213,§2]

Cross Reference

Hawaii3R’sschoolrepairandmaintenancefund,see§302A-1502.4.Schoolrepairandmaintenancefund(HelpingHandsHawaii),see§302A-1502.5.

§235-110.3 REPEALED. L2016,c202,§3.

§235-110.31 Renewable fuels production tax credit. [Section repealed December 31, 2021. L 2016, c 202 §6.](a)Asusedinthissection:

“Creditperiod”meansamaximumperiodoffiveconsecutiveyears,beginningfromthefirsttaxableyearinwhichataxpayerbeginsrenewablefuelsproductionatalevelofatleastfifteenbillionBritishthermalunitsofrenewablefuelspercalendaryear.

“Netincometaxliability”meansincometaxliabilityreducedbyallothercreditsallowedunderthischapter.“Renewablefeedstocks”means:(1) Biomasscrops;(2) Agriculturalresidues;(3) Oilcrops,includingbutnotlimitedtoalgae,canola,jatropha,palm,soybean,andsunflower;(4) Sugarandstarchcrops,includingbutnotlimitedtosugarcaneandcassava;(5) Otheragriculturalcrops;(6) Greaseandwastecookingoil;(7) Foodwastes;(8) Municipalsolidwastesandindustrialwastes;(9) Water;and(10)Animalresiduesandwastes,

thatcanbeusedtogenerateenergy.“Renewablefuels”meansfuelsproducedfromrenewablefeedstocks,providedthatthefuel:(1) IssoldasafuelinHawaii;and(2) MeetstherelevantASTMInternationalspecificationsorotherindustryspecificationsfortheparticular

fuel,includingbutnotlimitedto:(A) Methanol,ethanol,orotheralcohols;(B) Hydrogen;(C) Biodieselorrenewablediesel;(D) Biogas;(E) Otherbiofuels;or(F) Renewablejetfuelorrenewablegasoline.

(b) Eachyearduringthecreditperiod,thereshallbeallowedtoeachtaxpayersubjecttothetaxesimposedbythischapter,arenewablefuelsproductiontaxcreditthatshallbeappliedtothetaxpayer’snetincometaxliability,ifany,imposedbythischapterforthetaxableyearinwhichthecreditisproperlyclaimed.

Foreachtaxpayerproducingrenewablefuels,theannualdollaramountoftherenewablefuelsproductiontaxcreditduringthefive-yearcreditperiodshallbeequalto20centsperseventy-sixthousandBritishthermalunitsofrenewablefuelsusingthelowerheatingvaluesoldfordistributioninHawaii;providedthatthetaxpayer’sproductionofrenewablefuelsisnotlessthanfifteenbillionBritishthermalunitsofrenewablefuelspercalendaryear;providedfurtherthattheamountofthetaxcreditclaimedunderthissectionbyataxpayershallnotexceed$3,000,000pertaxableyear.Noothertaxcreditmaybeclaimedunderthischapterforthecostsincurredinproducingtherenewablefuelsthatareusedtoproperlyclaimataxcreditunderthissectionforthetaxableyear.

(c) Notlaterthanthirtydaysfollowingthecloseofthecalendaryear,everytaxpayerclaimingacreditunderthissectionshallcompleteandfileanindependent,third-partycertifiedstatement,at·thetaxpayer’ssoleexpense,withthedepartmentofbusiness,economicdevelopment,andtourismintheformprescribedbythedepartmentofbusiness,economicdevelopment,andtourismprovidingthefollowinginformation:

(1) Thetype,quantity,andBritishthermalunitvalue,usingthelowerheatingvalue,ofeachqualifiedfuel,brokendownbythetypeoffuel,producedandsoldduringthepreviouscalendaryear;

(2) Thefeedstockusedforeachtypeofqualifiedfuel;(3) The proposed total amount of credit towhich the taxpayer is entitled for each calendar year and the

cumulativeamountofthetaxcreditthetaxpayerreceivedduringthecreditperiod;(4) Thenumberoffull-timeandnumberofpart-timeemployeesofthefacilityandthoseemployees’statesof

residency,totaledperstate;and(5) ThenumberandlocationofallrenewablefuelproductionfacilitieswithinandoutsideoftheState.

Uponeachdetermination,thedepartmentofbusiness,economicdevelopment,andtourismshallissueacertificatetothe



taxpayerverifyingtheamountofrenewablefuelsproducedandsold,thecreditamountcertifiedforeachtaxableyear,andthecumulativeamountofthetaxcreditduringthecreditperiod.Thetaxpayershallfilethecertificatewiththetaxpayer’stax returnwith thedepartment of taxation.Notwithstanding thedepartment of business, economicdevelopment, andtourism’scertificationauthorityunderthissection,thedirectoroftaxationmayauditandadjustthecertificationtoconformtothefacts.

Ifinanyyear,theannualamountofcertifiedcreditsreaches$3,000,000intheaggregate,thedepartmentofbusiness,economic development, and tourism shall immediately discontinue certifying credits and notify the department oftaxation.Innoinstanceshallthetotalamountofcertifiedcreditsexceed$3,000,000peryear.Notwithstandinganyotherlaw to thecontrary, theverificationandcertification informationcompiledby thedepartmentofbusiness,economicdevelopment,andtourismshallbeavailableforpublicinspectionanddisseminationunderchapter92F.

(d) Withinthirtycalendardaysaftertheduedateofthestatementrequiredundersubsection(c),thedepartmentofbusiness,economicdevelopment,andtourismshall:

(1) Acknowledgereceiptofthestatementinwriting;and(2) Issueacertificatetothetaxpayerreportingtheamountofrenewablefuelsproducedandsold,theamount

ofcreditthatthetaxpayerisentitledtoclaimforthepreviouscalendaryear,andthecumulativeamountofthetaxcreditduringthecreditperiod.

(e) The taxpayer shallfile the certificate issuedunder subsection (d)with the taxpayer’s tax returnwith thedepartmentoftaxation.Thedirectoroftaxationmayauditandadjustthecertificationtoconformtothefacts.

(f) Thetotalamountoftaxcreditsallowedunderthissectionshallnotexceed$3,000,000foralleligibletaxpayersinanycalendaryear.Intheeventthatthecreditclaimsunderthissectionexceed$3,000,000foralleligibletaxpayersinanygivencalendaryear,the$3,000,000shallbedividedbetweenalleligibletaxpayersforthatyearinproportiontothetotalamountofrenewablefuelsproducedbyalleligibletaxpayers.Uponreaching$3,000,000intheaggregate,thedepartmentofbusiness,economicdevelopment,andtourismshallimmediatelydiscontinueissuingcertificatesandnotifythedepartmentoftaxation.Innoinstanceshallthetotaldollaramountofcertificatesissuedexceed$3,000,000peryear.

(g) Notwithstandinganyotherlawtothecontrary,theinformationcollectedandcompiledbythedepartmentofbusiness,economicdevelopment,andtourismundersubsections(c)and(d)forthepurposesoftherenewablefuelsproductiontaxcredit,shallbeavailableforpublicinspectionanddisseminationsubjecttochapter92F.

(h) Ifthecreditunderthissectionexceedsthetaxpayer’snetincometaxliability,theexcessofthecreditoverliabilitymaybeusedasacreditagainstthetaxpayer’snetincometaxliabilityinsubsequentyearsuntilexhausted.Allclaimsforacreditunderthissectionshallbeproperlyfiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditmaybeclaimed.Failuretocomplywiththeforegoingprovisionortoprovidethecertifiedstatementrequiredundersubsection(c)shallconstituteawaiveroftherighttoclaimthecredit.

(i) Priortoproductionofanyrenewablefuelsforthecalendaryear,thetaxpayershallprovidewrittennoticeofthetaxpayer’sintentiontobeginproductionofrenewablefuels.Thewrittennoticeshallbeprovidedtothedepartmentoftaxationandthedepartmentofbusiness,economicdevelopment,andtourism,andshallincludeinformationonthetaxpayer,facilitylocation,facilityproductioncapacity,anticipatedproductionstartdate,andthetaxpayer’scontactinformation.Notwithstandinganyotherlawtothecontrary,thewrittennoticedescribedinthissubsection,includingtaxpayerandfacilityinformation,shallbeavailableforpublicinspectionanddisseminationsubjecttochapter92F.

(j) Thetaxpayershallprovidewrittennoticetothedirectoroftaxationandthedirectorofbusiness,economicdevelopment,andtourismwithinthirtydaysfollowingthestartofproduction.Thenoticeshallincludetheproductionstartdateandexpectedrenewablefuelsproductionforthenexttwelvemonths.Notwithstandinganyotherlawtothecontrary, thewrittennoticedescribed in thissubsectionshallbeavailable forpublic inspectionanddisseminationsubjecttochapter92F.

(k) In the caseof apartnership,S corporation, estate, or trust, distribution and shareof the renewable fuelsproductiontaxcreditshallbedeterminedpursuanttosection704(b)(withrespecttoapartner’sdistributiveshare)oftheInternalRevenueCodeof1986,asamended.Forafiscalyeartaxpayer,thetaxpayershallreportsuchcreditinthetaxableyearinwhichthecalendaryearendisincluded.

(l) Followingeachcalendaryearinwhichacreditunderthissectionhasbeenclaimed,thedirectorofbusiness,economic development, and tourism shall submit a written report to the governor and legislature regarding theproductionandsaleofrenewablefuels.Thereportshallinclude:

(1) ThenumberandlocationofrenewablefuelsproductionfacilitiesintheStateandoutsidetheStatethathaveclaimedacreditunderthissection;

(2) ThetotalnumberofBritishthermalunitsofrenewablefuels,brokendownbytypeoffuelproducedandsoldduringthepreviouscalendaryear;and

(3) TheprojectednumberofBritishthermalunitsofrenewablefuelsproductionforthesucceedingyear.(m)Thedirectoroftaxationshallprepareformsthatmaybenecessarytoclaimacreditunderthissection.The

directoroftaxationmayrequirethetaxpayertofurnishinformationtoascertainthevalidityoftheclaimforcreditmadeunderthissectionandmayadoptrulesnecessarytoeffectuatethepurposesofthissectionpursuanttochapter91.[L2016,c202,§2;amL2017,c142,§2]



Note

SectionappliestotaxableyearsbeginningafterDecember31,2016.L2016,c202,§6.The2017amendmentappliestotaxableyearsbeginningafterDecember31,2017.L2017,c142,§4.

§§235-110.4, 110.45 REPEALED. L2007,c9,§§23,24.

§235-110.46 REPEALED. L2017,c3,§6.

§235-110.5 REPEALED. L1987,c40,§2.

§235-110.51 Technology infrastructure renovation tax credit. (a)Thereshallbeallowedtoeachtaxpayersubjecttothetaxesimposedbythischapter,anincometaxcreditwhichshallbedeductiblefromthetaxpayer’snetincometaxliability,ifany,imposedbythischapterforthetaxableyearinwhichthecreditisproperlyclaimed.

(b) TheamountofthecreditshallbefourpercentoftherenovationcostsincurredduringthetaxableyearforeachcommercialbuildinglocatedinHawaii.

(c) Inthecaseofapartnership,Scorporation,estate,trust,oranydeveloperofacommercialbuilding,thetaxcreditallowableisforrenovationcostsincurredbytheentityforthetaxableyear.Thecostuponwhichthetaxcreditiscomputedshallbedeterminedattheentitylevel.Distributionandshareofcreditshallbedeterminedpursuanttosection235-110.7(a).

(d) Ifadeductionistakenundersection179(withrespecttoelectiontoexpensedepreciablebusinessassets)of theInternalRevenueCode,no taxcreditshallbeallowedfor thatportionof therenovationcost forwhich thedeductionistaken.

(e) Thebasisofeligiblepropertyfordepreciationoracceleratedcostrecoverysystempurposesforstateincometaxesshallbereducedbytheamountofcreditallowableandclaimed.Inthealternative,thetaxpayershalltreattheamountof thecredit allowableandclaimedasa taxable income item for the taxableyear inwhich it isproperlyrecognizedunderthemethodofaccountingusedtocomputetaxableincome.

(f) Thecreditallowedunderthissectionshallbeclaimedagainstthenetincometaxliabilityforthetaxableyear.(g) If the tax credit under this section exceeds the taxpayer’s income tax liability, the excess of credit over

liabilitymaybecarriedforwarduntilexhausted.(h) ThetaxcreditallowedunderthissectionshallnotbeavailablefortaxableyearsbeginningafterDecember

31,2010.(i) Asusedinthissection:“Netincometaxliability”meansincometaxliabilityreducedbyallothercreditsallowedunderthischapter.“Renovationcosts”meanscostsincurredafterDecember31,2000,toplan,design,install,construct,andpurchase

technology-enabledinfrastructureequipmenttoprovideacommercialbuildingwithtechnology-enabledinfrastructure.“Technology-enabledinfrastructure”means:(1) High speed telecommunications systems that provide Internet access, direct satellite communications

access,andvideoconferencingfacilities;(2) Physicalsecuritysystemsthatidentifyandverifyvalidentrytosecurespaces,detectinvalidentryorentry

attempts,andmonitoractivityinthesespaces;(3) Environmentalsystemstoincludeheating,ventilation,airconditioning,firedetectionandsuppression,

andotherlifesafetysystems;and(4) Backupandemergencyelectricpowersystems.

(j) Notaxpayerthatclaimsacreditunderthissectionshallclaimanyothercreditunderthischapter.[L2001,c221,§2;amL2004,c215,§7]

§235-110.6 Fuel tax credit for commercial fishers. (a)EachprincipaloperatorofacommercialfishingvesselwhofilesanindividualorcorporatenetincometaxreturnforataxableyearmayclaimanincometaxcreditunderthissectionagainsttheHawaiistateindividualorcorporatenetincometax.

(b) Thetaxcreditshallbeanamountequaltothefueltaxesimposedundersection243-4(a)andpaidbytheprincipaloperatorduringthetaxableyear.

