Bill Text: HI SB2548 | 2016 | Regular Session | Introduced

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Bill Title: Income Tax and Financial Institutions Tax Credits, Exclusions, and Deductions; Auditor Review ($)

Spectrum: Partisan Bill (Democrat 10-0)

Status: (Introduced - Dead) 2016-02-09 - The committee on GVO deferred the measure. [SB2548 Detail]

Download: Hawaii-2016-SB2548-Introduced.html

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THE SENATE	S.B. NO.	2548
TWENTY-EIGHTH LEGISLATURE, 2016
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 tax credits, exclusions, and deductions require periodic review to determine their tax expenditures, benefits, and continued merit and necessity.  The legislature further finds that tax expenditures from the credits, exclusions, and deductions reduce revenues to the State.  This requires ordinary taxpayers who do not benefit from the credits, exclusions, or deductions to compensate for the reduced revenues.  Alternatively, funding for important state programs must be curtailed.  The legislature further finds that good tax policy requires the equal treatment of similarly-situated taxpayers for the sake of equity and efficiency.  When certain taxpayers receive special benefits to the detriment of others, it may generate resentment that leads to the loss of the general public's confidence in fair treatment by the state government.

     However, the legislature also believes that certain tax credits, exclusions, and deductions are worthy of continuation for equity, efficiency, and economic and social policy.  The legislature finds that independent review by the state auditor would help the legislature to identify and affirm the credits, exclusions, and deductions that represent good public policy.

     Accordingly, the purpose of this Act is to require the state auditor to periodically review certain tax credits, exclusions, and deductions for the income tax under chapter 235, Hawaii Revised Statutes, and the financial institutions tax under chapter 241, Hawaii Revised Statutes.  The legislature finds that this Act is necessary to promote tax equity and efficiency, adequacy of state revenues, public transparency, and confidence in a fair state government.

     This Act also generates funds for the auditor's reviews by imposing a surcharge on each taxpayer who files a tax return and benefits from a tax credit, exclusion, or deduction.  The legislature finds that the reviews should be funded by the taxpayers who receive these tax benefits and not through general fund taxes paid by other businesses and state residents.

     This Act exempts from the surcharge a taxpayer who files a claim for the food/general excise tax credit or renter's tax credit.  The legislature finds that those credits are available only to low-income taxpayers who should not be required to pay the surcharge for credits intended to ease their financial burden.

     This Act also exempts from the surcharge a taxpayer who claims a tax credit for employment-related expenses for household and dependent care services or for a child passenger restraint system purchase.  The legislature finds that these taxpayers should not be required to pay the surcharge as a matter of social policy.

     The legislature also notes that this Act comprehensively imposes the surcharge at the same dollar amount on each taxpayer who files a tax return and benefits from a tax credit, exclusion, or deduction, even if that credit, exclusion, or deduction is not scheduled for review during that taxable year.  The legislature has established this process for administrative efficiency and ease, balancing the interest of the State in funding the reviews against the relatively negligible financial impact on taxpayers benefiting from the credits, exclusions, and deductions.

     SECTION 2.  Chapter 23, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:

"PART     .  REVIEW OF TAX CREDITS, EXCLUSIONS, AND DEDUCTIONS

     §23-A  Review of certain credits, exclusions, and deductions under the income tax and financial institutions tax.  (a)  The auditor shall conduct a review of the tax credits, exclusions, and deductions listed in sections 23-D to 23-H.

     (b)  In the review of a credit, exclusion, or deduction, the auditor shall:

     (1)  Determine the amount of tax expenditure for the credit, exclusion, or deduction for each of the previous three fiscal years;

     (2)  Estimate the amount of tax expenditure for the credit, exclusion, or deduction for the current fiscal year and the next two fiscal years;

     (3)  Determine whether the credit, exclusion, or deduction has achieved and continues to achieve the purpose for which it was enacted by the legislature;

     (4)  Determine whether the credit, exclusion, or deduction is necessary to promote or preserve tax equity or efficiency;

     (5)  If the credit, exclusion, or deduction was enacted because of its purported economic or employment benefit to the State:

         (A)  Determine whether a benefit has resulted, and if so, quantify to the extent possible the estimated benefit directly attributable to the credit, exclusion, or deduction; and

         (B)  Comment on whether the benefit, if any, outweighs the cost of the credit, exclusion, or deduction; and

     (6)  Estimate the annual cost of the credit, exclusion, or deduction per low-income resident of the State.  For purposes of this paragraph, a "low-income resident of the State" means an individual who is a resident of the State and:

         (A)  Is the only member of a family of one and has an income of not more than eighty per cent of the area median income for a family of one; or

         (B)  Is part of a family with an income of not more than eighty per cent of the area median income for a family of the same size.

