Bill Text: HI SB2701 | 2024 | Regular Session | Introduced

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Bill Title: Relating To Taxation.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced) 2024-01-24 - Referred to WAM. [SB2701 Detail]

Download: Hawaii-2024-SB2701-Introduced.html

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THE SENATE	S.B. NO.	2701
THIRTY-SECOND LEGISLATURE, 2024
STATE OF HAWAII

A BILL FOR AN ACT

 

 

relating to taxation.

 

 

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

 

     SECTION 1.  The legislature finds that Act 50, Session Laws of Hawaii 2023 (Act 50), allowed certain pass-through entities to elect to pay Hawaii income tax at the entity level.  Act 50 was enacted to help Hawaii's small businesses by allowing taxpayers to deduct Hawaii state income taxes paid on their federal income tax returns.  These deductions from federal taxable income were eliminated through changes to the federal tax code in 2017, which deprived Hawaii taxpayers of significant federal tax benefits.

     Under Act 50, the entity level tax is calculated by applying the highest individual income tax rate to the taxable income to be distributed, i.e., eleven per cent, entitling pass-through entity members to receive a nonrefundable income tax credit that cannot be carried forward to a subsequent year if the credit exceeds the member's tax liability.  The legislature finds that due to the high tax rate and the inability to carryforward the tax credit, many pass-through entity members remain unable to benefit from Act 50 as intended.

     Accordingly, the purpose of this Act is to:

     (1)  Reduce the tax rate for pass-through entities electing to pay Hawaii income taxes at the entity level; and

     (2)  Allow certain pass-through entity members entitled to a tax credit to use the credit against the member's net income tax liability in subsequent years until exhausted.

     SECTION 2.  Section 235-51.5, Hawaii Revised Statutes, is amended as follows:

     1.  By amending subsection (b) to read:

     "(b)  Notwithstanding any provision of law to the contrary, the following tax is imposed on each electing pass-through entity:  the sum of all member's distributive shares and guaranteed payments of Hawaii taxable income as calculated under this chapter, multiplied by [the highest rate of tax applicable to the individual under section 235-51;] nine per cent; provided that the distributive shares and guaranteed payments of members who are corporations, partnerships, S Corporations, tax-exempt entities, and other taxpayers designated by the department of taxation shall not be included in the sum and shall not be subject to the tax under this section.  If the income calculated pursuant to this subsection reflects a net loss for the electing pass-through entity, the net loss may be carried forward to subsequent tax years for as long as the electing pass-through entity elects to be subject to the tax pursuant to this section until exhausted."

     2.  By amending subsection (e) to read:

     "(e)  Each member of an electing pass-through entity whose distributive share or guaranteed payment of Hawaii taxable income is subject to tax under this section shall be entitled to a nonrefundable credit equal to the member's share of the tax paid pursuant to this section.  If the amount of the credit authorized by this subsection exceeds the member's tax liability imposed pursuant to this chapter, [the excess amount shall not be refundable to the member.] the excess of the credit over liability may be used as a credit against the member's income tax liability in subsequent years until exhausted.  Any member claiming a credit shall not be entitled to deduct from the member's Hawaii state taxable income those amounts of Hawaii state income taxes paid by the member on the member's distributive share or guaranteed payment of income from the electing pass-through entity."

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

     SECTION 4.  This Act, upon its approval, shall apply to taxable years beginning after December 31, 2023.

 

INTRODUCED BY:	_____________________________

 

 

 

Report Title:

Department of Taxation; Income Tax Pass-Through Entity Taxation Election; S Corporations; Partnerships; Tax Credit; Carry Forward

 

Description:

Reduces the tax rate for pass-through entities electing to pay Hawaii income taxes at the entity level.  Allows certain members of pass-through entities entitled to a tax credit to use the credit against the member's net income tax liability in subsequent years until exhausted.

 

 

 

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