(c) The taxcreditclaimedunder thissectionby theprincipaloperatorshallbedeductible fromtheprincipaloperator’sindividualorcorporateincometaxliability,ifany,forthetaxyearinwhichthecreditisproperlyclaimed;providedthatahusbandandwifefilingseparatereturnsforataxableyearforwhichajointreturncouldhavebeenmadebythemshallclaimonlythetaxcredittowhichtheywouldhavebeenentitledhadajointreturnbeenfiled.Ifthetaxcreditclaimedbytheprincipaloperatorunderthissectionexceedstheamountoftheincometaxpaymentsduefromtheprincipaloperator,theexcessofcreditoverpaymentsdueshallberefundedtotheprincipaloperatorfromthestatehighwayfund;providedthatthetaxcreditproperlyclaimedbyaprincipaloperatorwhohasnoincometaxliabilityshallbepaidtotheprincipaloperatorfromthestatehighwayfund;andprovidedfurthernorefundsorpaymentsonaccountofthetaxcreditallowedbythissectionshallbemadeforamountslessthan$1.

18-235-110.6



(d) Thedirectoroftaxationshallpreparesuchformsasmaybenecessarytoclaimacreditunderthissection,mayrequireproofoftheclaimforthetaxcredit,andmayadoptrulespursuanttochapter91.

(e) Alloftheprovisionsrelatingtoassessmentsandrefundsunderthischapterandundersection231-23(c)(1)shallapplytothetaxcreditunderthissection.

(f) Claimsforthetaxcreditunderthissection,includinganyamendedclaimsthereof,shallbefiledonorbeforetheendofthetwelfthmonthfollowingthetaxableyearforwhichthecreditmaybeclaimed.

(g) Asusedinthissection:(1) “Commercialfishingvessel”meansanywatervesselwhichisusedtocatchorprocessfishortransport

fishloadedonthehighseas.(2) “Principaloperator”meansanyindividualorcorporateresidenttaxpayerwhoderivesatleastfifty-oneper

centofthetaxpayer’sgrossannualincomefromcommercialfishingoperations.[L1981,c210,§1;amL2010,c192,§27]

Revision Note

Insubsection(e),“231-23(c)(1)”substitutedfor“231-23(d)(1)”.

Cross Reference

TaxInformationReleaseNo.83-2,“TreatmentofTaxCreditsforStateIncomeTaxPurposes”

§235-110.7 Capital goods excise tax credit. (a)Thereshallbeallowedtoeachtaxpayersubjecttothetaximposedbythischapteracapitalgoodsexcisetaxcreditwhichshallbedeductiblefromthetaxpayer’snetincometaxliability,ifany,imposedbythischapterforthetaxableyearinwhichthecreditisproperlyclaimed.

TheamountofthetaxcreditshallbedeterminedbytheapplicationofthefollowingratesagainstthecostoftheeligibledepreciabletangiblepersonalpropertyusedbythetaxpayerinatradeorbusinessandplacedinservicewithinHawaiiafterDecember31,1987.Forcalendaryearsbeginningafter:

(1) December31,1987,theapplicablerateshallbethreepercent;(2) December31,1988,theapplicablerateshallbefourpercent;(3) December31,2008,theapplicablerateshallbezeropercent;and(4) December31,2009,andthereafter,theapplicablerateshallbefourpercent.

Fortaxpayerswithfiscaltaxableyears,theapplicablerateshallbetherateforthecalendaryearinwhichtheeligibledepreciabletangiblepersonalpropertyusedinthetradeorbusinessisplacedinservicewithinHawaii.

Inthecaseofapartnership,Scorporation,estate,ortrust,thetaxcreditallowableisforeligibledepreciabletangiblepersonalpropertywhich isplaced in serviceby theentity.Thecostuponwhich the taxcredit iscomputedshallbedeterminedattheentitylevel.Distributionandshareofcreditshallbedeterminedbyrules.

Inthecaseofeligibledepreciabletangiblepersonalpropertyforwhichacreditforsalesorusetaxespaidtoanotherstateisallowableundersection238-3(i),theamountofthetaxcreditallowedunderthissectionshallnotexceedtheamountofusetaxactuallypaidunderchapter238relatingtosuchtangiblepersonalproperty.

Ifadeductionistakenundersection179(withrespecttoelectiontoexpensecertaindepreciablebusinessassets)oftheInternalRevenueCodeof1954,asamended,notaxcreditshallbeallowedforthatportionofthecostofpropertyforwhichthedeductionwastaken.

(b) If thecapitalgoodsexcise taxcreditallowedundersubsection(a)exceeds the taxpayer’snet incometaxliability,theexcessofcreditoverliabilityshallberefundedtothetaxpayer;providedthatnorefundsorpaymentonaccountofthetaxcreditallowedbythissectionshallbemadeforamountslessthan$1.

Allclaimsfortaxcreditsunderthissection,includinganyamendedclaims,mustbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditsmaybeclaimed.Failuretocomplywiththeforegoingprovisionshallconstituteawaiveroftherighttoclaimthecredit.

(c) Applicationforthecapitalgoodsexcisetaxcreditshallbeuponformsprovidedbythedepartmentoftaxation.(d) Sections47(withrespecttodispositionsofsection38propertyandtherecapturepercentages)oftheInternal

RevenueCodeof1954,asamended,asofDecember31,1984,and280Fasoperativeforthischapter(withrespecttolimitationoninvestmenttaxcreditanddepreciationforluxuryautomobiles;limitationwherecertainpropertyusedforpersonalpurposes)oftheInternalRevenueCodeof1954,asamended,shallbeoperativeforpurposesofthissection.

(e) As used in this section, the definition of section 38 property (with respect to investment in depreciabletangiblepersonalproperty)asdefinedbysection48(a)(1)(A),(a)(1)(B),(a)(3),(a)(4),(a)(7),(a)(8),(a)(10)(A),(b),(c),(f),(l),(m),and(s)oftheInternalRevenueCodeof1954,asamendedasofDecember31,1984,isoperativeforthepurposesofthissectiononly.

Asusedinthissection:“Cost”means(1)theactualinvoicepriceofthetangiblepersonalproperty,or(2)thebasisfromwhichdepreciation

istakenundersection167(withrespecttodepreciation)orfromwhichadeductionmaybetakenundersection168(withrespecttoacceleratedcostrecoverysystem)oftheInternalRevenueCodeof1954,asamended,whicheverisless.

18-235-110.7



“Eligibledepreciabletangiblepersonalproperty”issection38propertyasdefinedbytheoperativeprovisionsofsection48andhavingadepreciablelifeundersection167orforwhichadeductionmaybetakenundersection168ofthefederalInternalRevenueCodeof1954,asamended.

“Placedinservice”meanstheearliestofthefollowingtaxableyears:(1) Thetaxableyearinwhich,underthe:

(A) Taxpayer’sdepreciationpractice,theperiodfordepreciation;or(B) Accelerated cost recovery system, a claim for recovery allowances;with respect to suchproperty

begins;or(2) Thetaxableyearinwhichthepropertyisplacedinaconditionorstateofreadinessandavailabilityfora

specificallyassignedfunction.“Purchase”meansanacquisitionofproperty.“Tangible personal property”means tangible personal propertywhich is placed in servicewithinHawaii after

December31,1987,andthepurchaseorimportationofwhichresultedinatransactionwhichwassubjecttotheimpositionandpaymentoftaxattherateoffourpercentunderchapter237or238.“Tangiblepersonalproperty”doesnotincludetangiblepersonalpropertywhichisanintegralpartofabuildingorstructureortangiblepersonalpropertyusedinaforeigntradezone,asdefinedunderchapter212.[L1987,c239,§1(2);amL1988,c141,§21;amL1989,c7,§1;amL1990,c184,§§7,8;amL1992,c235,§6;amL2007,c9,§12;amL2009,c178,§3]

Note

The2009amendmentappliestoinvestmentsmade,renovationcostsincurred,oreligibledepreciabletangiblepropertyplacedinserviceonorafterMay1,2009.L2009,c178,§10.

Cross Reference

Transitcapitaldevelopmentfund,seechapter51D.TaxInformationReleaseNo.88-6,“CapitalGoodsExciseTaxCredit”TaxInformationReleaseNo.88-8,“CapitalGoodsExciseTaxCreditRecapture”TaxInformationReleaseNo.89-4,“TheTaxpayerWhoIsEntitledtotheCapitalGoodsExciseTaxCreditWhenthePartiesCharacterizea

TransactionasaLeaseorSale-leaseback”TaxInformationReleaseNo.99-4.“ApplicationoftheFranchiseTax,GeneralExciseTax,andIncomeTaxtoMortgageLoanCompanies,

IncludingMortgageLoanCompaniesOrganizedasPassthroughEntitiesandSoleProprietorships”TaxInformationReleaseNo.2001-4,“TheDefinitionof‘Cost’;ThePaymentofTaxRequirement;andSafeHarborGuidelinesPertainingto

theCapitalGoodsExciseTaxCredit”

Case Notes

Wheretaxpayerfailedtofileatimelyclaimforthecredit“onorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditsmaybeclaimed”asrequiredunderthissection,taxpayerwaiveditsrighttoacapitalgoodsexcisetaxcreditrefund.97H.270(App.),36P.3d814.

§235-110.8 Low-income housing tax credit. [Section effective until December 31, 2016. For section effective January 1, 2017, see below.](a)Section42(withrespecttolow-incomehousingcredit)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapterasprovidedinthissection.Ataxpayerowningaqualifiedlow-incomebuildingwhohasbeenawardedasubawardundersection1602oftheAmericanRecoveryandReinvestmentActof2009,PublicLaw111-5,shallalsobeeligibleforthecreditprovidedinthissection.

(b) Eachtaxpayersubjecttothetaximposedbythischapter,whohasfiledanetincometaxreturnforataxableyearmayclaimalow-incomehousingtaxcreditagainstthetaxpayer’snetincometaxliability.Theamountofthecreditshallbedeductiblefromthetaxpayer’snetincometaxliability,ifany,imposedbythischapterforthetaxableyearinwhichthecreditisproperlyclaimedonatimelybasis.Acreditunderthissectionmaybeclaimedwhetherornotthetaxpayerclaimsafederallow-incomehousingtaxcreditpursuanttosection42oftheInternalRevenueCode.

(c) Theamountofthelow-incomehousingtaxcreditthatmaybeclaimedbyataxpayerasprovidedinsubsection(b)shallbefiftypercentoftheapplicablepercentageofthequalifiedbasisofeachbuildinglocatedinHawaii.Theapplicablepercentageshallbecalculatedasprovidedinsection42(b)oftheInternalRevenueCode.

(d) Ifasubawardundersection1602oftheAmericanRecoveryandReinvestmentActof2009,PublicLaw111-5,hasbeenissuedforaqualifiedlow-incomebuilding,theamountofthelow-incomehousingtaxcreditsthatmaybeclaimedbyataxpayerasprovidedinsubsection(b)shallbeequaltofiftypercentoftheamountofthefederallow-incomehousingtaxcreditsthatwouldhavebeenallocatedtothequalifiedlow-incomebuildingpursuanttosection42(b)oftheInternalRevenueCodebythecorporationhadasubawardnotbeenawardedwithrespecttothequalifiedlow-incomebuilding.

(e) Forthepurposesofthissection,thedeterminationof:(1) Qualifiedbasisandqualifiedlow-incomebuildingshallbemadeundersection42(c);(2) Eligiblebasisshallbemadeundersection42(d);(3) Qualifiedlow-incomehousingprojectshallbemadeundersection42(g);



(4) Recaptureofcreditshallbemadeundersection42(j),except that the taxfor thetaxableyearshallbeincreasedundersection42(j)(1)onlywithrespecttocreditsthatwereusedtoreducestateincometaxes;and

(5) Applicationofat-riskrulesshallbemadeundersection42(k);oftheInternalRevenueCode.

(f) Asprovidedinsection42(e),rehabilitationexpendituresshallbetreatedasaseparatenewbuildingandtheirtreatmentunderthissectionshallbethesameasinsection42(e).Thedefinitionsandspecialrulesrelatingtocreditperiodinsection42(f)andthedefinitionsandspecialrulesinsection42(i)shallbeoperativeforthepurposesofthissection.

(g) Thestatehousingcreditceilingundersection42(h)shallbezeroforthecalendaryearimmediatelyfollowingtheexpirationofthefederallow-incomehousingtaxcreditprogramandforanycalendaryearthereafter,exceptforthecarryoverofanycreditceilingamountforcertainprojectsinprogresswhich,atthetimeofthefederalexpiration,meettherequirementsofsection42.

(h) Thecreditallowedunderthissectionshallbeclaimedagainstnetincometaxliabilityforthetaxableyear.Forthepurposeofdeductingthistaxcredit,netincometaxliabilitymeansnetincometaxliabilityreducedbyallothercreditsallowedthetaxpayerunderthischapter.

Ataxcreditunderthissectionthatexceedsthetaxpayer’sincometaxliabilitymaybeusedasacreditagainstthetaxpayer’sincometaxliabilityinsubsequentyearsuntilexhausted.Allclaimsforataxcreditunderthissectionshallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditmaybeclaimed.Failuretoproperlyandtimelyclaimthecreditshallconstituteawaiveroftherighttoclaimthecredit.Ataxpayermayclaimacreditunderthissectiononlyif thebuildingorprojectisaqualifiedlow-incomehousingbuildingoraqualifiedlow-incomehousingprojectundersection42oftheInternalRevenueCode.

Section469(withrespecttopassiveactivitylossesandcreditslimited)oftheInternalRevenueCodeshallbeappliedinclaimingthecreditunderthissection.

(i) Inlieuofthecreditawardedunderthissectionforaqualifiedlow-incomebuildingthathasbeenawardedfederalcreditsthataresubjecttothestatehousingcreditceilingundersection42(h)(3)(C)oftheInternalRevenueCode, federalcredits thatareallocatedpursuant to section42(h)(4)of the InternalRevenueCode,ora subawardundersection1602oftheAmericanRecoveryandReinvestmentActof2009,PublicLaw111-5,thetaxpayerowningthequalifiedlow-incomebuildingmaymakearequesttothecorporationforaloanundersection201H-86.Ifthetaxpayerelectstoreceivetheloanpursuanttosection201H-86,thetaxpayershallnotbeeligibleforthecreditunderthissection.

