Hawaii-2011-SB756-Amended

PART I

SECTION 1. The legislature finds that allowing all tax documents to be filed electronically will provide benefits to both the taxpayer and the State. Electronic filing of all documents will allow taxpayers – particularly businesses – to accomplish the filing in a timely and cost-efficient manner. For the State, electronic filling will decrease administrative costs and make more efficient use of human and fiscal department resources for more important issues, such as delinquent tax collections and enforcement.

The legislature further finds that amendments made by Act 196, Session Laws of Hawaii 2009, to advance payment of the general excise tax from the last day of the month to the twentieth day of the month have had a devastating impact on Hawaii businesses, particularly small businesses. While Act 196 achieved one of its purposes – to generate a one-time windfall of revenue to the State – the long-term effect has been to hinder Hawaii's economic recovery by placing an undue burden on the business sector.

In addition, in 2010, the senate committee on economic development and technology and the house committee on economic revitalization, business, and military affairs convened an informal small business discussion group to address the most critical issues facing the small business sectors within Hawaii's economy. Representatives from the Chamber of Commerce of Hawaii, construction and trades industries, community nonprofits, the agricultural sector, food and restaurant industries, retailing, the science and technology sector, the commercial transportation industry, and interested stakeholders developed a package of bills that address the most pressing problems facing Hawaii's small business community.

The purpose of this Act is to support the findings of the small business working group and recommendations to:

(1) Assist the department of taxation in establishing a system to allow taxpayers to file all tax returns, applications, reports, and other documents electronically, telephonically, or by optical means;

(2) Provide for electronic payment of general excise taxes for businesses; and

(3) Reestablish the last day of the month as the deadline for filing and payment of general excise taxes and the quarterly filing and payment of periodic insurance premium taxes.

PART II

SECTION 2. The purpose of this part is to provide revenue-generating initiatives that will be benefits-funded, meaning the vendor will be paid when measurable increases in revenues resulting from the initiatives are collected by the State. The revenues will be used by the department of taxation to enhance its computer system, called the integrated tax services and management system, and to streamline related operational procedures.

SECTION 3. Chapter 231, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§231- Integrated tax services and management special fund. (a) There is established in the state treasury the integrated tax services and management special fund to improve customer services and taxpayer fairness, and increase cost savings, with an emphasis on electronic filings.

(b) Notwithstanding any other law to the contrary, the source of funding of any appropriations to the integrated tax services and management special fund for the purposes of funding initiatives under subsection (c) shall come from the tax revenues collected pursuant to chapters 235, 237, and 238.

(1) The integrated tax services and management system's performance-based contracts and administrative and operating expenses related to the integrated tax services and management system's post-implementation revenue-generating initiatives;

(2) The improvement of tax collection capabilities and achievement of the operational efficiencies that are the department's responsibilities under this section;

(3) The department's implementation, administration, and compliance of the Streamlined Sales and Use Tax Agreement when state legislation mandating implementation, administration, and compliance is enacted, including but not limited to computer software and hardware costs, technical assistance of contractors for any necessary fiscal or legal matters resulting from the adoption and implementation of the Streamlined Sales and Use Tax Agreement, and for the support of any committees established in conjunction with the Agreement; and

(4) The improvement of the department's operation and staffing requirements."

SECTION 4. Section 36-27, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Except as provided in this section, and notwithstanding any other law to the contrary, from time to time, the director of finance, for the purpose of defraying the prorated estimate of central service expenses of government in relation to all special funds, except the:

(1) Special out-of-school time instructional program fund under section 302A-1310;

(2) School cafeteria special funds of the department of education;

(3) Special funds of the University of Hawaii;

(4) State educational facilities improvement special fund;

(5) Convention center enterprise special fund under section 201B-8;

(6) Special funds established by section 206E-6;

(7) Housing loan program revenue bond special fund;

(8) Housing project bond special fund;

(9) Aloha Tower fund created by section 206J-17;

(10) Funds of the employees' retirement system created by section 88-109;

(11) Unemployment compensation fund established under section 383-121;

(12) Hawaii hurricane relief fund established under chapter 431P;

(13) Hawaii health systems corporation special funds and the subaccounts of its regional system boards;

(14) Tourism special fund established under section 201B‑11;

(15) Universal service fund established under section 269‑42;

(16) Emergency and budget reserve fund under section 328L‑3;

(17) Public schools special fees and charges fund under section 302A-1130;

(18) Sport fish special fund under section 187A-9.5;

(19) Glass advance disposal fee established by section 342G-82;

(20) Center for nursing special fund under section 304A‑2163;