          The cost shall be estimated by dividing the annual tax expenditure for the credit, exclusion, or deduction for each fiscal year under review by the number of low-income residents of the State in the fiscal year.  The estimate determined pursuant to this paragraph is intended to display the effect on low-income residents of the State if they directly receive, either through tax reduction or negative tax, the dollars saved by elimination of the credit, exclusion, or deduction.

     (c)  Based on the review, the auditor shall recommend that the credit, exclusion, or deduction be retained without modification, amended, or repealed.

     §23-B  Funds for review; audit revolving fund; excessive fee reduction.  (a)  Subject to legislative appropriation, the auditor shall pay for the reviews required by this part using the proceeds of the surcharge deposited into the audit revolving fund pursuant to sections 235-    and 241-   .

     (b)  If the auditor determines that the moneys in the audit revolving fund expendable for the reviews exceed the amount necessary for a future fiscal year, the auditor may require the director of taxation to reduce the surcharge collectible for a tax year to a specified dollar amount less than $     .  The specified dollar amount shall be sufficient to pay for the reviews in the future fiscal year.

     If, after a reduction of the surcharge, the auditor determines that an increase of the surcharge is necessary for a future fiscal year, the auditor shall require the director of taxation to increase the surcharge to a specified dollar amount not exceeding $     .

     Any surcharge reduction or increase shall apply to every surcharge imposed under sections 235-    and 241-   .

     The auditor shall provide the director of taxation with written notice of the reduction or increase of the surcharge at least one year prior to the commencement of the taxable year for which the surcharge amount is to be reduced or increased.

     §23-C  Director of taxation; cooperation.  The director of taxation shall cooperate with the auditor's request for information when the auditor conducts a review of a credit, exclusion, or deduction; provided that the director of taxation shall not disclose to the auditor any information prohibited from disclosure by law.

     §23-D  Review for 2017 and every fifth year thereafter.  (a)  The credits under the income tax and financial institutions tax listed in subsection (c) shall be reviewed in 2017 and every fifth year thereafter.

     (b)  The auditor shall submit the findings and recommendations of the reviews to the legislature and governor at least twenty days prior to the convening of the immediately following regular session.

     (c)  This section shall apply to the following:

     (1)  Sections 235-12.5 and 241-4.6--Credit for renewable energy technology system installed and placed in service in the State.  For the purpose of section 23-A(5), this credit shall be deemed to have been enacted for an economic benefit; and

     (2)  Section 235-17--Credit for qualified production costs incurred for a qualified motion picture, digital media, or film production.

     §23-E  Review for 2018 and every fifth year thereafter.  (a)  The credits, exclusions, and deductions under the income tax and financial institutions tax listed in subsection (c) shall be reviewed in 2018 and every fifth year thereafter.

     (b)  The auditor shall submit the findings and recommendations of the reviews to the legislature and governor at least twenty days prior to the convening of the immediately following regular session.

     (c)  This section shall apply to the following:

     (1)  Section 235-7.3--Exclusion of royalties and other income derived from a patent, copyright, or trade secret of a qualified high technology business;

     (2)  Section 235-9.5--Exclusion for income and proceeds from stock options or stocks of a qualified high technology business or a holding company for a qualified high technology business;

     (3)  Sections 235-17.5 and 241-4.4--Credit for capital infrastructure costs;

     (4)  Sections 235-110.7 and 241-4.5--Credit for capital goods used by a trade or business;

     (5)  Section 235-110.91--Credit for research activity;

     (6)  Section 235-110.3--Credit for ethanol facility; and

     (7)  Section 241-3.5--Deduction for adjusted eligible net income of an international banking facility.

     §23-F  Review for 2019 and every fifth year thereafter.  (a)  The credits and exclusions under the income tax listed in subsection (c) shall be reviewed in 2019 and every fifth year thereafter.

     (b)  The auditor shall submit the findings and recommendations of the reviews to the legislature and governor at least twenty days prior to the convening of the immediately following regular session.