(j) Thedirectoroftaxationmayadoptanyrulesunderchapter91andformsnecessarytocarryoutthissection.[L1988,c216,§1;amL1989,c13,§6;amL2000,c148,§3;amL2005,c196,§8;amL2011,c158,§3]

§235-110.8 Low-income housing tax credit. [Section effective January 1, 2017. For section effective until December 31, 2016, see above. Repeal and reenactment on December 31, 2021. L 2016, c 129, §4.](a)Asmodifiedherein,section42(withrespecttolow-incomehousingcredit)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapterasprovidedinthissection.Ataxpayerowningaqualifiedlow-incomebuildingwhohasbeenawardedasubawardunderSection1602oftheAmericanRecoveryandReinvestmentActof2009,PublicLaw111-5,shallalsobeeligibleforthecreditprovidedinthissection.

(b) Eachtaxpayersubjecttothetaximposedbythischapter,whohasfiledanetincometaxreturnforataxableyearmayclaimalow-incomehousingtaxcreditagainstthetaxpayer’snetincometaxliability.Theamountofthecreditshallbedeductiblefromthetaxpayer’snetincometaxliability,ifany,imposedbythischapterforthetaxableyearinwhichthecreditisproperlyclaimedonatimelybasis.Acreditunderthissectionmaybeclaimedwhetherornotthetaxpayerclaimsafederallow-incomehousingtaxcreditpursuanttosection42oftheInternalRevenueCode.

(c) Foranyqualifiedlow-incomebuildingthatreceivesanallocationpriortoJanuary1,2017,theamountofthelow-incomehousingtaxcreditthatmaybeclaimedbyataxpayerasprovidedinsubsection(b)shallbefiftypercentoftheapplicablepercentageofthequalifiedbasisofeachbuildinglocatedinHawaii.Theapplicablepercentageshallbecalculatedasprovidedinsection42(b)oftheInternalRevenueCode.

(d) Foranyqualifiedlow-incomebuildingthatreceivesanallocationafterDecember31,2016,theamountofthelow-incomehousingtaxcreditsthatmaybeclaimedbyataxpayerasprovidedinsubsection(b)shallbe:

(1) Forthefirstfiveyears,equaltotheamountofthefederallow-incomehousingtaxcreditsthathavebeenallocatedtothequalifiedlow-incomebuildingpursuanttosection42(b)oftheInternalRevenueCodebythecorporation,providedthat,ifinanyyeartheaggregateamountofcreditsunderthissubsectionwouldbesuchthatitwouldexceedtheamountofstatecreditsallocatedbythecorporationforthequalifiedlow-incomebuilding,thecreditsallowedforthatyearshallbelimitedtosuchamountnecessarytobringthetotal of such state credits (including the current year state credits) to the full amount of state creditsallocatedtothequalifiedlow-incomebuildingbythecorporation;

(2) Forthesixthyear,zero,exceptthat,if,andonlyif,theamountofcreditsallowedforthefirstfiveyearsislessthanthefullamountofstatecreditsallocatedbythecorporationforthequalifiedlow-incomebuilding,



anamountnecessarytobringtheamountofthestatecreditstothefullamountallocatedbythecorporationforthequalifiedlow-incomebuilding;and

(3) Foranyremainingyears,zero.(e) IfasubawardunderSection1602oftheAmericanRecoveryandReinvestmentActof2009,PublicLaw111-

5,hasbeenissuedforaqualifiedlow-incomebuilding,theamountofthelow-incomehousingtaxcreditsthatmaybeclaimedbyataxpayerasprovidedinsubsection(b)shallbeequaltofiftypercentoftheamountofthefederallow-incomehousingtaxcreditsthatwouldhavebeenallocatedtothequalifiedlow-incomebuildingpursuanttosection42(b)oftheInternalRevenueCodebythecorporationhadasubawardnotbeenawardedwithrespecttothequalifiedlow-incomebuilding.

(f) Forthepurposesofthissection,thedeterminationof:(1) Qualifiedbasisandqualifiedlow-incomebuildingshallbemadeundersection42(c);(2) Eligiblebasisshallbemadeundersection42(d);(3) Qualifiedlow-incomehousingprojectshallbemadeundersection42(g);(4) Recaptureofcreditshallbemadeundersection42(j),except that the taxfor thetaxableyearshallbe

increasedundersection42(j)(1)onlywithrespecttocreditsthatwereusedtoreducestateincometaxes;and

(5) Applicationofat-riskrulesshallbemadeundersection42(k);oftheInternalRevenueCode.

(g) Asprovidedinsection42(e),rehabilitationexpendituresshallbetreatedasaseparatenewbuildingandtheirtreatmentunderthissectionshallbethesameasinsection42(e).Thedefinitionsandspecialrulesrelatingtocreditperiodinsection42(f)andthedefinitionsandspecialrulesinsection42(i)shallbeoperativeforthepurposesofthissection.

(h) Thestatehousingcreditceilingundersection42(h)shallbezeroforthecalendaryearimmediatelyfollowingtheexpirationofthefederallow-incomehousingtaxcreditprogramandforanycalendaryearthereafter,exceptforthecarryoverofanycreditceilingamountforcertainprojectsinprogresswhich,atthetimeofthefederalexpiration,meettherequirementsofsection42.

(i) Thecreditallowedunderthissectionshallbeclaimedagainstnetincometaxliabilityforthetaxableyear.Forthepurposeofdeductingthistaxcredit,netincometaxliabilitymeansnetincometaxliabilityreducedbyallothercreditsallowedthetaxpayerunderthischapter.

Ataxcreditunderthissectionthatexceedsthetaxpayer’sincometaxliabilitymaybeusedasacreditagainstthetaxpayer’sincometaxliabilityinsubsequentyearsuntilexhausted.Allclaimsforataxcreditunderthissectionshallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditmaybeclaimed.Failuretoproperlyandtimelyclaimthecreditshallconstituteawaiveroftherighttoclaimthecredit.Ataxpayermayclaimacreditunderthissectiononlyifthebuildingorprojectisaqualifiedlow-incomehousingbuildingoraqualifiedlow-incomehousingprojectundersection42oftheInternalRevenueCode.

Section469(withrespecttopassiveactivitylossesandcreditslimited)oftheInternalRevenueCodeshallbeappliedinclaimingthecreditunderthissection.

(j) Inlieuofthecreditawardedunderthissectionforaqualifiedlow-incomebuildingthathasbeenawardedfederalcreditsthataresubjecttothestatehousingcreditceilingundersection42(h)(3)(C)oftheInternalRevenueCode, federalcredits thatareallocatedpursuant to section42(h)(4)of the InternalRevenueCode,ora subawardunderSection1602oftheAmericanRecoveryandReinvestmentActof2009,PublicLaw111-5,thetaxpayerowningthequalifiedlow-incomebuildingmaymakearequesttothecorporationforaloanundersection201H-86.Ifthetaxpayerelectstoreceivetheloanpursuanttosection201H-86,thetaxpayershallnotbeeligibleforthecreditunderthissection.

(k) Thedirectoroftaxationmayadoptanyrulesunderchapter91andformsnecessarytocarryoutthissection.[L1988,c216,§1;amL1989,c13,§6;amL2000,c148,§3;amL2005,c196,§8;amL2011,c158,§3;amL2016,c129,§1;amL2017,c12,§46]

Note

The2011amendmentappliestoqualifiedlow-incomebuildingsplacedinserviceafterDecember31,2011.L2011,c158,§5.The2016amendmentappliestoqualifiedlow-incomebuildingsawardedcreditsafterDecember31,2016.L2016,c129,§4.The2017amendmentshallbeappliedretroactivelyandshallbeeffectiveonJanuary1,2017.

Cross Reference

TaxInformationReleaseNo.99-3.“TaxpayersSubjecttotheFranchiseTaxMayClaimtheLow-incomeHousingTaxCreditintheTaxableYearforWhichtheImpositionIsMade”

§235-110.9 High technology business investment tax credit. (a)Thereshallbeallowedtoeachtaxpayersubjecttothetaxesimposedbythischapterahightechnologybusinessinvestmenttaxcreditthatshallbedeductiblefromthetaxpayer’snetincometaxliability,ifany,imposedbythischapterforthetaxableyearinwhichtheinvestmentwasmadeandthefollowingfouryearsprovidedthecreditisproperlyclaimed.Thetaxcreditshallbeasfollows:



(1) Intheyeartheinvestmentwasmade,thirty-fivepercent;(2) Inthefirstyearfollowingtheyearinwhichtheinvestmentwasmade,twenty-fivepercent;(3) Inthesecondyearfollowingtheinvestment,twentypercent;(4) Inthethirdyearfollowingtheinvestment,tenpercent;and(5) Inthefourthyearfollowingtheinvestment,tenpercent;

oftheinvestmentmadebythetaxpayerineachqualifiedhightechnologybusiness,uptoamaximumallowedcreditin theyear the investmentwasmade,$700,000; in thefirstyear following theyear inwhich the investmentwasmade,$500,000;inthesecondyearfollowingtheyearinwhichtheinvestmentwasmade,$400,000;inthethirdyearfollowingtheyearinwhichtheinvestmentwasmade,$200,000;andinthefourthyearfollowingtheyearinwhichtheinvestmentwasmade,$200,000.

(b) Thecreditallowedunderthissectionshallbeclaimedagainstthenetincometaxliabilityforthetaxableyear.Forthepurposeofthissection,“netincometaxliability”meansnetincometaxliabilityreducedbyallothercreditsallowedunderthischapter.

(c) Ifthetaxcreditunderthissectionexceedsthetaxpayer’sincometaxliabilityforanyofthefiveyearsthatthecreditistaken,theexcessofthetaxcreditoverliabilitymaybeusedasacreditagainstthetaxpayer’sincometaxliabilityinsubsequentyearsuntilexhausted.Everyclaim,includingamendedclaims,forataxcreditunderthissectionshallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditmaybeclaimed.Failuretocomplywiththeforegoingprovisionshallconstituteawaiveroftherighttoclaimthecredit.

(d) Ifatthecloseofanytaxableyearinthefive-yearperiodinsubsection(a):(1) Thebusinessnolongerqualifiesasaqualifiedhightechnologybusiness;(2) Thebusinessoraninterestinthebusinesshasbeensoldbythetaxpayerinvestinginthequalifiedhigh

technologybusiness;or(3) The taxpayer has withdrawn the taxpayer’s investment wholly or partially from the qualified high

technologybusiness;thecreditclaimedunderthissectionshallberecaptured.Therecaptureshallbeequaltotenpercentoftheamountofthetotaltaxcreditclaimedunderthissectionintheprecedingtwotaxableyears.Theamountofthecreditrecapturedshallapplyonlytotheinvestmentintheparticularqualifiedhightechnologybusinessthatmeetstherequirementsofparagraph(1),(2),or(3).Therecaptureprovisionsofthissubsectionshallnotapplytoataxcreditclaimedforaqualifiedhightechnologybusinessthatdoesnotfallwithintheprovisionsofparagraph(1),(2),or(3).Theamountoftherecapturedtaxcreditdeterminedunderthissubsectionshallbeaddedtothetaxpayer’staxliabilityforthetaxableyearinwhichtherecaptureoccursunderthissubsection.

(e) Everytaxpayer,beforeMarch31ofeachyearinwhichaninvestmentinaqualifiedhightechnologybusinesswasmadeintheprevioustaxableyear,shallsubmitawritten,certifiedstatementtothedirectoroftaxationidentifying:

(1) Qualifiedinvestments,ifany,expendedintheprevioustaxableyear;and(2) Theamountoftaxcreditsclaimedpursuanttothissection,ifany,intheprevioustaxableyear.

(f) Thedepartmentshall:(1) Maintainrecordsofthenamesandaddressesofthetaxpayersclaimingthecreditsunderthissectionand

thetotalamountofthequalifiedinvestmentcostsuponwhichthetaxcreditisbased;(2) Verifythenatureandamountofthequalifyinginvestments;(3) Totalallqualifyingandcumulativeinvestmentsthatthedepartmentcertifies;and(4) Certifytheamountofthetaxcreditforeachtaxableyearandcumulativeamountofthetaxcredit.

Uponeachdeterminationmadeunderthissubsection,thedepartmentshallissueacertificatetothetaxpayerverifyinginformationsubmittedtothedepartment,includingqualifyinginvestmentamounts,thecreditamountcertifiedforeachtaxableyear,andthecumulativeamountofthetaxcreditduringthecreditperiod.Thetaxpayershallfilethecertificatewiththetaxpayer’staxreturnwiththedepartment.

Thedirectoroftaxationmayassessandcollectafeetooffsetthecostsofcertifyingtaxcreditsclaimsunderthissection.Allfeescollectedunderthissectionshallbedepositedintothetaxadministrationspecialfundestablishedundersection235-20.5.

(g) Asusedinthissection:“Investmenttaxcreditallocationratio”means,withrespecttoataxpayerthathasmadeaninvestmentinaqualified

hightechnologybusiness,theratioof:(1) Theamountofthecreditunderthissectionthatis,oristobe,receivedbyorallocatedtothetaxpayerover

thelifeoftheinvestment,asaresultoftheinvestment;to(2) Theamountoftheinvestmentinthequalifiedhightechnologybusiness.

“Qualifiedhightechnologybusiness”meansabusiness,employingorowningcapitalorproperty,ormaintaininganoffice,inthisState;providedthat:

(1) Morethanfiftypercentofitstotalbusinessactivitiesarequalifiedresearch;andprovidedfurtherthatthebusinessconductsmorethanseventy-fivepercentofitsqualifiedresearchinthisState;or

(2) More than seventy-five per cent of its gross income is derived fromqualified research; and providedfurtherthatthisincomeisreceivedfrom:



(A) Productssoldfrom,manufacturedin,orproducedinthisState;or(B) ServicesperformedinthisState.

“Qualifiedresearch”meansthesameasdefinedinsection235-7.3.(h) Commonlawprinciples,includingthedoctrineofeconomicsubstanceandbusinesspurpose,shallapplyto

anyinvestment.Thereexistsapresumptionthatatransactionsatisfiesthedoctrineofeconomicsubstanceandbusinesspurposetotheextentthatthespecialallocationofthehightechnologybusinesstaxcredithasaninvestmenttaxcreditratioof1.5orlessofcreditforeverydollarinvested.

