Bill Text: HI HB1362 | 2023 | Regular Session | Amended
Bill Title: Relating To Pass-through Entity Taxation.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Engrossed - Dead) 2023-03-10 - Referred to WAM. [HB1362 Detail]
Download: Hawaii-2023-HB1362-Amended.html
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HOUSE OF REPRESENTATIVES |
H.B. NO. |
1362 |
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THIRTY-SECOND LEGISLATURE, 2023 |
H.D. 2 |
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STATE OF HAWAII |
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A BILL FOR AN ACT
RELATING TO PASS-THROUGH ENTITY TAXATION.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The
purpose of this Act is to establish a state tax law to permit certain entities
to elect to pay Hawaii income tax at the entity level. This Act will 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. This Act will bring Hawaii
into conformity with the majority of other states that already permit similar elections
by so-called "pass-through entities" to pay state income taxes.
SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to part III to be appropriately designated and to read as follows:
"§235- Pass-through
entity taxation election. (a) A partnership or S corporation may
elect to be taxed pursuant to this section as an electing pass-through entity
in any tax year; provided that a separate election shall be made for each
taxable year. An election made pursuant
to this subsection shall be filed in the form and manner prescribed by the
director of taxation and signed by:
(1) Each member of
the entity who is a member at the time the election is filed; or
(2) Any officer,
manager, or member of the entity who is authorized to make the election and who
attests to having such authorization under penalty of perjury;
provided that once the election is made, it shall
be irrevocable for that taxable year and shall be binding on all partners,
shareholders, and members of the electing pass-through entity.
(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; provided that the distributive shares and guaranteed
payments of members who are corporations 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.
(c)
A nonresident individual who is a member of an electing pass-through
entity shall not be required to file an income tax return pursuant to this
chapter for a tax year if the member's only source of Hawaii income is from
electing pass-through entities and the electing pass-through entity or entities
file and pay the tax due under this section.
(d) Each electing pass-through entity shall report to each of its
members, for each tax year, the member's pro rata share of the tax imposed
pursuant to this section.
(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 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.
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.
(f) Each member that is subject to the tax imposed by this chapter
as a resident or part-year resident of the State shall be entitled to a credit
for the direct member's or indirect member's pro rata share of taxes paid to
another state or to the District of Columbia, on income of any partnership or S
corporation of which the person is a member; provided that the taxes paid to
another state or to the District of Columbia result from a tax that the
director of taxation determines is substantially similar to the tax imposed
pursuant to this section. Any credit
shall be calculated in a form and manner prescribed by the director of
taxation; provided that the calculation is consistent with the provisions of
this section. If the amount of the
credit authorized by this subsection exceeds the member's tax liability for the
tax imposed pursuant to this chapter, the excess amount shall not be refundable
and shall not carry forward.
(g) The department of taxation may establish rules, pursuant to
chapter 91, to implement this section.
(h) For purposes of this section:
"Direct member" means a
member that holds an interest directly in an electing pass-through entity.
"Electing pass-through
entity" means any eligible partnership or S corporation that elects to be
subject to tax pursuant to subsection (a).
"Indirect member" means
a member that itself holds an interest, through a direct member or indirect
member that is a partnership or S corporation, in an electing pass-through
entity.
"Member" means:
(1) A shareholder
of an S corporation;
(2) A partner in a
general partnership, a limited partnership, or a limited liability partnership;
or
(3) A member of a
limited liability company that is treated as a partnership or S corporation for
federal income tax purposes.
"Partnership" means the
same as in the Internal Revenue Code.
"Partnership" includes a limited liability company that is
treated as a partnership for federal income tax purposes but does not include
any publicly traded partnership within the meaning of section 7704 of the
Internal Revenue Code.
"S corporation" means a
corporation for which a valid election under section 1362(a) of the Internal
Revenue Code is in effect."
SECTION 3. New statutory material is underscored.
SECTION 4. This Act shall take effect on June 30, 3000.
Report Title:
Taxation; Pass-through Entity; S Corporations; Partnerships
Description:
Authorizes certain entities to elect to pay Hawaii income tax at the entity level through pass-through entities. Effective 6/30/3000. (HD2)
The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.
