DAVID Y. IGE

MARIA E. ZIELINSKI

GOVERNORDIRECTOR OF TAXATIONSHAN TSUTSUIJOSEPH K. KIM

LT. GOVERNOR

DEPUTY DIRECTOR

STATE OF HAWAII

DEPARTMENT OF TAXATIONP.O. BOX 259
HONOLULU, HAWAII 96809

PHONE NO: (808) 587-1530
FAX NO: (808) 587-1584

July 28, 2015
DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2015-02
RE:Tax Law Changes from the 2015 Regular Legislative Session

This Announcement lists and summarizes the Acts, enacted as part of the State ofHawaii's 2015 Legislative Session, amending or affecting the State tax law. Below is a list of theActs addressed in this Announcement, with a short description of the Act's contents:
Act 18: Technical Correction of the General Excise Tax Exemption for Nonprofit
Organizations
Act 22: Amends or Repeals Obsolete Tax Laws
Act 23: Conformity to the Estate and Generation-Skipping Transfer Taxes
Act 52: Conformity of the Hawaii Income Tax Law to the Internal Revenue CodeAct 53: Technical Correction of the Income Tax Credit for Employment of Vocational
Rehabilitation Referrals
Act 93: Transient Accommodations Tax Increase for Timeshares
Act 94: Tax Reports Required of the Department
Act 95: Amends the General Excise Tax Exemption for Affordable Housing Projects
Act 120: Income Tax Credit for Converting Cesspools
Act 128: Exempts Disabled Veterans from Motor Vehicle Registration Fee
Act 185: Amends the Environmental Response, Energy, and Food Security Tax
Act 201: Exempts On-Bill Obligations Collected by Electric Utilities
Act 204: Local Contact Information and Tax Registration Number Required in Transient
Accommodations Advertisements
Act 205: Counties Authorized to Adopt Commuter Benefits Programs
Act 223: Amends the Refundable Food/Excise Credit
Act 240: Extends the Honolulu County Surcharge; Authorizes Other Counties to AdoptSurcharge
Act 18: Technical Correction of the General Excise Tax Exemption for Nonprofit
Organizations
Act 18 (House Bill 966, H.D.1) is effective retroactively and applies to taxable years
beginning after December 31, 2011. It adds back the words "as such" to section 237-23(b)(3),
Hawaii Revised Statutes ("HRS"), which were inadvertently repealed by Act 184, Session Lawsof Hawaii ("SLH") 2012. Section 237-23, HRS, relates to the General Excise Tax ("GET")Department of Taxation Announcement No. 2015-02
July 28, 2015
Page 2 of 7
exemption for nonprofit organizations.
Act 22: Amends or Repeals Obsolete Tax Laws
Act 22 (Senate Bill 1212, S.D. 1) is effective July 1, 2015. It repeals various provisions in
the GET and public service company ("PSC") tax laws, chapters 237 and 239, HRS, respectively,
used to phase in the current wholesale tax rate and sublease deduction rate. Specifically, Act 22
repeals part of section 237-16.5, HRS, repeals section 237-13.3, HRS, in its entirety and allreferences thereto, and repeals part of section 239-6, HRS.
Act 23: Conformity to the Estate and Generation-Skipping Transfer Taxes
Act 23 (Senate Bill 1134) is effective May 1, 2015 and applies to decedents dying afterDecember 31, 2014. It conforms the State's estate and generation-skipping transfer tax law underchapter 236E, HRS, to the Internal Revenue Code ("IRC"), as amended as of December 31,
2014, as it applies to the estate and generation-skipping transfer tax.
Act 52: Conformity of the Hawaii Income Tax Law to the Internal Revenue CodeAct 52 (Senate Bill 1133, S.D. 1, H.D. 1) is effective May 20, 2015 and applies to taxable
years beginning after December 31, 2014; however, retroactive amendments to operative IRC
sections are adopted for Hawaii income tax purposes under section 235-2.5(a)(3), HRS. Act 52
updates section 235-2.3(a), HRS, to conform to the operative IRC sections of subtitle A, chapter
1, as amended as of December 31, 2014, and updates section 235-2.4, HRS, as explained below.
During 2014, Congress enacted several new tax measures. One of these new tax
measures, the "Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014," P.L. 113295, enacted December 19, 2014, creates new IRC section 529A allowing states to create tax
preferred savings plans for the benefit of disabled individuals ("ABLE Plans"). Hawaii created
its ABLE Plan program this year in Act 206, SLH 2015.
Act 52 amends section 235-2.4, HRS, to provide that section 529A, IRC, is operative for
Hawaii income tax purposes, but the ten percent penalty on distributions from ABLE Plans not
used for qualified expenses is not operative for Hawaii income tax purposes.
Act 53: Technical Correction of the Income Tax Credit for Employment of Vocational
Rehabilitation Referrals
Act 53 (Senate Bill 1136, H.D. 1) is effective May 20, 2015. It updates the income tax
credit for employment of vocational rehabilitation referrals under section 235-55.91, HRS, byamending references to the IRC that have changed. These amendments are technical and nonsubstantive.