Transactionsforwhichaninvestmenttaxcreditallocationratiogreaterthan1.5butnotmorethan2.0ofcreditforeverydollarinvestedandclaimedmaybereviewedbythedepartmentforapplicabledoctrinesofeconomicsubstanceandbusinesspurpose.

Businessesclaimingataxcreditfortransactionswithinvestmenttaxcreditallocationratiosgreaterthan2.0ofcreditforeverydollarinvestedshallsubstantiateeconomicmeritandbusinesspurposeconsistentwiththissection.

(i) ForinvestmentsmadeonorafterMay1,2009,notwithstandinganyotherlawtothecontrary,noallocations,specialorotherwise,ofcreditsunderthissectionmayexceedtheamountoftheinvestmentmadebythetaxpayerultimatelyclaimingthiscredit;andinvestmenttaxcreditallocationratiosgreaterthan1.0ofcreditforeverydollarinvestedshallnotbeallowed.Inaddition,thecreditshallbeallowedonlyinaccordancewithsubsection(a).

(j) ThissectionshallnotapplytotaxableyearsbeginningafterDecember31,2010.[L1999,c178,§24;amL2000,c297,§8;amL2001,c221,§9;amL2004,c215,§8;amL2007,c206,§4;amL2009,c178,§4;amL2017,c3,§1]

Note

AppliestotaxableyearsbeginningafterDecember31,1998,forinvestmentsmadepursuanttothissectiononorafterJuly1,1999. L1999,c178,§31(3).

Applicabilityof2000amendment. L2000,c297,§§10,35(1). [It is the intentionof the legislature inmakingamendments in thisPart tosections235-7.3,235-9.5,235-110.9,and235-110.91,HawaiiRevisedStatutes,thattheamendmentsbeliberallyconstrued,andinthisregard,thedepartmentoftaxationgivenliberallatitudetointerpretthoseamendmentsinlightofcurrentindustrystandards.TheamendmentsmadeinthisParttosections235-7.3,235-9.5,235-110.9,and235-110.91,HawaiiRevisedStatutes,shallnotbeconstruedtodisqualifyanytaxpayerwhohasreceivedafavorablewrittendeterminationfromthedepartmentoftaxationundertheoriginalprovisionsofthosesectionsasenactedbyAct178,SessionLawsofHawaii,1999.]

L2001,c221,§15(2)provides:“(2)Section9[amending§235-110.9]shallapplytotaxableyearsbeginningafterDecember31,2000,butshallnotapplytotaxableyearsafter

December31,2005;providedthatataxpayermaycontinuetoclaimthecreditsifthefive-yearperiodtoclaimthecreditscommencesintaxableyearsbeginningbeforeJanuary1,2006;...”

Applicabilityof2004amendment.L2004,c215,§10.ItistheintentionofthelegislatureinmakingamendmentsinthisParttosections235-7.3,235-9.5,235-110.9,and235-110.91,HawaiiRevisedStatutes,thattheamendmentsbeconstruedinamannerconsistentwiththeintentofthisAct.Thedepartmentoftaxationfurthergivenliberallatitudetointerpretthoseamendmentsinlightofcurrentindustrystandards.Theamendmentsmade in thisPart to sections 235-7.3, 235-9.5, 235-110.9, and235-110.91,HawaiiRevisedStatutes, shall not be construed to disqualify anytaxpayerwhohasreceivedafavorablewrittendeterminationfromthedepartmentoftaxationundertheoriginalprovisionsofthosesectionsasenactedbyAct178,SessionLawsofHawaii,1999.

The2007amendmentappliestoinvestmentsreceivedbyaqualifiedhightechnologybusinessafterJune30,2007.L2007,c206,§8.Annualsurveyfrombusinessesreceivingtaxcredit;reportstolegislature(repealedJanuary1,2011).L2007,c206,§§2,5.The2009amendmentappliestoinvestmentsmade,renovationcostsincurred,oreligibledepreciabletangiblepropertyplacedinserviceonor

afterMay1,2009.L2009,c178,§10.

Cross Reference

TaxInformationReleaseNo.2003-1,“ApplicationofSection235-110.9,HawaiiRevisedStatutes(HRS), relating to theHighTechnologyBusinessInvestmentCredit”

TaxInformationReleaseNo.2007-04,“DepartmentofTaxationPoliciesRelatingtoHighTechnologyInvestmentTaxCreditAllocations”Tax InformationReleaseNo.2007-05,“DepartmentofTaxation’sPositiononQualifiedHighTechnologyBusinessStatus forDisregarded

Entities”


SeedCapitalisNotEnough:LessonsfromHawai`i’sAttempttoDevelopaHigh-TechnologySector.30UHL.Rev.401.

Case Notes

Wherethetwelve-monthlimitationperiodsetforthinsubsection(f)(2003)plainlyappliedto“allclaims”forataxcreditunderthissectionandan“amendedclaim”isasubsetof“allclaims”,thetwelve-monthlimitationperiodclearlyandunambiguouslyappliedtoplaintiff’samendedclaim,notwithstandingthelegislature’sfailuretospecificallyprovidethattheterm“allclaims”“includedamendedclaims”.121H.220(App.),216P.3d1243(2009).

§235-110.91 Tax credit for research activities. (a) Section 41 (with respect to the credit for increasing researchactivities)andsection280C(c)(withrespecttocertainexpensesforwhichthecreditforincreasingresearchactivitiesareallowable)oftheInternalRevenueCodeshallbeoperativeforthepurposesofthischapterasprovidedinthissection;providedthatthefederaltaxprovisionsinsection41oftheInternalRevenueCode,asthatsectionwasenactedonDecember31,2011,irrespectiveofanysubsequentchangestosection41oftheInternalRevenueCode,shallremainineffectforpurposesofdeterminingthestateincometaxcreditunderthissection;providedfurtherthatthefederaltaxprovisionsin



section41oftheInternalRevenueCode,asenactedonDecember31,2011,irrespectiveofanysubsequentamendmentstosection41oftheInternalRevenueCode,shallapplyonlytoexpensesincurredforqualifiedresearchactivitiesafterDecember31,2012.

(b) AllreferencestoInternalRevenueCodesectionswithinsections41and280C(c)oftheInternalRevenueCodeshallbeoperativeforpurposesofthissection.

(c) Thereshallbeallowedtoeachqualifiedhightechnologybusinesssubjecttothetaximposedbythischapteranincometaxcreditforqualifiedresearchactivitiesequaltothecreditforresearchactivitiesprovidedbysection41oftheInternalRevenueCodeandasmodifiedbythissection;providedthat,inadditiontoanyotherrequirementsestablishedinthissection,inordertoqualifyforthetaxcreditestablishedinthissection,thequalifiedhightechnologybusinessshallalsoclaimafederaltaxcreditforthesamequalifiedresearchactivitiesundersection41oftheInternalRevenueCode,asenactedonDecember31,2011,irrespectiveofanysubsequentamendmentstosection41oftheInternalRevenueCode.Thecreditshallbedeductiblefromthetaxpayer’snetincometaxliability,ifany,imposedbythischapterforthetaxableyearinwhichthecreditisproperlyclaimed.

(d) Everyqualifiedhigh technologybusiness,beforeMarch31ofeachyear inwhichqualified researchanddevelopmentactivitywasconductedintheprevioustaxableyear,shallsubmitawritten,certifiedstatement to thedirectoroftaxationidentifying:

(1) Qualifiedexpenditures,ifany,expendedintheprevioustaxableyear;and(2) Theamountoftaxcreditsclaimedpursuanttothissection,ifany,intheprevioustaxableyear.

(e) Thedepartmentshall:(1) Maintainrecordsofthenamesandaddressesofthetaxpayersclaimingthecreditsunderthissectionand

the totalamountof thequalifiedresearchanddevelopmentactivitycostsuponwhich the taxcredit isbased;

(2) Verifythenatureofthequalifyingresearchactivityandtheamountofthequalifyingcostsorexpenditures;(3) Totalallqualifyingandcumulativecostsorexpendituresthatthedepartmentcertifies;and(4) Certifytheamountofthetaxcreditforeachtaxableyearandcumulativeamountofthetaxcredit.

Upon each determination made under this subsection, the department shall issue a certificate to the taxpayerverifying informationsubmitted to thedepartment, including thequalifyingcostsorexpenditureamounts, thecreditamountcertifiedforeachtaxableyear,andthecumulativeamountofthetaxcreditduringthecreditperiod.Thetaxpayershallfilethecertificatewiththetaxpayer’staxreturnwiththedepartment.

Thedirectoroftaxationmayassessandcollectafeetooffsetthecostsofcertifyingtaxcreditclaimsunderthissection.Allfeescollectedunderthissectionshallbedepositedintothetaxadministrationspecialfundestablishedundersection235-20.5.

(f) Asusedinthissection:“Qualifiedhightechnologybusiness”shallhavethesamemeaningasinsection235-7.3(c).“Qualifiedresearch”shallhavethesamemeaningasinsection41(d)oftheInternalRevenueCode.“Qualified research expenses” shall have the samemeaning as in section 41(b) of the InternalRevenueCode;

providedthatitshallnotincluderesearchexpensesincurredoutsideoftheState.(g) If thetaxcreditforqualifiedresearchactivitiesclaimedbyataxpayerexceedstheamountof incometax

paymentduefromthe taxpayer, theexcessof the taxcreditoverpaymentsdueshallberefundedto the taxpayer;providedthatnorefundonaccountofthetaxcreditallowedbythissectionshallbemadeforamountslessthan$1.

(h) Allclaimsforataxcreditunderthissectionshallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditmaybeclaimed.Failuretoproperlyclaimthecreditshallconstituteawaiveroftherighttoclaimthecredit.

(i) Aqualifiedhightechnologybusinessthatclaimsthecreditunderthissectionshallcompleteandfilewiththedepartmentofbusiness,economicdevelopment,andtourism,throughthatdepartment’swebsite,anannualsurveyonelectronicformspreparedandprescribedbythedepartmentofbusiness,economicdevelopment,andtourism.TheannualsurveyshallbefiledbeforeJune30ofeachcalendaryearfollowingthecalendaryearinwhichthecreditmaybeclaimedunderthissection.Thedepartmentofbusiness,economicdevelopment,andtourismmayadjusttheduedateoftheannualsurveybyrulesadoptedpursuanttochapter91.

(j) Theannualsurveyundersubsection(i)shallincludethefollowinginformationforthetimeperiodorperiodsspecifiedbythedepartmentofbusiness,economicdevelopment,andtourism:

(1) Identificationoftheindustrysectororsectorsinwhichthequalifiedhightechnologybusinessconductsbusiness,assetforthinparagraphs(2)to(8)ofthedefinitionof“qualifiedresearch”insection235-7.3(c);

(2) Totalexpendituresandthequalifiedexpenditures,ifany,expendedintheprevioustaxableyear;(3) Revenueandexpensedata, includingabreakdownof any licensing royaltyorother formsof income

generatedfromintellectualproperty;(4) Hawaiiemploymentandwagedata,includingthenumbersoffull-timeandpart-timeemployeesretained,

newjobs,temporarypositions,externalservicesprocuredbythebusiness,andpayrolltaxes;(5) Filed intellectual property, including invention disclosures, provisional patents, and patents issued or

granted;and



(6) Thenumberofnewcompaniesspunoutorestablishedtocommercializetheintellectualpropertyownedbythequalifiedhightechnologybusiness.

The department of business, economic development, and tourism shall request information in each of thesecategories sufficient tomeasure the effectiveness of the tax credit under this section. The department of business,economicdevelopment,andtourismmayrequestanyadditionalinformationnecessarytomeasuretheeffectivenessofthetaxcredit,suchasinformationrelatedtopatents.Inpreparingthesurveyandrequestinganyadditionalinformation,thedepartmentofbusiness,economicdevelopment,andtourismshallensurethatqualifiedhightechnologybusinessesarenotsubjecttoduplicativereportingrequirements.

(k) The department of business, economic development, and tourism shall use information collected underthissectionandthroughitsotherreportingrequirementstopreparesummarydescriptivestatisticsbycategory.Theinformationshallbereportedattheaggregateleveltopreventcompromisingidentitiesofqualifiedhightechnologybusinessinvestorsorotherconfidentialinformation.Thedepartmentofbusiness,economicdevelopment,andtourismshallalsoidentifyeachqualifiedhightechnologybusiness that is thebeneficiaryof taxcreditsclaimedunder thissection.Thedepartmentofbusiness,economicdevelopment,andtourismshallreporttheinformationrequiredunderthissubsectiontothelegislaturebySeptember1ofeachyear.

(l) The department of business, economic development, and tourism, in collaboration with the departmentof taxation, shalluse the informationcollected to study theeffectivenessof the taxcreditunder this section.Thedepartmentofbusiness,economicdevelopment,andtourismshallsubmitareporttothelegislatureonthefollowing:

(1) Theamountoftaxcreditsclaimedandtotaltaxespaidbyqualifiedhightechnologybusinesses;(2) Thenumberofqualifiedhightechnologybusinessesineachindustrysector;(3) Thenumbersandtypesofjobscreatedbyqualifiedhightechnologybusinesses;(4) Externalservicesandmaterialsprocuredbythebusinesses;(5) Thecompensationlevelsofjobsprovidedbyqualifiedhightechnologybusinesses;(6) Qualifiedresearchactivities;and(7) Anyotherfactorsthedepartmentofbusiness,economicdevelopment,andtourismdeemsrelevant.

Thedepartmentofbusiness,economicdevelopment,andtourismshallsubmitthereporttothelegislaturebySeptember1ofeachyear.

(m)Thedirectoroftaxationmayadoptanyrulesunderchapter91andformsnecessarytocarryoutthissection.(n) ThissectionshallnotapplytotaxableyearsbeginningafterDecember31,2019.[L1999,c178,§25;amL

2000,c174,§4andc297,§9;amL2001,c221,§10;amL2004,c215,§9;amL2013,c270,§2]Note


Cross Reference


TaxInformationReleaseNo.2008-04,“CertainPrototypeCostsThatMayBeEligiblefortheHawaiiTaxCreditForResearchActivitiesUnderSection235-110.91,HawaiiRevisedStatutes”

TaxInformationReleaseNo.2013-02,“DepartmentofTaxationPoliciesRelatingtotheHawaiiTaxCreditforResearchActivities”

Case Notes

Assubsection(f)(2003)clearlyandunambiguouslyappliedtoallclaimsforaresearchactivitiestaxcreditforthe2001taxableyear,themorespecifictwelve-monthlimitationperiodforclaiminga taxcreditunder thissection,andnot thegeneral limitationperiodunder§235-111,wasapplicabletoplaintiff’samendedclaim.121H.220(App.),216P.3d1243(2009).