(21) Passenger facility charge special fund established by section 261-5.5;

(22) Court interpreting services revolving fund under section 607-1.5;

(23) Hawaii cancer research special fund;

(24) Community health centers special fund;

(25) Emergency medical services special fund;

(26) Rental motor vehicle customer facility charge special fund established under section 261-5.6; [~~and~~]

(27) Shared services technology special fund under section 27-43[,]; and

(28) Integrated tax services and management special fund under section 231‑ ;

shall deduct five per cent of all receipts of all special funds, which deduction shall be transferred to the general fund of the State and become general realizations of the State. All officers of the State and other persons having power to allocate or disburse any special funds shall cooperate with the director in effecting these transfers. To determine the proper revenue base upon which the central service assessment is to be calculated, the director shall adopt rules pursuant to chapter 91 for the purpose of suspending or limiting the application of the central service assessment of any fund. No later than twenty days prior to the convening of each regular session of the legislature, the director shall report all central service assessments made during the preceding fiscal year."

SECTION 5. Section 36-30, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Each special fund, except the:

(1) Transportation use special fund established by section 261D-1;

(2) Special out-of-school time instructional program fund under section 302A-1310;

(3) School cafeteria special funds of the department of education;

(4) Special funds of the University of Hawaii;

(5) State educational facilities improvement special fund;

(6) Special funds established by section 206E-6;

(7) Aloha Tower fund created by section 206J-17;

(8) Funds of the employees' retirement system created by section 88-109;

(9) Unemployment compensation fund established under section 383-121;

(10) Hawaii hurricane relief fund established under section 431P-2;

(11) Convention center enterprise special fund established under section 201B-8;

(12) Hawaii health systems corporation special funds and the subaccounts of its regional system boards;

(13) Tourism special fund established under section 201B‑11;

(14) Universal service fund established under section 269‑42;

(15) Emergency and budget reserve fund under section 328L‑3;

(16) Public schools special fees and charges fund under section 302A-1130;

(17) Sport fish special fund under section 187A-9.5;

(18) Center for nursing special fund under section 304A‑2163;

(19) Passenger facility charge special fund established by section 261-5.5;

(20) Court interpreting services revolving fund under section 607-1.5;

(21) Hawaii cancer research special fund;

(22) Community health centers special fund;

(23) Emergency medical services special fund;

(24) Rental motor vehicle customer facility charge special fund established under section 261-5.6; [~~and~~]

(25) Shared services technology special fund under section 27-43[,]; and

(26) Integrated tax services and management special fund under section 231‑ ;

shall be responsible for its pro rata share of the administrative expenses incurred by the department responsible for the operations supported by the special fund concerned."

SECTION 6. Section 235-119, Hawaii Revised Statutes, is amended to read as follows:

"§235-119 Taxes, state realizations. [~~All~~] (a) Except as provided in subsection (b), all income taxes shall be for the use of the State and shall be paid into the state treasury at such times as the director of finance shall direct.

(b) The director of taxation shall pay the income taxes collected under this chapter into the state treasury as a state realization; provided that a sum, not to exceed the amount necessary to meet the obligations of the integrated tax services and management system's performance‑based contracts and other purposes of the integrated tax services and management special fund, may be retained and deposited into the state treasury to the credit of the integrated tax services and management special fund. The sum retained by the director of taxation for deposit into the integrated tax services and management special fund shall be limited to amounts appropriated by the legislature."

SECTION 7. Section 237-31, Hawaii Revised Statutes, is amended to read as follows:

"§237-31 Remittances. All remittances of taxes imposed by this chapter shall be made by money, bank draft, check, cashier's check, money order, or certificate of deposit to the office of the department of taxation to which the return was transmitted. The department shall issue its receipts therefor to the taxpayer and shall pay the moneys into the state treasury as a state realization, to be kept and accounted for as provided by law; provided that:

(1) The sum from all general excise tax revenues realized by the State that represents the difference between $45,000,000 and the proceeds from the sale of any general obligation bonds authorized for that fiscal year for the purposes of the state educational facilities improvement special fund shall be deposited in the state treasury in each fiscal year to the credit of the state educational facilities improvement special fund; [~~and~~]

(2) A sum, not to exceed $5,000,000, from all general excise tax revenues realized by the State shall be deposited in the state treasury in each fiscal year to the credit of the compound interest bond reserve fund[.]; and

(3) A sum, not to exceed the amount necessary to meet the obligations of integrated tax services and management system's performance-based contracts and other purposes of the integrated tax services and management special fund, may be retained and deposited into the state treasury to the credit of the integrated tax services and management special fund. The sum retained by the director of taxation for deposit into the integrated tax services and management special fund shall be limited to amounts appropriated by the legislature."

