Bill Text: HI HB1803 | 2024 | Regular Session | Introduced
Bill Title: Relating To Pass-through Entity Taxation.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Engrossed - Dead) 2024-03-22 - Report adopted; Passed Second Reading, as amended (SD 1) and referred to WAM. [HB1803 Detail]
Download: Hawaii-2024-HB1803-Introduced.html
HOUSE OF REPRESENTATIVES |
H.B. NO. |
1803 |
THIRTY-SECOND LEGISLATURE, 2024 |
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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 legislature finds that Act 50, Session Laws of Hawaii 2023 (Act 50), was intended 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 was calculated by applying the eleven per cent rate, highest individual income tax rate, to the income to be distributed. Members receive a nonrefundable income tax credit that may not be carried forward to a subsequent year if the credit exceeds the tax liability. The high tax rate and inability to carry the credit forward made it difficult for many small businesses to benefit from Act 50 as originally intended.
The purpose of this Act is to reduce the pass-through entity level tax rate and to allow the tax credit to be carried forward to subsequent years to allow more small businesses owners to benefit from the entity level tax election that Act 50 provided.
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 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: |
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Report Title:
Taxation; Pass-through Entity; S Corporations; Partnerships
Description:
Reduces the pass-through entity level tax rate and allows the tax credit to be carried forward to subsequent years.
The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.