§235-110.92 REPEALED. L2007,c9,§25.

§235-110.93 Important agricultural land qualified agricultural cost tax credit. (a)Thereshallbeallowedtoeachtaxpayeranimportantagriculturallandqualifiedagriculturalcosttaxcreditthatmaybeclaimedintaxableyearsbeginningafterthetaxableyearduringwhichthetaxcreditundersection235-110.46isrepealed,exhausted,orexpired.Thecreditshallbedeductiblefromthetaxpayer’snetincometaxliability,ifany,imposedbythischapterforthetaxableyearinwhichthecreditisproperlyclaimed.Thetaxcreditamountshallbedeterminedasfollows:

(1) Inthefirstyearinwhichthecreditisclaimed,thelesserofthefollowing:(A) Twenty-fivepercentofthequalifiedagriculturalcostsincurredbythetaxpayerafterJuly1,2008;or(B) $625,000;

(2) Inthesecondyearinwhichthecreditisclaimed,thelesserofthefollowing:(A) FifteenpercentofthequalifiedagriculturalcostsincurredbythetaxpayerafterJuly1,2008;or(B) $250,000;and

(3) Inthethirdyearinwhichthecreditisclaimed,thelesserofthefollowing:(A) TenpercentofthequalifiedagriculturalcostsincurredbythetaxpayerafterJuly1,2008;or(B) $125,000.



Thetaxpayermayincurqualifiedagriculturalcostsduringataxableyearinanticipationofclaimingthecreditinfuturetaxableyearsduringwhichthecredit isavailable.Thetaxpayermayclaimthecredit inanytaxableyearafter thetaxableyearduringwhichthetaxpayerincurredthequalifiedagriculturalcostsuponwhichthecreditisclaimed.Thetaxpayeralsomayclaimthecreditinconsecutiveorinconsecutivetaxableyearsuntilexhausted.

(b) Noothercreditmaybeclaimedunderthischapterforqualifiedagriculturalcostsforwhichacreditisclaimedunderthissectionforthetaxableyear.

(c) Theamountofthequalifiedagriculturalcostseligibletobeclaimedunderthissectionshallbereducedbytheamountoffundsreceivedbythetaxpayerduringthetaxableyearfromtheirrigationrepairandmaintenancespecialfundundersection167-24.

(d) The cost uponwhich the tax credit is computed shall bedetermined at the entity level. In the caseof apartnership, S corporation, estate, trust, or other pass through entity, distribution and share of the credit shall bedeterminedpursuanttosection235-110.7(a).

IfadeductionistakenunderSection179(withrespecttoelectiontoexpensedepreciablebusinessassets)oftheInternalRevenueCode,no taxcredit shallbeallowed for thatportionof thequalifiedagricultural cost forwhichadeductionwastaken.

Thebasisofeligiblepropertyfordepreciationoracceleratedcostrecoverysystempurposesforstateincometaxesshall be reducedby the amountof credit allowable and claimed.Nodeduction shall be allowed for that portionofotherwisedeductiblequalifiedagriculturalcostsonwhichacreditisclaimedunderthissection.

(e) Ifthecreditunderthissectionexceedsthetaxpayer’snetincometaxliabilityforthetaxableyear,theexcessofthecreditoverliabilityshallberefundedtothetaxpayer;providedthatnorefundsorpaymentsonaccountofthecreditsallowedbythissectionshallbemadeforamountslessthan$1.

Allclaimsforataxcreditunderthissection,includingamendedclaims,shallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditisclaimed.Failuretocomplywiththeforegoingprovisionshallconstituteawaiveroftherighttoclaimthecredit.

(f) Thedirectoroftaxation:(1) Shallprepareanyformsthatmaybenecessarytoclaimacreditunderthissection;(2) Mayrequirethetaxpayertofurnishinformationtoascertainthevalidityoftheclaimforcreditmadeunder

thissection;and(3) Mayadoptrulespursuanttochapter91toeffectuatethissection.

(g) Thedepartmentofagricultureshall:(1) Maintainrecordsofthetotalamountofqualifiedagriculturalcostsforeachtaxpayerclaimingacredit;(2) Verifytheamountofthequalifiedagriculturalcostsclaimed;(3) Totalallqualifiedagriculturalcostsclaimed;and(4) Certifythetotalamountofthetaxcreditforeachtaxableyear.

Upon each determination, the department of agriculture shall issue a certificate to the taxpayer verifying thequalifyingagriculturalcostsandthecreditamountcertifiedforeachtaxableyear.Forataxableyear,thedepartmentofagriculturemaycertifyacreditforataxpayerwhocouldhaveclaimedthecreditinaprevioustaxableyear,butchosenottobecausethemaximumannualcreditamountundersubsection(h)wasreachedinthattaxableyear.

Thetaxpayershallfilethecertificatewiththetaxpayer’staxreturnwiththedepartmentoftaxation.Notwithstandingthedepartmentofagriculture’scertificationauthorityunderthissection,thedirectoroftaxationmayauditandadjustcertificationtoconformtothefacts.

Notwithstandinganyotherlawtothecontrary,theinformationrequiredbythissubsectionshallbeavailableforpublicinspectionanddisseminationunderchapter92F.

(h) If in any taxable year the annual amount of certified credits reaches $7,500,000 in the aggregate, thedepartmentofagricultureshallimmediatelydiscontinuecertifyingcreditsandnotifythedepartmentoftaxation.Innoinstanceshallthedepartmentofagriculturecertifyatotalamountofcreditsexceeding$7,500,000pertaxableyear.Tocomplywiththisrestriction,thedepartmentofagricultureshallcertifycreditsonafirstcome,firstservedbasis.

Thedepartmentof taxation shallnot allow theaggregateamountof credits claimed toexceed that amountpertaxableyear.

(i) Thedepartmentofagriculture,inconsultationwiththedepartmentoftaxation,shallannuallydeterminetheinformationnecessarytoprovideaquantitativeandqualitativeassessmentoftheoutcomesofthetaxcredit.

Everytaxpayer,nolaterthanthelastdayofthetaxableyearfollowingthecloseofthetaxpayer’staxableyearinwhichthecreditisclaimed,shallsubmitacertifiedwrittenstatementtothedepartmentofagriculture.Failuretoprovidetheinformationshallresultinineligibilityandarecaptureofanycreditalreadyclaimedforthattaxableyear.Theamountoftherecapturedtaxcreditshallbeaddedtothetaxpayer’staxliabilityforthetaxableyearinwhichtherecaptureoccurs.

Notwithstandinganylawtothecontrary,astatementsubmittedunderthissubsectionshallbeapublicdocument.(j) The department of agriculture, in consultation with the department of taxation, shall annually submit

a report evaluating the effectivenessof the tax credit.The report shall includebutnotbe limited tofindings andrecommendationstoimprovetheeffectivenessofthetaxcredittofurtherencouragethedevelopmentofagriculturalbusinesses.

INCOME TAX LAW [§235-110.94]


(k) Asusedinthissection:“Agriculturalbusiness”meansanypersonwithacommercialagricultural,silvicultural,oraquaculturalfacilityor

operation,including:(1) Thecareandproductionoflivestockandlivestockproducts,poultryandpoultryproducts,apiaryproducts,

andplantandanimalproductionfornonfooduses;(2) Theplanting,cultivating,harvesting,andprocessingofcrops;and(3) The farming or ranching of any plant or animal species in a controlled salt, brackish, or freshwater

environment;providedthattheprincipalplaceoftheagriculturalbusinessismaintainedintheStateandmorethanfiftypercentof the land the agricultural business owns or leases, excluding land classified as conservation land, is importantagriculturalland.

“Importantagriculturallands”meanslandsidentifiedanddesignatedasimportantagriculturallandspursuanttopartIIIofchapter205.

“Netincometaxliability”meansincometaxliabilityreducedbyallothercreditsallowedunderthischapter.“Qualifiedagriculturalcosts”meansexpendituresfor:(1) Theplans,design,engineering,construction,renovation,repair,maintenance,andequipmentfor:

(A) Roadsorutilities,primarilyforagriculturalpurposes,wherethemajorityofthelandsservicedbytheroadsorutilities,excludinglandsclassifiedasconservationlands,areimportantagriculturallands;

(B) AgriculturalprocessingfacilitiesintheState,primarilyforagriculturalpurposes,wherethemajorityofthecropsorlivestockprocessed,harvested,treated,washed,handled,orpackagedarefromagriculturalbusinesses;

(C) Waterwells,reservoirs,dams,waterstoragefacilities,waterpipelines,ditches,orirrigationsystemsin theState,primarily for agriculturalpurposes,providingwater for lands, themajorityofwhich,excludinglandsclassifiedasconservationlands,areimportantagriculturallands;and

(D) AgriculturalhousingintheState,exclusivelyforagriculturalpurposes;providedthat: (i)Thehousingunitsareoccupiedsolelybyfarmersoremployeesforagriculturalbusinessesand

theirimmediatefamilymembers; (ii)Thehousingunitsareownedbytheagriculturalbusiness; (iii)Thehousingunitsareinthegeneralvicinity,asdeterminedbythedepartmentofagriculture,of

agriculturallandsownedorleasedbytheagriculturalbusiness;and (iv)Thehousingunitsconformtoanyotherconditionsthatmayberequiredbythedepartmentof

agriculture;(2) Feasibilitystudies, regulatoryprocessing,and legalandaccountingservicesrelated to the itemsunder

paragraph(1);(3) Equipment,primarilyforagriculturalpurposes,usedtocultivate,grow,harvest,orprocessagricultural

productsbyanagriculturalbusiness;and(4) Regulatoryprocessing,studies,andlegalandotherconsultantservicesrelatedtoobtainingorretaining

sufficientwaterforagriculturalactivitiesandretainingtherighttofarmonlandsidentifiedasimportantagriculturallands.

(l) Thedepartmentofagricultureshallceasecertifyingcreditspursuanttothissectionafterthefourthtaxableyearfollowingthetaxableyearduringwhichthecreditsarefirstclaimed;providedthatataxpayerwithaccumulated,butunclaimed,certifiedcreditsmaycontinueclaimingthecreditsinsubsequenttaxableyearsuntilexhausted.

[(m)]Thedepartmentoftaxation,inconsultationwiththedepartmentofagriculture,shallsubmittothelegislatureanannualreport,nolaterthantwentydayspriortotheconveningofeachregularsession,beginningwiththeregularsessionof2010,regardingthequantitativeandqualitativeassessmentoftheimpactoftheimportantagriculturallandqualifiedagriculturalcosttaxcredit.[L2008,c233,§§4,5;amL2014,c101,§1]

Note

The2014amendmentappliestotaxableyearsbeginningafterJuly1,2008.L2014,c101,§3.Section167-24referredtoinsubsection(c)isrepealed.

[§235-110.94] Organic foods production tax credit. [Section repealed December 31, 2021. L 2016, c 258, §5.] (a)Thereshallbeallowedtoeachqualifiedtaxpayersubjecttothetaximposedunderthischapter,anincometaxcreditthatshallbedeductiblefromthetaxpayer’snetincometaxliability,ifany,imposedbythischapterforthetaxableyearinwhichthecreditisproperlyclaimed.

(b) The amount of the tax credit shall be equal to the qualified expenses of the qualified taxpayer, up to amaximumof$50,000.

(c) Inthecaseofapartnership,Scorporation,estate,ortrust,thetaxcreditallowableisforqualifiedexpensesincurredbytheentityforthetaxableyear.Theexpensesuponwhichthetaxcreditiscomputedshallbedeterminedattheentitylevel.Distributionandshareofcreditshallbedeterminedbyrule.



(d) The total amount of tax credits allowed under this section shall not exceed $2,000,000 for all qualifiedtaxpayersinanytaxableyear;providedthatanytaxpayerwhoisnoteligibletoclaimthecreditinataxableyearduetothe$2,000,000caphavingbeenexceededforthattaxableyearshallbeeligibletoclaimthecreditinthesubsequenttaxableyear.

(e) Everyqualifiedtaxpayer,beforeMarch31ofeachyearinwhichqualifiedexpenseswereincurredbythetaxpayerintheprevioustaxableyear,shallsubmitawritten,certifiedstatementtothechairpersonoftheboardofagricultureidentifying:

(1) Qualifiedexpensesincurredintheprevioustaxableyear;and(2) Theamountof the taxcredit claimedby the taxpayerpursuant to this section, if any, in theprevious

taxableyear.(f) Thedepartmentofagricultureshall:

(1) Maintainrecordsofthenamesandaddressesofthequalifiedtaxpayersclaimingthecreditsunderthissectionandthetotalamountofthequalifiedexpensesuponwhichthetaxcreditsarebased;

(2) Verifythenatureandamountofthequalifiedexpenses;(3) Totalallqualifiedandcumulativeexpensesthatthedepartmentcertifies;and(4) Certifytheamountofthetaxcreditforeachtaxpayerforeachtaxableyearandthecumulativeamountof

thetaxcredit.Uponeachdeterminationmadeunderthissubsection,thedepartmentofagricultureshallissueacertificatetothe

taxpayerverifyinginformationsubmittedtothedepartmentofagriculture,includingamountsofqualifiedexpenses,thecreditamountcertifiedforthetaxpayerforeachtaxableyear,andthecumulativeamountoftaxcreditscertified.Thetaxpayershallfilethecertificatewiththetaxpayer’staxreturnwiththedepartmentoftaxation.

Theboardofagriculturemayassessandcollectafeetooffsetthecostsofcertifyingtaxcreditclaimsunderthissection.

(g) Thedirectoroftaxation:(1) Shallprepareanyformsthatmaybenecessarytoclaimataxcreditunderthissection;(2) Mayrequirethetaxpayertofurnishreasonableinformationtoascertainthevalidityoftheclaimforthetax

creditmadeunderthissection;and(3) Mayadoptrulesunderchapter91necessarytoeffectuatethepurposesofthissection.