SECTION 8. Section 238-14, Hawaii Revised Statutes, is amended to read as follows:

"§238-14 Taxes state realizations. [~~All~~] (a) Except as provided in subsection (b), all taxes collected under this chapter shall be state realizations.

(b) The director of taxation shall pay the use taxes collected under this chapter into the state treasury as a state realization; provided that a sum, not to exceed the amount necessary to meet the obligations of the integrated tax services and management system's performance-based contracts and other purposes of the integrated tax services and management special fund, may be retained and deposited into the state treasury to the credit of the integrated tax services and management special fund. The sum retained by the director of taxation for deposit into the integrated tax services and management special fund shall be limited to amounts appropriated by the legislature."

SECTION 9. The department of taxation shall execute the performance-based contracts and work assignments authorized under this part in a timely manner; provided that the department's planning for the integrated tax services and management system's enhancements and services authorized by this part shall commence when this Act is enacted.

PART III

SECTION 10. (a) Notwithstanding any other law to the contrary, including any law requiring oversight of an executive department's decisions relating to online portals or internet‑based access, the department of taxation shall utilize performance-based contracts to enhance, acquire, or enhance and acquire automated tax systems including computer hardware and software, for the implementation and administration of the taxes under title 14, Hawaii Revised Statutes, including the Streamlined Sales Tax Project under Act 3, Special Session Laws of Hawaii 2005, and related software upgrade.

(b) For the purposes of this part:

"Performance-based contract" means a contract under which compensation to the vendor shall be computed according to performance standards established by the department of taxation. Any performance-based contract entered into by the department of taxation for the purposes established under subsection (a) shall provide for the payment of fees:

(1) Based on a contractually specified amount of the increase in the amount of taxes, interest, and penalties collected and attributable to the implementation of the integrated tax services and management system post-implementation revenue-generating initiatives; or

(2) On a fixed-fee contract basis to be paid from the increase in the amount of taxes, interest, and penalties collected and attributable to the implementation of the integrated tax services and management system post-implementation revenue-generating initiatives.

(c) The State shall receive a permanent license to use the enhanced or automated tax systems upon full payment to the vendor.

(d) Notwithstanding any other law to the contrary, the department of taxation shall award the performance-based contract pursuant to the requirements of chapter 103D, Hawaii Revised Statutes.

SECTION 11. The director of taxation shall report to the legislature, no later than twenty days prior to the convening of every regular session, beginning with the 2012 regular session, with respect to the status of performance-based contracts pursuant to this Act and shall provide an accounting of all moneys appropriated. The report shall include:

(1) Detailed information on the costs, benefits, and features of implementing the integrated tax services and management system post-implementation revenue‑generating initiatives;

(2) The amount of increased tax, interest, and penalties collected that is attributable to the integrated tax services and management system post-implementation revenue-generating initiatives;

(3) The amount paid to the vendor or vendors contracted under this Act; and

(4) Any additional staffing, staffing shifts, or savings in staffing or resource requirements generated through implementation of the integrated tax services and management system post-implementation revenue-generating initiatives.

The report shall also include any other information from the preceding fiscal year that may assist the legislature in determining the efficacy of performance-based contracts executed under this Act, beginning with the fiscal year immediately preceding the fiscal year commencing on the effective date of this Act and continuing until two complete fiscal years have elapsed following the full implementation of the integrated tax services and management system post-implementation revenue-generating initiatives.

SECTION 12. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2011-2012 to be deposited into the integrated tax services and management special fund established pursuant to section 231- , Hawaii Revised Statutes, contained in section 3 of this Act.

SECTION 13. There is appropriated out of the integrated tax services and management special fund the sum of $ or so much thereof as may be necessary for fiscal year 2011-2012 for the purposes of the integrated tax services and management special fund established pursuant to section 231- , Hawaii Revised Statutes, contained in section 3 of this Act, to assist the department of taxation in upgrading its operations, workforce, skills of its employees, or other purposes authorized under section 231- , Hawaii Revised Statutes, contained in section 3 of this Act.

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

SECTION 14. The department of taxation shall repay the general fund for the appropriation made under section 12 to the integrated tax services and management special fund established pursuant to section 231- , Hawaii Revised Statutes, no later than June 30, 2012.

PART IV

SECTION 15. The increased use of computers for personal purposes and in daily business operations has led to an increase in electronic and computer-based interactions with government. The department of taxation interacts with nearly every person in Hawaii on a regular basis. The department of taxation also regularly interacts with nonresident taxpayers and mainland-based businesses that routinely file tax information.