     (c)  This section shall apply to the following:

     (1)  Section 235-4.5(a)--Exclusion of intangible income earned by a trust sited in this State;

     (2)  Section 235-4.5(b)--Exclusion of intangible income of a foreign corporation owned by a trust sited in this State;

     (3)  Section 235-4.5(c)--Credit to a resident beneficiary of a trust for income taxes paid by the trust to another state;

     (4)  Sections 235-55 and 235-129--Credit for income taxes paid by a resident taxpayer to another jurisdiction;

     (5)  Section 235-71(c)--Credit for a regulated investment company shareholder for the capital gains tax paid by the company;

     (6)  Section 235-110.6--Credit for fuel taxes paid by a commercial fisher;

     (7)  Section 235-110.93--Credit for important agricultural land qualified agricultural cost;

     (8)  Section 235-129(b)--Credit to S corporation shareholder for pro rata share of the tax credit earned by the S corporation in this State; and

     (9)  Section 209E-10--Credit for a qualified business in an enterprise zone; provided that the review of this credit pursuant to this part shall be limited in scope to income tax credits.

     §23-G  Review for 2020 and every fifth year thereafter.  (a)  The credits and deductions under the income tax and financial institutions tax listed in subsection (c) shall be reviewed in 2020 and every fifth year thereafter.

     (b)  The auditor shall submit the findings and recommendations of the reviews to the legislature and governor at least twenty days prior to the convening of the immediately following regular session.

     (c)  This section shall apply to the following:

     (1)  Section 235-5.5--Deduction for individual housing account deposit;

     (2)  Section 235-7(f)--Deduction of property loss due to a natural disaster;

     (3)  Section 235-16.5--Credit for cesspool upgrade, conversion, or connection;

     (4)  Section 235-19--Deduction for maintenance of an exceptional tree;

     (5)  Section 235-55.91--Credit for the employment of a vocational rehabilitation referral;

     (6)  Section 235-110.2--Credit for in-kind services contribution for public school repair and maintenance; and

     (7)  Sections 235-110.8 and 241-4.7--Credit for ownership of a qualified low-income housing building.

     §23-H  Review for 2021 and every fifth year thereafter.  (a)  The credits under the income tax listed in subsection (c) shall be reviewed in 2021 and every fifth year thereafter.

     (b)  The auditor shall submit the findings and recommendations of the reviews to the legislature and governor at least twenty days prior to the convening of the immediately following regular session.

     (c)  This section shall apply to the following:

     (1)  Section 235-15--Credit for purchase of child passenger restraint system;

     (2)  Section 235-55.6--Credit for employment-related expenses for household and dependent care services;

     (3)  Section 235-55.7--Credit for a low-income household renter; and

     (4)  Section 235-55.85--Credit for food and excise tax."

     SECTION 3.  Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§235-     Surcharge for credit, exclusion, or deduction.  (a)  A taxpayer shall be assessed a surcharge if:

     (1)  The taxpayer files an annual return for a taxable year under section 235-92; and

     (2)  The taxpayer claims a credit, exclusion, or deduction listed under section 23-D, 23-E, 23-F, or 23-G.

     The amount of the surcharge shall be $      per taxpayer who meets the qualifications of paragraphs (1) and (2) or a lesser amount established in accordance with section 23-B; provided that if the surcharge amount for a taxpayer is greater than the amount of the credit, exclusion, or deduction claimed in the taxpayer's return, the taxpayer shall be charged a surcharge equal to the amount of the credit, exclusion, or deduction.

     (b)  The surcharge shall be:

     (1)  Added to the taxes remitted with the annual return; or

     (2)  Deducted from any tax refund or credit for the taxpayer if the taxpayer has made excess tax payments for that taxable year.

     (c)  All surcharge revenues shall be transmitted by the director of taxation to the director of finance for deposit into the audit revolving fund.

     The director of taxation shall transmit the surcharge revenues to the director of finance within thirty days of receipt.

     Upon receipt of the surcharge revenues from the director of taxation, the director of finance shall immediately deposit the surcharge revenues into the audit revolving fund.

     (d)  A person who is not required to file an annual return for a taxable year shall not be assessed the surcharge, even if the person benefited from a credit, exclusion, or deduction arising under this chapter and listed under section 23-D, 23-E, 23-F, or 23-G."

     SECTION 4.  Chapter 241, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§241-     Surcharge for credit, exclusion, or deduction.  (a)  A taxpayer shall be assessed a surcharge if:

     (1)  The taxpayer files an annual return for a taxable year under section 241-5; and

     (2)  The taxpayer claims a credit, exclusion, or deduction listed under section 23-D, 23-E, 23-F, or 23-G.

     The amount of the surcharge shall be $      per taxpayer who meets the qualifications of paragraphs (1) and (2) or a lesser amount established in accordance with section 23-B; provided that if the surcharge amount for a taxpayer is greater than the amount of the credit, exclusion, or deduction claimed in the taxpayer's return, the taxpayer shall be charged a surcharge equal to the amount of the credit, exclusion, or deduction.