(h) Ifthetaxcreditunderthissectionexceedsthetaxpayer‘snetincometaxliability,theexcessofthecreditoverliabilitymaybeusedasacreditagainstthetaxpayer’snetincometaxliabilityinsubsequentyearsuntilexhausted.Allclaimsforthetaxcreditunderthissection,includingamendedclaims,shallbefiledonorbeforetheendofthetwelfthmonthfollowingthecloseofthetaxableyearforwhichthecreditmaybeclaimed.Failuretocomplywiththeforegoingprovisionshallconstituteawaiveroftherighttoclaimthecredit.

(i) Asusedinthissection:“Netincometaxliability”meansincometaxliabilityreducedbyallothercreditsallowedunderthischapter.“OrganicFoodsProductionAct”meansthefederalOrganicFoodsProductionActof1990,asamended(7United

StatesCodesection6501etseq.).“Organicsystemplan”hasthesamemeaningasprovidedin7CodeofFederalRegulationssection205.2.“Qualifiedexpenses”meansexpensesincurredbyaqualifiedtaxpayertoproduceorganicallyproducedagricultural

products,includingexpensesincurredtoobtainorganiccertificationfromtheUnitedStatesDepartmentofAgriculture,pursuanttotheOrganicFoodsProductionAct.“Qualifiedexpenses”include:

(1) Applicationfees;(2) Inspectioncosts;(3) Fees related to equivalency agreement/arrangement requirements, travel/per diem for inspectors, user

fees,salesassessments,andpostage;and(4) Costs for any equipment, materials, or supplies necessary for organic certification or production of

agriculturalproducts, inaccordancewith thequalified taxpayer’sorganicsystemplanand theorganicproductionandhandlingrequirementsoftheNationalOrganicProgram,codifiedat7CodeofFederalRegulationspart205,subpartC,includingbutnotlimitedtocertifiedorganicseed,covercrops,oranimalfeed.

“Qualifiedexpenses”shallnotincludeanyamountrefundedortoberefundedtothetaxpayerbytheUnitedStatesDepartmentofAgriculture’sorganiccertificationcost-shareprogramoranyothersimilarfinancialassistanceprogram.

“Qualifiedtaxpayer”meansaproducer,handler,orhandlingoperation,asthosetermsaredefinedintitle7UnitedStatesCodesection6502:

(1) That sells agricultural products in adherence to the standards and requirements of theOrganicFoodsProductionAct;

(2) That has applied for organic certification, in accordancewith the requirements of theOrganic FoodsProductionAct;and

(3) Whosegross incomefromthesaleoforganicallyproducedagriculturalproductsfor themostrecentlyreportedfiscalyeartotalsnomorethan$500,000.[L2016,c258,§2]



Note


§235-111 Limitation period for assessment, levy, collection, or credit; net operating loss carrybacks. (a)Generalrule.Theamountofincometaxesimposedbythischapter(alsotheamountofincometaxesimposedbyanyprecedinglawoftheState)andtheliabilityofanyemployerinrespectofwages,shallbeassessedorleviedandtheoverpayment,ifany,shallbecreditedwithinthreeyearsafterfilingofthereturnforthetaxableyear,orwithinthreeyearsoftheduedateprescribedforthefilingofthereturn,whicheverislater.Noproceedingincourtwithoutassessmentforthecollectionofthetaxesortheenforcementoftheliabilityshallbebegunaftertheexpirationoftheperiod.Wheretheassessmentofthetaximposedbythischapterhasbeenmadewithintheperiodoflimitationapplicablethereto,thetaxmaybecollectedbylevyorbyaproceedingincourtunderchapter231;providedthatthelevyismadeortheproceedingwasbegunwithinfifteenyearsaftertheassessmentofthetax.ForanytaxthathasbeenassessedpriortoJuly1,2009,thelevyorproceedingshallbebarredafterJune30,2024.

Notwithstandinganyotherprovisiontothecontraryinthissection,thelimitationoncollectionafterassessmentinthissectionshallbesuspendedfortheperiod:

(1) Thetaxpayeragreestosuspendtheperiod;(2) Theassetsofthetaxpayerareincontrolorcustodyofacourtinanyproceedingbeforeanycourtofthe

UnitedStatesoranystate,andforsixmonthsthereafter;(3) Anofferincompromiseundersection231-3(10)ispending;and(4) DuringwhichthetaxpayerisoutsidetheStateforacontinuousperiodofatleastsixmonths;providedthat

ifatthetimeofthetaxpayer’sreturntotheStatetheperiodoflimitationsoncollectionafterassessmentwouldexpirebeforetheexpirationofsixmonthsfromthedateofthetaxpayer’sreturn,theperiodshallnotexpirebeforetheexpirationofthesixmonths.

(b) Limitationsoncreditorrefund.Claimforcreditorrefundofanoverpaymentofanytaximposedbythischaptershallbefiledbythetaxpayeroremployerwithinthreeyearsfromthetimethereturnwasfiledorfromtheduedateprescribedforthefilingofthereturn,orwithintwoyearsfromthetimethetaxwaspaid,whicheverislater.Forthepurposesofthissection,taxespaidbeforetheduedateofthereturnshallbedeemedtohavebeenpaidontheduedateofthereturndeterminedwithoutregardtoanyextensions.

(1) If the claimwas filed by the taxpayer during the three-year period prescribed in this subsection, theamountofthecreditorrefundshallnotexceedtheportionofthetaxpaidwithintheperiod,immediatelyprecedingthefilingoftheclaim,equaltothreeyearsplustheperiodofanyextensionoftimeforfilingthereturn.

(2) Iftheclaimwasnotfiledwithinthethree-yearperiod,theamountofthecreditorrefundshallnotexceedtheportionofthetaxpaidduringthetwoyearsimmediatelyprecedingthefilingoftheclaim.

(3) Ifnoclaimwasfiled,thecreditorrefundshallnotexceedtheamountwhichwouldbeallowableunderparagraph(1)or(2),asthecasemaybe,iftheclaimwasfiledonthedatethecreditorrefundisallowed.

(c) Exceptions;fraudulentreturnornoreturn.Inthecaseofafalseorfraudulentreturnwithintenttoevadetaxorliability,orofafailuretofilereturn,thetaxorliabilitymaybeassessedorleviedatanytime;providedthattheburdenofproofwithrespecttotheissuesoffalsityorfraudandintenttoevadetaxshallbeupontheState.

(d) Extension by agreement. Where, before the expiration of the time prescribed in subsection (a) for theassessment,levy,andcollectionofthetaxorliability,orinsubsection(b)forthecreditorrefundofanoverpayment,boththedepartmentandthetaxpayeroremployerhaveconsentedinwritingtoitsassessmentorlevyafterthatdate,the taxor liabilitymaybeassessedor leviedor theoverpayment, ifany,maybecreditedatanytimeprior to theexpirationof theperiodpreviouslyagreedupon. Theperiodsoagreeduponmaybeextendedby thesubsequentagreementsinwritingmadebeforetheexpirationoftheperiodpreviouslyagreedupon.

(e) Overpaymentofcarrybacks.Ifanoverpaymentresultsfromanetoperatinglosscarryback, thestatuteoflimitationsinsubsections(a)and(b)shallnotapply.Theoverpaymentshallbecreditedwithinthreeyearsoftheduedateprescribedforfilingthereturn(includingextensionsthereof)forthetaxableyearofthenetoperatingloss,ortheperiodagreedtoundersubsection(d)withrespecttothetaxableyear,whicheverexpireslater.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-45;HRS§235-111;amL1969,c274,§2;amL1971,c9,§1;gench1985;amL1991,c22,§1;amL1993,c257,§1;amL1994,c18,§1;amL2009,c166,§6]

Note

Applicabilityof2009amendment.L2009,c166,§27.

Cross Reference

Suspensionoflimitationperiodduringbankruptcyproceedings,see§231-3.5.TaxInformationReleaseNo.99-4.“ApplicationoftheFranchiseTax,GeneralExciseTax,andIncomeTaxtoMortgageLoanCompanies,

IncludingMortgageLoanCompaniesOrganizedasPassthroughEntitiesandSoleProprietorships”TaxInformationReleaseNo.2002-1,“AuditofNetIncome,GeneralExcise,andUseTaxReturns;AppealRights;ClaimsforRefund;and

PaymenttoStateUnderProtest”

18-235-111



Case Notes

Applicablelimitationsperiodforrefundclaimforpublicservicecompanytaxes;whenperiodstartstorun.68H.391,716P.2d1128.As§235-110.91(f)(2003)clearlyandunambiguouslyappliedtoallclaimsforaresearchactivitiestaxcreditforthe2001taxableyear,themore

specifictwelve-monthlimitationperiodforclaimingataxcreditunder§235-110.91(f),andnotthegenerallimitationperiodunderthissection,wasapplicabletoplaintiff’samendedclaim.121H.220(App.),216P.3d1243(2009).

§235-111.5 High technology; sale of unused net operating loss carryover. (a)Aqualifiedhightechnologybusinessasdefinedinsection235-7.3mayapplytothedepartmenttosellitsunusednetoperatinglosscarryovertoanothertaxpayer.Ifapprovedbythedepartment,aqualifiedhightechnologybusinessmaysellitsunusednetoperatinglosscarryovertoanothertaxpayerinanamountequaltoatleastseventy-fivepercentoftheamountofthesurrenderedtaxbenefit,computedatthecorporateratepursuanttosection235-71;providedthatthequalifiedhightechnologybusinessmaysellnomorethan$500,000ofitsunusednetoperatinglosscarryovertoanothertaxpayerperyear.Inthecaseofpartnerships,limitedliabilitypartnerships,limitedliabilitycompaniesclassifiedaspartnerships,andScorporations,eachpartner,member,orshareholdermaysellitsshareoftheentity’stotalnetoperatingloss.Thetaxbenefitpurchasedbythebuyershallbeclaimedintheyearforwhichthesaleisapprovedbythedepartment.Anyuseofthepurchasednetoperatinglosscarryoverfortaxcarrybackorcarryforwardpurposesshallcomplywithapplicablelaw.Theincomefromthesaleofthenetoperatinglosscarryoverreceivedbythesellershallbereportedonitstaxreturninthetaxableyearreceivedbutshallnotbeconsideredtaxableincome.

(b) Noapplicationforthesaleofunusednetoperatinglossesshallbeapprovedifthesellerisaqualifiedhightechnologybusinessthat:

(1) Hasdemonstratedpositivenetincomeineitherofthetwopreviousfullyearsofongoingoperationsasdeterminedonitsfinancialstatements;

(2) Hasdemonstratedaratioofonehundredtenpercentorgreaterofoperatingrevenuesdividedbyoperatingexpensesineitherofthetwopreviousfullyearsofoperationsasdeterminedonitsfinancialstatements;or

(3) Is directly or indirectly at least fifty per cent owned or controlled by another corporation that hasdemonstrated positive net income in either of the two previous full years of ongoing operations asdeterminedonitsfinancialstatementsorispartofaconsolidatedgroupofaffiliatecorporations,asfiledforfederalincometaxpurposes,thatintheaggregatehasdemonstratedpositivenetincomeineitherofthetwopreviousfullyearsofongoingoperationsasdeterminedonitscombinedfinancialstatements.

Inthecaseofpartnerships,limitedliabilitypartnerships,limitedliabilitycompaniesclassifiedaspartnerships,andScorporations,theapplicationforthesaleofunusednetoperatinglossesshallonlybeapprovedtotheextentthatallpartners,members,orshareholderscertifythattheyhavenotreceivedataxbenefitfromthelosses.

(c) Asusedinthissection:“Netoperatingloss”meansanetoperatinglossforincometaxpurposesoccurringinthetwotaxableyearspreceding

theyearinwhichthesaleofnetoperatinglosscarryoveroccurs.“Surrenderedtaxbenefit”meansthetaxliabilitysavedifthenetoperatinglosscarryforwardcouldhavebeenused

bythequalifiedhightechnologybusiness.(d) ThissectionshallonlyapplytosalesofnetoperatinglosscarryoversafterDecember31,2000,andbefore

January1,2004.[L2000,c297,§3;amL2001,c221,§11]

§235-112 Time for assessment of deficiency attributable to gain upon conversion. (a)Ifataxpayerhasmadetheelectionprovidedinsection1033(a)(2)(A)oftheInternalRevenueCode,therulesstatedinthissectionapply.

(b) Thestatutoryperiodfortheassessmentofanydeficiency,foranytaxableyearinwhichisrealizedanypartofthegainontheconversionwhichisthesubjectoftheelectionreferredtoinsubsection(a)ofthissection,attributabletosuchgain,shallnotexpirepriortotheexpirationofthreeyearsfromthedatethedepartmentoftaxationisnotifiedbythetaxpayer(insuchmannerasthedepartmenthasprescribedormayprescribe)ofthereplacementoftheconvertedpropertyorofanintentionnottoreplace,andsuchdeficiencymaybeassessedatanytimebeforetheexpirationofthisthree-yearperiodnotwithstandinganyotherprovisionwhichwouldotherwisepreventsuchassessment.

(c) Ifthepropertyorstockpurchasedasareplacementforconvertedpropertywaspurchasedbeforethebeginningofthelasttaxableyearinwhichanypartofthegainuponsuchconversionisrealized,anydeficiency,totheextentresultingfromtheelectionreferredtoinsubsection(a)ofthissection,foranytaxableyearendingbeforesuchlasttaxableyearmaybeassessed,notwithstandinganyotherprovisionwhichwouldotherwisepreventsuchassessment,atanytimebeforetheexpirationoftheperiodwithinwhichadeficiencyforsuchlasttaxableyearmaybeassessed.[L1959,c277,ptof§14;amLSp19592d,c1,§16;Supp,§121-45.1;HRS§235-112;amL1979,c62,§2(13)]

§235-113 Time for assessment of deficiency attributable to gain upon sale of a residence. (a)IfafterDecember31,1957,ataxpayerduringataxableyearsellsatagainpropertyusedbythetaxpayerasthetaxpayer’sprincipalresidence,therulesstatedinthissectionapply.

