Bill Text: HI HB798 | 2011 | Regular Session | Amended

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Bill Title: General Excise Tax; Life Settlement Contract

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Engrossed - Dead) 2011-03-30 - (S) The committee on WAM deferred the measure. [HB798 Detail]

Download: Hawaii-2011-HB798-Amended.html

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HOUSE OF REPRESENTATIVES	H.B. NO.	798
TWENTY-SIXTH LEGISLATURE, 2011		H.D. 1
STATE OF HAWAII		S.D. 1

A BILL FOR AN ACT

 

 

RELATING TO TAXATION.

 

 

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

 

     SECTION 1.  The purpose of this Act is to impose the general excise tax on the death benefit or other gross income derived from life settlement contracts.

     SECTION 2.  Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§237-    Tax on gross income from life settlement contract.  (a)  Except as otherwise provided under subsection (b), there is hereby levied, and shall be assessed and collected annually, a general excise tax against the gross income derived from a life settlement contract by a person unrelated to the insured.  The tax shall be equal to four per cent of the gross income.

     (b)  In no instance shall the tax under this section be levied, assessed, or collected on any death benefit paid under a life insurance policy upon the death of the insured to a person related to the insured.

     (c)  For purposes of this section, a life settlement contract shall include:

     (1)  A written agreement entered into between an insurance provider and a policy owner, establishing the terms under which compensation or any thing of value that is valued at less than the expected death benefit of the owner's policy or certificate will be paid in return for the policy owner's assignment, transfer, sale, devise, or bequest of the death benefit or of any portion of the policy or certificate; provided that the minimum value of the contract is greater than a cash surrender value or accelerated death benefit available under the policy or certificate at the time of application for a life settlement contract;

     (2)  The transfer for compensation or value of ownership or beneficial interest in a trust or other entity that owns a life insurance policy or certificate if the trust or other entity was formed or availed of for the principal purpose of acquiring one or more life insurance policies that insure the life of a person residing in this State;

     (3)  A written agreement for a loan or other lending transaction that is secured primarily by an individual or group life insurance policy; or

     (4)  A premium finance loan made for a life insurance policy on or before the date of issuance of the policy; provided that loan proceeds are not used solely to pay premiums for the policy and any costs or expenses incurred by the lender or the borrower in connection with the financing, the owner receives on the date of the premium finance loan a guarantee of the future life settlement value of the policy, or the owner agrees on the date of the premium finance loan to sell the policy or any portion of its death benefit on any date following the issuance of the policy.

     (d)  For purposes of this section, a life settlement contract shall not include:

     (1)  A policy loan issued by a life insurance company pursuant to the terms of the life insurance policy or accelerated death provisions contained in a life insurance policy, whether issued with the original policy or as a rider;

     (2)  A premium finance loan or any other loan made by a bank or other licensed financial institution; provided that neither default on the loan nor transfer of the life insurance policy in connection with the default is provided for in an agreement or understanding with any other person for the purpose of evading taxation under this chapter;

     (3)  A collateral assignment of a life insurance policy by an owner;

     (4)  A loan made by a lender that does not violate any insurance premium finance law of this State; provided that the loan does not qualify as a life settlement contract;

     (5)  An agreement where all the parties:

         (A)  Are immediate family members as defined in section 454F-1; or

         (B)  Have a lawful substantial economic interest in the continued life, health, and bodily safety of the person insured, or are trusts established primarily for the benefit of persons subject to this paragraph;

     (6)  Any designation, consent, or agreement between an employee and an employer in connection with the purchase by the employer or a trust established by the employer of life insurance on the life of the employee;

     (7)  A bona fide business succession planning arrangement:

         (A)  Between one or more shareholders in a corporation or between a corporation and one or more of its shareholders or one or more trusts established by its shareholders;

         (B)  Between one or more partners in a partnership or between a partnership and one or more of its partners or one or more trusts established by its partners; or

         (C)  Between one or more members in a limited liability company or between a limited liability company and one or more of its members or one or more trusts established by its members; or

     (8)  An agreement entered into by a service recipient or a trust established by the service recipient and a service provider who performs significant services for the service recipient's trade or business or a trust established by the service provider.

     (e)  For the purpose of this section:

     "Gross income derived from a life settlement contract" means:

     (1)  The value of the death benefit or other benefit paid upon the passing of the insured to a person unrelated to the insured under a life settlement contract; and

     (2)  Any compensation received by a person, other than the insured, from the transfer of a life settlement contract to another person.

     "Owner" means the owner of the insurance policy that is the subject of the life settlement contract.

     "Provider" means the person offering the owner the life settlement contract.

     "Transfer" includes assignment, sale, gift, devise, or bequest."