In response to the increase in interactions with out‑of‑state taxpayers and the increase in electronic tax filings, the legislature, in 1997, made electronic filing an acceptable means of carrying out a taxpayer's obligations under the law. Since this law was enacted, the ability to interact electronically has grown considerably, especially for businesses, nearly all of which have a computer and access to the Internet.

Within the next decade, a majority, if not all, of tax filings are predicted to be filed electronically. This will result in greater efficiencies for both the taxpayer and the State. In addition, the legislature, which is charged with the responsibility of overseeing the effectiveness of tax incentives and the efficacy of the tax system as a whole, will have access to more specific data on Hawaii taxes if the tax data is captured electronically.

The purpose of this part is to require the department of taxation to establish a system to allow taxpayers to file all tax returns, applications, reports, and other documents electronically, telephonically, or by optical means; provided that the initial implementation of the system shall be for all tax returns, applications, reports, and other documents required under chapter 237, Hawaii Revised Statutes; provided further that there shall be no additional cost to the taxpayer for the electronic filing.

SECTION 16. Section 231-8.5, Hawaii Revised Statutes, is amended to read as follows:

"[[]§231-8.5[]] Electronic filing of tax returns. (a) The department [~~may allow filing by electronic, telephonic, or optical means of any tax return, application, report, or other document~~] shall establish a system to allow taxpayers to file all tax returns, applications, reports, and other documents required under [~~the provisions of~~] title 14 [~~administered by the department.~~] electronically, telephonically, or by optical means; provided that no cost shall be incurred by the taxpayer for the electronic filing of tax returns. The date of filing shall be the date the tax return, application, report, or other document is transmitted to the department in a form and manner prescribed by departmental rules adopted pursuant to chapter 91. The department may determine alternative methods for the signing, subscribing, or verifying of a tax return, application, report, or other document that shall have the same validity and consequences as the actual signing by the taxpayer.

(b) A filing under this section shall be treated in the same manner as a filing subject to the penalties under section 231-39."

SECTION 17. Section 231-9.9, Hawaii Revised Statutes, is amended to read as follows:

"§231-9.9 Filing and payment of taxes by electronic funds transfer. (a) The director of taxation is authorized to require every person whose tax liability for any one taxable year exceeds [~~$100,000~~] $50,000 and who files a tax return for any tax, including consolidated filers, to remit taxes by one of the means of electronic funds transfer approved by the department or through the State's internet portal; provided that for withholding taxes under section 235-62, electronic funds transfers shall apply to annual tax liabilities that exceed $40,000. Notwithstanding the tax liability thresholds in this subsection, the director of taxation is authorized to require any person who is required to electronically file a federal return or electronically remit any federal taxes to the federal government, to electronically file a state return and electronically remit any state taxes under title 14 to the department. The director is authorized to grant an exemption to the electronic filing and payment requirements for good cause.

(b) Any person who files a tax return for any tax and is not required by subsection (a) to remit taxes by means of electronic funds transfer or through the State's internet portal may elect to remit taxes by one of the means of electronic funds transfer approved by the department with the approval of the director of taxation.

(c) If a person who is required under subsection (a) to file a return electronically or remit taxes by one of the means of electronic funds transfer approved by the department or through the State's internet portal fails to file electronically or to remit the taxes using an approved method on or before the date prescribed therefor, unless it is shown that the failure is due to reasonable cause and not to neglect, there shall be added to the tax required to be so remitted a penalty of two per cent of the amount of the tax. The penalty under this subsection is in addition to any penalty set forth in section 231-39.

(d) No later than twenty days prior to the convening of each regular session, the department shall submit a report to the legislature containing:

(1) The number of taxpayers who were assessed the two per cent penalty pursuant to subsection (c);

(2) The amounts of each assessment; and

(3) The total amount of assessments collected for the previous year.

(e) No costs shall be incurred by the taxpayer for the electronic filing of tax returns or remittance of taxes under this section or any other section."

PART V

SECTION 18. The purpose of this part is to reestablish the last day of the month as the deadline for filing and payment of miscellaneous taxes, and to reestablish the quarterly filing and payment of periodic insurance premium taxes.

SECTION 19. Act 22, Session Laws of Hawaii 2010, is repealed.

PART VI

SECTION 20. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 21. This Act shall take effect on July 1, 2011.

THE SENATE	S.B. NO.	756
TWENTY-SIXTH LEGISLATURE, 2011		S.D. 1
STATE OF HAWAII