(b) Thestatutoryperiodfortheassessmentofanydeficiencyattributabletoanypartofthegainreferredtoinsubsection(a)of thissectionshallnotexpirebefore theexpirationof threeyearsfromthedate thedepartmentof

18-235-112

18-235-113



taxationisnotifiedbythetaxpayer(insuchmannerasthedepartmenthasprescribedormayprescribe)ofthematterssetoutinsubsection(c)ofthissection,andsuchdeficiencymaybeassessedatanytimebeforetheexpirationofthethree-yearperiodnotwithstandinganyotherprovisionwhichwouldotherwisepreventsuchassessment.

(c) Thenoticereferredtoinsubsection(b)ofthissectionshallinformthedepartmentof:(1) Thetaxpayer’scostofpurchasingthenewresidencewhichthetaxpayerclaimsresultsinnonrecognition

ofanypartofthegainreferredtoinsubsection(a)ofthissection,or(2) Thetaxpayer’sintentionnottopurchaseanewresidencewithintheperiodspecifiedinsection1034(a)of

theInternalRevenueCode,or(3) Afailuretomakesuchpurchasewithinsuchperiod.[L1959,c277,ptof§14;amLSp19592d,c1,§16;

Supp,§121-45.2;HRS§235-113;amimpL1984,c90,§1;gench1985]

APPEAL

§235-114 Appeals. (a)Anypersonaggrievedbyanyassessmentofthetaxorliabilityimposedbythischaptermayappealfromtheassessmentinthemannerandwithinthetimehereinaftersetforth.Appealmaybemadeeithertothedistrictboardofreviewortothetaxappealcourt.Thefirstappealtoeitherthedistrictboardofreviewortothetaxappealcourtmaybemadewithoutpaymentofthetaxsoassessed.Eitherthetaxpayerortheassessormayappealtothetaxappealcourtfromadecisionbytheboardortotheintermediateappellatecourtfromadecisionbythetaxappealcourt;providedthatifthedecisionbytheboardorthetaxappealcourtisappealedbythetaxpayer,orthedecisionbytheboardinfavorofthedepartmentisnotappealed,thetaxpayershallpaythetaxsoassessedplusinterestasprovidedinsection231-39(b)(4).

(b) Iftheappealisfirstmadetotheboard,theappealshalleitherbeheardbytheboardorbetransferredtothetaxappealcourtforhearingattheelectionofthetaxpayeroremployer.Ifheardbytheboard,anappealshallliefromthedecisionthereoftothetaxappealcourtandtotheintermediateappellatecourt,subjecttochapter602,inthemannerandwiththecostsprovidedbychapter232.Thesupremecourtshallprescribeformstobeusedintheappeals.Theformsshallshow:

(1) Theamountoftaxesorliabilityuponthebasisofthetaxpayer’scomputationofthetaxpayer’staxableincomeortheemployer’scomputationoftheemployer’sliability;

(2) Theamountuponthebasisoftheassessor’scomputation;(3) Theamountuponthebasisofthedecisionsoftheboardofreviewandtaxappealcourt,ifany;and(4) Theamountindispute.

Iforwhentheappealisfiledwithortransferredtothetaxappealcourt,thecourtshallproceedtohearanddeterminetheappeal,subjecttoappealtotheintermediateappellatecourtasisprovidedinchapter232.

(c) Anytaxpayeroremployerappealingfromanyassessmentofincometaxesorliabilityshalllodgewiththeassessororassistantassessoranoticeof theappeal inwriting,stating thegroundof the taxpayer’soremployer’sobjection to the additional assessment or any part thereof.The taxpayer or employer also shall file the notice ofappealwiththeboardorthetaxappealcourtatanytimewithinthirtydayssubsequenttothedatewhenthenoticeofassessmentwasmailed,properlyaddressedtothetaxpayeroremployeratthetaxpayer’soremployer’slastknownresidenceorplaceofbusiness.Exceptasotherwiseprovided,themanneroftakingtheappeal,thecostsapplicablethereto,andthehearinganddispositionthereof,includingthedistributionofcostsandoftaxespaidbythetaxpayerpendingtheappeal,shallbeasprovidedinchapter232.

Thetaxappealcourtmayallowanindividualtaxpayertofileasubsequentappealwithoutpaymentofthenetincometaxincaseswherethetotaltaxliabilitydoesnotexceed$50,000intheaggregateforalltaxyears,uponproofthatthetaxpayerwouldbeirreparablyinjuredbypaymentofthetax.[LSp1957,c1,ptof§2;Supp,§121-46;amL1967,c37,§1;HRS§235-114;amL1973,c51,§3;amimpL1984,c90,§1;gench1985;amL1992,c147,§3;amL2000,c199,§2;amL2004,c123,§1andc202,§25;amL2006,c91,§2andc94,§1;amL2010,c109,§1]

Note

The2000amendmentdoesnotaffectrightsanddutiesthatmatured,penaltiesthatwereincurred,andproceedingsthatwerebegunbeforeJune8,2000.L2000,c199,§§11and13.

The2004amendmentappliestotaxappealsfiledonorafterJuly1,2004.L2004,c123,§14.L2004,c202,§82provides:“SECTION82.AppealspendinginthesupremecourtasoftheeffectivedateofthisAct[July1,2006]maybetransferredtotheintermediate

appellatecourtorretainedatthesupremecourtasthechiefjustice,inthechiefjustice’ssolediscretion,directs.”

Cross Reference


Rules of Court

SeeTaxAppealCourtRules.



Case Notes

Providesavenueforafullandfairconsiderationoftaxpayer’schallengetogrossreceiptstax.742F.2d546.Taxpayer’s42U.S.C.§1983claimagainstvalidityofHawaii’sgeneralexcisetaxbarred,wherestateremediesavailabletotaxpayerwere“plain,

adequate,andcomplete”.940F.Supp.260.Mandamustocompelissuanceofcertificateofappeal.18H.362.Wheretaxpayerfailedtopaytheassessedtaxasrequiredbythissection,thetaxappealcourtlackedjurisdictionfortaxpayer’sappealand

properlydismissedappeal.108H.69(App.),116P.3d711(2005).

GENERAL PROVISIONS

§235-115 Assessments, etc., prima facie proof. Theeffectofthenoticesofassessmentsandrecordspreparedbyorundertheauthorityofthedepartmentoftaxationshallbeassetforthinsections231-20and235-107.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-47;HRS§235-115]

§235-116 Disclosure of returns unlawful; penalty. Alltaxreturnsandreturninformationrequiredtobefiledunderthischaptershallbeconfidential,includinganycopyofanyportionofafederalreturnthatmaybeattachedtoastatetaxreturn,oranyinformationreflectedinthecopyofthefederalreturn.Itshallbeunlawfulforanyperson,oranyofficeroremployeeoftheState,includingtheauditorortheauditor’sagentwithregardtotaxreturninformationobtainedpursuanttosection23-5(a),tomakeknownintentionallyinformationimpartedbyanyincometaxreturnorestimatemadeundersections235-92,235-94,235-95,and235-97orwilfullytopermitanyincometaxreturnorestimatesomadeorcopythereoftobeseenorexaminedbyanypersonotherthanthetaxpayerorthetaxpayer’sauthorizedagent,personsdulyauthorizedbytheStateinconnectionwiththeirofficialduties,theMultistateTaxCommissionortheauthorizedrepresentativethereof,exceptasotherwiseprovidedbylaw.AnyoffenseagainsttheforegoingprovisionsshallbepunishableasaclassCfelony.[LSp1957,c1,ptof§2;Supp,§121-48;HRS§235-116;amL1974,c139,§3;amL1978,c172,§1;amimpL1984,c90,§1;gench1985;amL2014,c136,§4]

Cross Reference

TaxInformationReleaseNo.82-7,“ConfidentialityofTaxReturnsandInformationImpartedTherein—NetIncomeTaxandGeneralExciseTax”

Case Notes

Cited:103F.3d742.

§235-117 Reciprocal supplying of tax information. Notwithstandingsection235-116,thedepartmentmaypermittheSecretaryoftheTreasuryoftheUnitedStates,theCommissionerofInternalRevenue,theMultistateTaxCommission,ortheproperofficerofanystateorterritoryimposinganincometaxuponincomesofpersonstaxableunderthischapter,oranycountyofthisState,ortheauthorizedrepresentativesthereoftoinspecttheincometaxreturnsandestimatesofanysuchpersonfortaxpurposesonly.Thedepartmentmayalsofurnishtotheseauthorizedpersonsanabstractofanincometaxreturnorestimateorsupplythesepersonswithinformationconcerninganyitemofincomecontainedinareturnordisclosedbythereportofaninvestigationoftheincomeorreturnofataxpayer.TheMultistateTaxCommissionmaymaketheinformationavailabletoadulyaccreditedtaxofficialoftheUnitedStates,anystateorterritory,ortheauthorizedrepresentativethereof,fortaxpurposesonly.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-49;HRS§235-117;amL1974,c139,§4;amLSp2005,c9,§4]

§235-118 Rules and regulations. Exceptasotherwiseprovided in thischapter, thedepartmentof taxationshallprescribe and have printed all needful rules and regulations for the enforcement of this chapter and such rules andregulationssomadeshallhavetheforceandeffectoflawiftheybenotinconflictwiththeexpressstatutoryprovisionstowhichthesameareapplicable.[LSp1957,c1,ptof§2;amLSp19592d,c1,§16;Supp,§121-50;HRS§235-118]

Cross Reference

Rulemakingprocedure,seechapter91.

§235-119 Taxes, state realizations. AllincometaxesshallbefortheuseoftheStateandshallbepaidintothestatetreasuryatsuchtimesasthedirectoroffinanceshalldirect.[LSp1957,c1,ptof§2;amLSp19592d,c1,§14;amL1963,c114,§1;Supp,§121-52;HRS§235-119]

PART VII. HAWAII S CORPORATION INCOME TAX ACT

Cross Reference

TaxInformationReleaseNo.90-6,“Act16,SessionLawsofHawaii1990,RelatingtoSCorporations”

INCOME TAX LAW [§235-124]


[§235-121] Title; definitions; federal conformity; construction. (a)The title of this part shall be theHawaii Scorporationincometaxact.

(b) Forpurposesofthispart,thefollowingtermsshallhavethefollowingmeanings:“Ccorporation”meansacorporationwhichisnotanScorporation.“IncomeattributabletotheState”meansitemsofincome,loss,deduction,orcreditoftheScorporationapportioned

tothisStatepursuanttopartIIofthischapterorallocatedtothisStatepursuanttosection235-5.“IncomenotattributabletotheState”meansallitemsofincome,loss,deduction,orcreditoftheScorporationother

thanincomeattributabletotheState.“InternalRevenueCode”hasthemeaningsetforthinsection235-2.3andasitappliestothetaxableperiod;section

referencesoftheInternalRevenueCodeshallbedeemedtorefertocorrespondingprovisionsofpriorandsubsequentfederaltaxlaws.

“Post-terminationtransitionperiod”meansthatperioddefinedinsection1377(b)(1)oftheInternalRevenueCode.“Proratashare”meansthesharedeterminedwithrespecttoanScorporationshareholderforataxableperiodinthe

mannerprovidedinsection1377(a)(1)or(2)or1362(e)(2)or(3)or(6)(D),asthecasemaybe,oftheInternalRevenueCode.

“Scorporation”meansacorporationforwhichavalidelectionundersection1362(a)oftheInternalRevenueCodeisineffect.

“Taxableperiod”meansanytaxableyearorportionofataxableyearduringwhichacorporationisanScorporation.(c) Exceptasotherwiseexpresslyprovidedorclearlyappearingfromthecontext,any termused in thispart

shallhavethesamemeaningaswhenusedinacomparablecontextintheInternalRevenueCode,orinanystatuterelatingtofederalincometaxes,ineffectforthetaxableperiod.DueconsiderationshallbegivenintheinterpretationofthisparttoapplicablesectionsoftheInternalRevenueCodeineffectfromtimetotimeandtofederalrulingsandregulationsinterpretingthosesections,providedtheInternalRevenueCoderulingsandregulationsdonotconflictwiththispartorotherprovisionsofthischapter.

(d) This part shall be applied and construed to effectuate its general purpose tomakeuniform the lawwithrespecttothesubjectmatterofthispartamongstatesenactingit.[L1990,c16,ptof§1]

§235-122 Taxation of an S corporation and its shareholders. (a)Anelectionundersection1361(b)(3)and(e),or1362(a)oftheInternalRevenueCodeshallbeeffectiveforthepurposesofthischapter.Evidenceofavalidelectionforfederalpurposesshallbesubmittedtothedepartmentinsuchformandatsuchtimethedepartmentmayprescribe.

(b) Exceptasprovidedinthefollowingsentence,anScorporationshallnotbesubjecttothetaximposedbysection235-71.IfincomeofanScorporationissubjecttofederalincometax,thensuchincomeasmodifiedbysection235-123,totheextentitconstitutesincomeattributabletotheState,shallbetaxedatthehighestmarginalrateoftaximposedonthenetincomeofcorporations.IfanScorporationisrequiredtopayataxtothisStatebyreasonoftheprecedingsentence,thentheincomeattributabletotheStateoftheScorporationshallbereducedbytheamountofthetax.

(c) Eachshareholder’sproratashareofincomeattributabletotheStateandeachresidentshareholder’sproratashareofincomenotattributabletotheState,totheextentmodifiedpursuanttosection235-123,shallbetakenintoaccountbytheshareholderinthemannerprovidedinsection1366oftheInternalRevenueCodeforthepurposesofsection235-4andshallbetaxableundersection235-51.[L1990,c16,ptof§1;amL1997,c297,§5]

Cross Reference


[§235-123] Modification and characterization of income. (a)TheproratashareofeachresidentandnonresidentshareholderintheincomeattributabletotheStateofanScorporation,forthepurposesofsection235-122(c),shallbesubjecttothemodificationstocorporateincomeprovidedbythischapter.

(b) TheproratashareofeachresidentshareholderintheincomenotattributabletotheStateofanScorporation,forthepurposesofsection235-122(c),shallbesubjecttothemodificationstoindividualincomeprovidedbythischapter.