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July 28, 2015
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Act 93: Transient Accommodations Tax Increase for Timeshares
Act 93 (House Bill 169, H.D. 1, S.D. 1, C.D. 1) is effective January 1, 2016. It makes twochanges to the Transient Accommodations Tax ("TAT") law:
1. It gradually increases the TAT rate owed on timeshare units occupied by owners
under section 237D-2(c), HRS, to match the 9.25% rate owed on units furnished torenters under section 237D-2(a), HRS.
TAT Rate for Timeshare Occupancy
January 1, 2016 to December 31, 2016
8.25%
January 1, 2017 and later
9.25%
2. It makes clarifying, nonsubstantive amendments to the definition of "fair market
rental value" under section 237D-1, HRS.
Act 94: Tax Reports Required of the Department
Act 94 (Senate Bill 92, S.D. 2, H.D. 1, C.D. 1) is effective July 1, 2015. It requires theDepartment to publish a report on GET exemptions that (1) are tax expenditures at the wholesalerate; (2) are tax expenditures at the retail rate; and (3) may be foregone opportunities to export
taxes. Act 94 also requires the Department to report to the Legislature on the status of upgrading
its forms and reporting capabilities per the implementation of the Department's Tax System
Modernization on or before December 31, 2015. Lastly, Act 94 renames the report required
under section 231-3.4(a)(2), HRS, from "Hawaii income patterns – corporations, proprietorships,and partnerships" to "Hawaii income patterns – business," and requires the Department topublish all reports set forth in section 231-3.4(a), HRS, no later than 20 days prior to theconvening of each regular session, except for the reports on Hawaii income patterns – business,and the new report on the GET exemptions, for which the reporting deadline is no later than 20days prior to the convening of the 2017 regular session and each session thereafter.
Act 95: Amends the General Excise Tax Exemption for Affordable Housing Projects
Act 95 (Senate Bill 971, S.D. 1, H.D. 1, C.D. 1) is effective July 1, 2015 and applies toprojects with an initial certification date after June 30, 2015. It adds a new requirement forobtaining certification from the Hawaii Housing Finance and Development Corporation("HHFDC") as affordable housing projects. HHFDC certification is a prerequisite for a taxpayer
to claim a GET exemption under section 201H-36, HRS. The new requirement is that thehousing project must be affordable for a minimum number of years as noted in the table below.
Type of Project
Moderate RehabilitationSubstantial Rehabilitation
Newly ConstructedTerm
5 years from date specified in regulatory agreement
10 years from date specified in regulatory agreement
30 years from date of issuance of certificate of occupancy