     SECTION 3.  Section 237-24, Hawaii Revised Statutes, is amended to read as follows:

     "§237-24  Amounts not taxable.  This chapter shall not apply to the following amounts:

     (1)  [Amounts] Except as otherwise provided under section 237-  , amounts received under life insurance policies and contracts paid by reason of the death of the insured;

     (2)  [Amounts received (] Except as otherwise provided under section 237-  , amounts other than amounts paid by reason of death of the insured[)] received under life insurance, endowment, or annuity contracts, either during the term or at maturity or upon surrender of the contract;

     (3)  Amounts received under any accident insurance or health insurance policy or contract or under workers' compensation acts or employers' liability acts, as compensation for personal injuries, death, or sickness, including also the amount of any damages or other compensation received, whether as a result of action or by private agreement between the parties on account of the personal injuries, death, or sickness;

     (4)  [The] Except as otherwise provided under section 237‑  , the value of all property of every kind and sort acquired by gift, bequest, or devise, and the value of all property acquired by descent or inheritance;

     (5)  Amounts received by any person as compensatory damages for any tort injury to the person, or to the person's character reputation, or received as compensatory damages for any tort injury to or destruction of property, whether as the result of action or by private agreement between the parties [(]; provided that amounts received as punitive damages for tort injury or breach of contract injury shall be included in gross income[)];

     (6)  Amounts received as salaries or wages for services rendered by an employee to an employer;

     (7)  Amounts received as alimony and other similar payments and settlements;

     (8)  Amounts collected by distributors as fuel taxes on ["]liquid fuel["] imposed by chapter 243, and the amounts collected by [such] distributors as a fuel tax imposed by any Act of the Congress of the United States;

     (9)  Taxes on liquor imposed by chapter 244D on dealers holding permits under that chapter;

    (10)  The amounts of taxes on cigarettes and tobacco products imposed by chapter 245 on wholesalers or dealers holding licenses under that chapter and selling the products at wholesale;

    (11)  Federal excise taxes imposed on articles sold at retail [and] that are collected from [the] purchasers [thereof] and paid to the federal government by the retailer;

    (12)  The amounts of any federal taxes [under chapter 37 of the Internal Revenue Code, or similar federal taxes,] imposed on sugar manufactured in the State[,] and paid by the manufacturer to the federal government;

    (13)  An amount up to[,] but not in excess of[,] $2,000 a year of gross income received by any blind, deaf, or totally disabled person engaging[,] or continuing[,] in any business, trade, activity, occupation, or calling within the State; a corporation all of whose outstanding shares are owned by an individual or individuals who are blind, deaf, or totally disabled; a general, limited, or limited liability partnership, all of whose partners are blind, deaf, or totally disabled; or a limited liability company, all of whose members are blind, deaf, or totally disabled;

    (14)  Amounts received by a producer of sugarcane from the manufacturer to whom the producer sells the sugarcane, where:

         (A)  The producer is an independent cane farmer[, so classed by the Secretary of Agriculture under the Sugar Act of 1948 (61 Stat. 922, Chapter 519) as the Act may be amended or supplemented];

         (B)  The value or gross proceeds of the sale of the sugar, and other products manufactured from the sugarcane, are included in the measure of the tax levied on the manufacturer under section 237-13(1) or (2);

         (C)  The producer's gross proceeds of sales are dependent upon the actual value of the products manufactured [therefrom] or the average value of all similar products manufactured by the manufacturer; and

         (D)  The producer's gross proceeds of sales are reduced by reason of the tax on the value or sale of the manufactured products;

    (15)  Money paid by the State or eleemosynary child-placing organizations to foster parents for their care of children in foster homes;

    (16)  Amounts received by a cooperative housing corporation from its shareholders in reimbursement of funds paid by the corporation for lease rental, real property taxes, and other expenses of operating and maintaining the cooperative land and improvements; provided that the cooperative corporation is a corporation:

         (A)  Having one and only one class of stock outstanding;

         (B)  Each of the stockholders of which is entitled solely by reason of the stockholder's ownership of stock in the corporation, to occupy for dwelling purposes a house[,] or an apartment in a building owned or leased by the corporation; and

         (C)  No stockholder of which is entitled [(]either conditionally or unconditionally[)] to receive any distribution not out of earnings and profits of the corporation except in a complete or partial liquidation of the corporation; and

    (17)  Amounts received by a managed care support contractor of the TRICARE program that is established under Title 10 United States Code [chapter] Chapter 55, as amended, for the actual cost or advancement to third party health care providers pursuant to a contract with the United States."

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect on July 1, 2011; provided that the amendments made by this Act to section 237-24, Hawaii Revised Statutes, shall not be repealed when that section is repealed and reenacted on December 31, 2013, pursuant to section 4 of Act 70, Session Laws of Hawaii 2009.

 

 

 

Report Title:

General Excise Tax; Life Settlement Contract

 

Description:

Imposes the general excise tax on the gross income derived from a life settlement contract by a person unrelated to the insured.  Effective July 1, 2011.  (SD1)

 

 

 

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