(c) Scorporationitemstakenintoaccountbyashareholderpursuanttosection235-122(c)shallbecharacterizedasthoughreceivedorincurredbythecorporationandnotitsshareholder.[L1990,c16,ptof§1]

[§235-124] Basis and adjustments. (a)TheinitialbasisofaresidentshareholderinthestockofanScorporationandinanyindebtednessofthecorporationowedtotheshareholdershallbedeterminedinthemannerprovidedundertheInternalRevenueCode.Theinitialbasisshallbedeterminedasofthelasttooccurofthedate(whichmaybebeforetaxableyearsbeginningafterDecember31,1989)onwhich:

(1) TheshareholderlastbecamearesidentofthisState;

18-235-122



(2) Theshareholderacquiredthestockortheindebtednessofthecorporation;or(3) ThecorporationbecameanScorporation.

(b) TheinitialbasisofaresidentshareholderinthestockandindebtednessofanScorporationshallbeadjustedafter thedate specified in subsection (a) in themannerand to theextent requiredby section1011of the InternalRevenueCodeexceptthat,withrespecttoanytaxableperiodduringwhichtheshareholderwasaresidentofthisState:

(1) Anymodificationmade(otherthanforincomeexemptfromfederalorthisState’staxation)pursuanttosection235-123shallbetakenintoaccount;and

(2) Anyadjustmentsmadepursuanttosection1367oftheInternalRevenueCodeforataxableperiodduringwhich this State did notmeasure S corporation shareholder income by reference to the corporation’sincomeshallnotbetakenintoaccount.

(c) TheinitialbasisofanonresidentshareholderinthestockofanScorporationandinanyindebtednessofthecorporationtotheshareholdershallbezero.Theinitialbasisshallbedeterminedasofthelasttooccurofthedate(whichmaybebeforetaxableyearsbeginningafterDecember31,1989)onwhich:

(1) Theshareholderacquiredthestockortheindebtednessofthecorporation;(2) ThecorporationbecameanScorporation;or(3) TheshareholderlastbecameanonresidentofthisState.

(d) The initialbasisof anonresident shareholder in the stockand indebtednessof anScorporation shallbeadjustedafter thedatespecified insubsection(c) in themannerprovided insection1367of theInternalRevenueCode,exceptthatadjustmentstobasisshallbelimitedtotheincomeattributabletotheStatetakenintoaccountbythe shareholderpursuant to section235-122(c). Incomputing incomeattributable to theState forpurposesof theprecedingsentence,anymodificationmadeforincomeexemptfromfederalorthisState’staxationshallnotbetakenintoaccount.

(e) Thebasisofaresidentshareholderinthestockofacorporationshallbereducedbytheamountallowedasalossordeductionpursuanttosection235-125(d).

(f) Thebasisofaresidentshareholderinthestockofacorporationshallbereducedbytheamountofanycashdistributionwhichisnottaxabletotheshareholderasaresultoftheapplicationofsection235-127(b).

(g) Forpurposesofthissection,ashareholdershallbeconsideredtohaveacquiredstockorindebtednessreceivedbygiftatthetimethedonoracquiredthestockorindebtedness,ifthedonorwasaresidentofthisStateatthetimeofthegift.[L1990,c16,ptof§1]

Revision Note

“TaxableyearsbeginningafterDecember31,1989”substitutedforotheroriginallanguage.

[§235-125] Carryforwards and carrybacks; loss limitation. (a)CarryforwardsandcarrybackstoandfromtaxableperiodsofanScorporationshallberestrictedinthemannerprovidedinsection1371(b)oftheInternalRevenueCode.

(b) The aggregate amount of losses or deductions of an S corporation taken into account by a shareholderpursuanttosection235-122(c)shallnotexceedthecombinedadjustedbases,determinedinaccordancewithsection235-124,oftheshareholderinthestockandindebtednessoftheScorporation.

(c) Anylossordeductionwhichisdisallowedforataxableperiodpursuanttosubsection(b)shallbetreatedasincurredbythecorporationinthesucceedingtaxableperiodwithrespecttotheshareholder.

(d)(1) Anylossordeductionwhichisdisallowedpursuanttosubsection(b)forthecorporation’slasttaxableperiod as an S corporation shall be treated as incurred by a shareholder on the last day of any post-terminationtransitionperiod.

(2) Theaggregateamountoflossesanddeductionstakenintoaccountbyashareholderpursuanttoparagraph(1)shallnotexceedtheadjustedbasisoftheshareholderinthestockofthecorporation(determinedinaccordancewithsection235-124atthecloseofthelastdayofanypost-terminationtransitionperiodandwithoutregardtothissubsection).[L1990,c16,ptof§1]

[§235-125.5] Transition rule. (a)AcorporationforwhichanSelectionwasineffectforfederalpurposesbutnotforHawaiipurposesforthetaxableperiodimmediatelyprecedingthetaxableperiodbeginningafterDecember31,1989,mayelectbeforeDecember31,1992,nottohavesection235-125(a)applytocarryforwardsfromtaxableperiodsprecedingthetaxableperiodbeginningafterDecember31,1989,forwhichaHawaiiSelectionwasnotineffect.Anelectionpursuanttothissectionshallbeapplicabletoallsuchcarryforwarditems.

(b) AnetoperatinglosscarryforwardsubjecttoanelectionunderthissectionshallbeallowedasadeductionincomputingScorporationtaxableincomeafterallotheritemsofincomeanddeductionshavebeentakenintoaccountinaccordancewiththispartandshallnotreduceScorporationtaxableincomebelowzero.

(c) Acarryforward,otherthananetoperatinglosscarryforward,subjecttoanelectionunderthissectionshallbetakenintoaccountbythecorporationincomputingtaxableincomeasthoughanSelectionwerenotineffectfortheyear.Incomputingtaxableincomeunderthissubsection,theallowanceofadeductionforanetoperatinglosscarryforwardshallbedeterminedinaccordancewithsubsection(b).

INCOME TAX LAW [§235-128]


(d) NocarryforwardssubjecttotheelectionunderthissectionmaybecarriedforwardtoaCcorporationyearwithinthemeaningofInternalRevenueCodesection1371(b).

(e) An election pursuant to this section shall bemade on a timelyfiled (including extension)S corporationincometaxreturnforthefirsttaxableperiodbeginningafterDecember31,1989,oranamendedreturnfiledbeforeDecember31,1992.AcopyoftheelectionshallbeattachedtotheScorporationtaxreturnforeachyeartowhichthecarryforwardiscarried.[L1991,c24,§1]

[§235-126] Part-year residence. Forpurposesof thispart if a shareholderofanScorporation isbotha residentandnonresidentofthisStateduringanytaxableperiod,theshareholder’sproratashareoftheScorporation’sincomeattributabletotheStateandincomenotattributabletotheStateforthetaxableperiodshallbefurtherproratedbetweentheshareholder’speriodsofresidenceandnonresidence,inaccordancewiththenumberofdaysineachperiod.[L1990,c16,ptof§1]

[§235-127] Distributions. (a)Subjecttosubsection(c),adistributionmadebyanScorporationwithrespecttoitsstocktoaresidentshareholdershallbetakenintoaccountbytheshareholderforpurposesofsection235-4andshallbetaxableundersection235-51totheextentthatthedistributionistreatedasadividendorasgainfromthesaleorexchangeofpropertypursuanttosection1368oftheInternalRevenueCode.

(b) Subjecttosubsection(c),adistributionofmoneymadebyacorporationwithrespecttoitsstocktoaresidentshareholderduringapost-terminationtransitionperiodshallnotbetakenintoaccountbytheshareholderforpurposesofsection235-4totheextent thedistributionisappliedagainstandreducestheadjustedbasisof thestockof theshareholderinaccordancewithsection1371(e)oftheInternalRevenueCode.

(c) In applying sections 1368 and 1371(e) of the Internal Revenue Code to any distribution referred to insubsection(a)or(b):

(1) Theterm“adjustedbasisofthestock”meanstheadjustedbasisoftheshareholder’sstockasdeterminedundersection235-124;and

(2) TheaccumulatedadjustmentsaccountforthisStateshallbeequalto,andshallbeadjustedinthesamemanneras,theScorporation’saccumulatedadjustmentsaccountdefinedinsection1368(e)(1)(A)oftheInternalRevenueCode,exceptthattheaccountshallalsobeadjustedbyanymodificationsrequiredtobemadepursuanttosection235-123(a).[L1990,c16,ptof§1]

[§235-128] Returns; shareholder agreements; mandatory payments. (a)An S corporation which engages inactivitiesinthisStatewhichwouldsubjectaCcorporationtotherequirementtofileareturnundersection235-92shallfilewiththedepartmentanannualreturn,intheformprescribedbythedepartment,onorbeforetheduedateprescribedforthefilingofCcorporationreturnsbysection235-97.

EveryScorporationshallmakeareturnforeachtaxableyear,statingspecificallytheitemsofitsgrossincomeandthedeductionsallowablebythischapter,thename,address,andsocialsecurityorfederalidentificationnumberofeachpersonowningstockinthecorporationatanytimeduringthetaxableyear,thenumberofsharesofstockownedbyeachshareholderatalltimesduringthetaxableyear,theincomeattributabletotheStateandincomenotattributabletotheStatewithrespecttoeachshareholderasdeterminedunderthispart,themodificationsrequiredbysection235-123,theamountofmoneyandotherpropertydistributedbythecorporationduringthetaxableyeartoeachshareholder,thedateofeachsuchdistribution,andsuchotherinformationasthedepartmentmaybyformorruleprescribe.

TheScorporation,onorbefore thedayonwhich such return isfiled, shall furnish toeachpersonwhowasashareholder during theyear a copyof the information shownon the return as thedepartmentmayby formor ruleprescribe.Anyreturnfiledpursuanttothissection,forpurposesofsections235-111and235-112,shallbetreatedasareturnfiledbythecorporationundersection235-92.TheScorporationshallalsomaintaintheaccumulatedadjustmentsaccountdescribedinsection235-127(c)(2).

(b) ThedepartmentshallpermitScorporationstofilecompositereturnsandtomakecompositepaymentsoftaxonbehalfofsomeorallofitsnonresidentshareholders.Thedepartmentmaypermitcompositereturnsandpaymentstobemadeonbehalfofresidentshareholders.

(c) AnScorporationshallfilewiththedepartment,intheformprescribedbythedepartment,theagreementofeachnonresidentshareholderofthecorporation:

(1) TofileareturnandmaketimelypaymentofalltaxesimposedbythisStateontheshareholderwithrespecttotheincomeoftheScorporation;and

(2) TobesubjecttopersonaljurisdictioninthisStateforpurposesofthecollectionofunpaidincometax,togetherwithrelatedinterestandpenalties.

If thecorporationfails totimelyfiletheagreementsrequiredbyparagraphs(1)and(2)onbehalfofeachofitsnonresidentshareholders,thenthecorporation,atthetimessetforthinsubsection(d),shallpaytothisStateonbehalfofeachnonresidentshareholderinrespectofwhomanagreementhasnotbeentimelyfiledanamountequaltothehighestmarginaltaxrateineffectundersection235-51multipliedbytheamountoftheshareholder’sproratashareoftheincomeattributabletotheStatereflectedonthecorporation’sreturnforthetaxableperiod.AnScorporationshallbeentitled



torecoverapaymentmadepursuanttotheprecedingsentencefromtheshareholderonwhosebehalfthepaymentwasmade.

(d) Theagreementsrequiredtobefiledpursuanttosubsection(c)shallbefiledatthefollowingtimes:(1) AtthetimetheannualreturnisrequiredtobefiledforthefirsttaxableperiodforwhichtheScorporation

becamesubjecttothispart,and(2) Atthetimetheannualreturnisrequiredtobefiledforanytaxableperiodinwhichthecorporationhada

nonresidentshareholderonwhosebehalfsuchanagreementhasnotbeenpreviouslyfiled.(e) AnyamountpaidbythecorporationtothisStatepursuanttosubsection(b)or(c)shallbeconsideredtobea

paymentbytheshareholderonaccountoftheincometaximposedontheshareholderforthetaxableperiod.(f) AnyofficerofanyScorporationwhowilfullyfailstoprovideanyinformation,fileanyreturnoragreement,

makeanypayment,ormaintainanyaccountasrequiredbythissectionorbysection231-15.6shallbeguiltyofamisdemeanor.[L1990,c16,ptof§1]

§235-129 Tax credits. (a)Forpurposesofsection235-55,eachresidentshareholdershallbeconsideredtohavepaidataximposedontheshareholderinanamountequaltotheshareholder’sproratashareofanynetincometaxpaidbytheScorporationtoastatethatdoesnotmeasuretheincomeofScorporationshareholdersbytheincomeoftheScorporation.Forpurposesoftheprecedingsentence,theterm“netincometax”meansanytaximposedonormeasuredbyacorporation’snetincome.

(b) EachshareholderofanScorporationshallbeallowedacreditagainstthetaximposedbysection235-51inanamountequaltotheshareholder’sproratashareofthetaxcreditearnedbytheSCorporationinthisState.[L1990,c16,ptof§1;amL1992,c105,§1;amL2007,c151,§2]

Note


[§235-130] LIFO recapture. IfanScorporationissubjecttolastinfirstout(LIFO)recapturepursuanttosection1363oftheInternalRevenueCode,then:

(1) Any increase in the tax imposedby section235-71by reasonof the inclusionof theLIFO recaptureamountinitsincomeshallbepayableinfourequalinstallments;

(2) Thefirstinstallmentshallbepaidonorbeforetheduedate(determinedwithoutregardtoextensions)forfilingthereturnforthefirsttaxableyearforwhichthecorporationwassubjecttotheLIFOrecapture;

(3) Thethreesucceedinginstallmentsshallbepaidonorbeforetheduedate(determinedwithoutregardtoextensions)forfilingthecorporation’sreturnforthethreesucceedingtaxableyears;and

(4) Forpurposesofcomputinginterestonunderpayments,thelastthreeinstallmentsshallnotbeconsideredunderpaymentsuntilafterthepaymentduedatespecifiedabove.[L1990,c16,ptof§1]

chapter 235 income tax law - hawaii.govfiles.hawaii.gov/tax/legal/hrs/hrs_235.pdfincome tax law...

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