     (b)  The surcharge shall be:

     (1)  Added to the taxes remitted with the annual return; or

     (2)  Deducted from any tax refund or credit for the taxpayer if the taxpayer has made excess tax payments for that taxable year.

     (c)  All surcharge revenues shall be transmitted by the director of taxation to the director of finance for deposit into the audit revolving fund.

     The director of taxation shall transmit the surcharge revenues to the director of finance within thirty days of receipt.

     Upon receipt of the surcharge revenues from the director of taxation, the director of finance shall immediately deposit the surcharge revenues into the audit revolving fund.

     (d)  A person who is not required to file an annual return for a taxable year shall not be assessed the surcharge, even if the person benefited from a credit, exclusion, or deduction arising under this chapter and listed under section 23-D, 23-E, 23-F, or 23-G."

     SECTION 5.  Section 23-3.6, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§23-3.6[]]  Audit revolving fund.  (a)  There is established the audit revolving fund to be administered by the office of the auditor, into which shall be deposited:

     (1)  Reimbursement moneys received by any department, office, or agency of the State and its political subdivisions for financial audits;

     (2)  Moneys received by the auditor from any department, office, or agency of the State and its political subdivisions for audit costs payable by special funds, revolving funds, capital improvement funds, or trust funds;

     (3)  Surcharge revenues collected by the director of finance pursuant to sections 235-    and 241-   ;

    [(3)] (4)  Legislative appropriations; and

    [(4)] (5)  All interest and investment earnings credited to the assets of the fund.

     (b)  Moneys in the audit revolving fund received pursuant to subsections (a)(1) and (a)(2) shall be expended by the auditor to conduct audits of the State's departments, offices, agencies, and political subdivisions, audits of special, revolving, capital improvement, or trust funds, and for the services of certified public accountants contracted to conduct such audits.

     (c)  Moneys in the audit revolving fund received pursuant to subsections (a)(3) and (a)(5) shall be expended by the auditor for the review of tax credits, exclusions, and deductions as provided under part     .

     (d)  Moneys in the audit revolving fund received from legislative appropriations pursuant to subsection (a)(4) shall be expended as specified by the legislature."

     SECTION 6.  (a)  The auditor shall review chapters 235 and 241, Hawaii Revised Statutes, and identify any existing sections that are obsolete.  Based on the review, the auditor shall recommend whether any identified section should be repealed.

     (b)  The auditor shall review the provisions of chapters 235 and 241, Hawaii Revised Statutes, that require, with or without modification, conformance with the federal Internal Revenue Code and identify tax credits, exclusions, and deductions operative in the State that are not listed in part     of chapter 23, Hawaii Revised Statutes.  Based on the review, the auditor shall recommend whether any identified credit, exclusion, or deduction should be subject to periodic review under part     of chapter 23, Hawaii Revised Statutes.

     (c)  The auditor shall submit the findings and recommendations of the review required by this section to the legislature no later than twenty days prior to the convening of the regular session of 2017.

     SECTION 7.  The director of taxation shall commence imposing and collecting the surcharge established under sections 235-    and 241-   , Hawaii Revised Statutes, in the 2016 taxable year.

     After collection, the surcharge revenues shall be administered in accordance with section 235-    and section 241-   , Hawaii Revised Statutes.

     SECTION 8.  There is appropriated out of the audit revolving fund of the State of Hawaii the sum of $         or so much thereof as may be necessary for fiscal year 2016-2017 for the review of tax credits, exclusions, and deductions in 2017 as provided under part      of chapter 23, Hawaii Revised Statutes.

     The sum appropriated shall be expended by the auditor for the purposes of this Act.

     SECTION 9.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 10.  This Act shall take effect on July 1, 2016.

 

INTRODUCED BY:	_____________________________

 

 

Report Title:

Income Tax and Financial Institutions Tax Credits, Exclusions, and Deductions; Auditor Review

 

Description:

Requires the Auditor to periodically review certain credits, exclusions, and deductions under the income tax and financial institutions tax.  Assesses a surcharge on certain taxpayers who file returns and benefit from credits, exclusions, and deductions.  Exempts from the surcharge low-income taxpayers who claim the food/general excise tax credit and renter's tax credit, and taxpayers who claim credits for employment-related expenses for household and dependent care services or for the purchase of child passenger restraint systems.  Requires the deposit of the surcharge into the audit revolving fund.

 

 

 

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