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Act 120: Income Tax Credit for Converting Cesspools
Act 120 (House Bill 1140, H.D. 1, S.D. 2, C.D. 1) is effective July 1, 2015, applies totaxable years ending after December 31, 2015, and is repealed on December 31, 2020. It createsa temporary, nonrefundable income tax credit for the costs incurred in converting a qualified
cesspool to a septic system or to an aerobic treatment unit system, or for the cost of connecting acesspool to a sewer system. In order to be entitled to the credit, the Department of Health mustcertify that the cesspool is located within 200 feet of a shoreline, perennial stream, or wetland, islocated within a source water assessment program area, or is a residential large capacity
cesspool, provided that no more than two residential large capacity cesspools may be certified in
any tax year. The Department of Health must certify all credit claims, and the credit amount is100% of qualified costs up to a maximum of $10,000 per taxpayer. The amount of tax credits
certified in any given tax year cannot exceed $5 million.
Act 128: Exempts Disabled Veterans from Motor Vehicle Registration Fee
Act 128 (House Bill 1153, S.D. 2, C.D. 1) is effective June 19, 2015. It exempts resident
disabled veterans from payment of annual vehicle registration fees required by section 249-31,
HRS, for one vehicle per year, and applies to motor vehicle registrations issued or renewed afterJanuary 1, 2016. The exemption does not apply to vehicles used for commercial purposes.
Act 185: Amends the Environmental Response, Energy, and Food Security Tax
Act 185 (Senate Bill 359, S.D. 1, H.D. 1, C.D. 1) is effective July 1, 2015. It makes
several amendments to the Environmental Response, Energy and Food Security Tax.
Act 185 amends the definition of "distributor" in section 243-1, HRS, to include persons
who deal in fossil fuels. Act 185 also amends section 243-3.5, HRS, by adding a new definition
for "fossil fuel." Act 185 applies the Environmental Response, Energy, and Food Security Tax tofossil fuel sold by a distributor at the rate of 19 cents per one million British thermal units offossil fuel sold by a distributor.
Act 185 contains additional amendments to section 243-3.5, HRS, which exempt fromthe Environmental Response, Energy, and Food Security Tax coal used to fulfill a powerpurchase agreement between an independent power producer and an electric utility that is ineffect as of June 30, 2015, as well as permit independent power producers to pass the cost of thetax on to an electric utility. An electric utility is allowed to recover the cost of the tax through anappropriate surcharge to the end user. A gas utility is allowed to recover the cost of the tax aspart of its fuel cost in its fuel adjustment charge.
Act 201: Exempts On-Bill Obligations Collected by Electric Utilities
Act 201 (Senate Bill 1096, S.D. 1, H.D. 2, C.D. 1) is effective July 2, 2015. It exempts
from state and county taxes the amounts collected by electric utilities for the repayment of on-Department of Taxation Announcement No. 2015-02
July 28, 2015
Page 5 of 7
bill obligations, including the GET under chapter 237, HRS, the PSC tax under chapter 239,HRS, the public utility fee under section 269-30, HRS, and the public utility franchise tax underchapter 240, HRS. For the on-bill financing program, electric utilities serve as billing andcollection agents in a “pass-through” capacity. Act 201 exempts amounts collected under the onbill financing program only; it does not impact other fees or taxes imposed on other amounts
received in the normal course of operations by the electric utilities.
Act 204: Local Contact Information and Tax Registration Number Required in Transient
Accommodations Advertisements
Act 204 (Senate Bill 519, S.D. 2, H.D. 3, C.D. 1) is effective January 1, 2016. It requires
TAT registration numbers and local contact information to be displayed in all transient
accommodation units and in all advertisements of those units. Operators or plan managers that
do not have the TAT registration number or local contact information properly displayed both in
the unit and in the advertisement of the unit may be cited and fined. Additionally, transientaccommodation brokers such as website operators, online travel agencies, or online booking
agencies that do not provide a unit's TAT registration number and local contact information in all
advertisements for the unit may be cited and fined.
Act 204 also makes clarifying, nonsubstantive amendments to the definition of "transient
accommodation" under section 237D-1, HRS.
Act 205: Counties Authorized to Adopt Commuter Benefits Programs
Act 205 (House Bill 1010, H.D. 1, S.D. 2, C.D. 1) is effective July 1, 2015. It authorizes
counties to adopt an ordinance establishing a commuter benefits program consisting of one ormore of the following:
1. A program allowing employees an income tax exclusion for costs paid for transit
passes, vanpool charges or bicycle commuting under section 132(f), IRC;
2. A program where employees are offered a subsidy to offset the costs of transit passes,
vanpool charges or bicycle commuting; or
3. Employer-provided transportation similar to a bus or vanpool furnished to employees
at low or no cost.
Act 223: Amends the Refundable Food/Excise Credit
Act 223 (Senate Bill 555, S.D. 1, H.D. 1, C.D. 1) is effective July 9, 2015, and applies totaxable years beginning after December 31, 2015. Act 223 is repealed on December 31, 2017,
and the law as it read prior to this Act's amendments will automatically be reenacted.
Act 223 amends the Refundable Food/Excise Tax Credit described in section 235-55.85,
HRS, in several ways. First, Act 223 removes the requirement that the individual claiming thecredit must have resided in the State for nine months during the taxable year and replaces it with

Department of Taxation Announcement No. 2015-02
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a requirement that the individual must have been physically present in the state for nine months
during the taxable year. Second, Act 223 adjusts the maximum adjusted gross income anunmarried individual taxpayer may have in order to be eligible to claim the credit. Third, Act 223
adjusts the amount of credit per qualified exemption available to eligible taxpayers.
The adjusted gross income of taxpayers and the credit per exemption available to themunder Act 223 is illustrated in the tables below:
Adjusted gross income for taxpayers filing asingle return
Under $5,000$5,000 to under $10,000$10,000 to under $15,000$15,000 to under $20,000$20,000 to under $30,000$30,000 and overCredit per exemption

Adjusted gross income for heads of household,married individuals filing separate returns, andmarried couples filing joint returns
Under $5000$5,000 to under $10,000$10,000 to under $15,000$15,000 to under $20,000$20,000 to under $30,000$30,000to under $40,000$40,000 to under $50,000$50,000 and overCredit per exemption

$110
$100
$85
$70
$55
$0

$110
$100
$85
$70
$55
$45$35$0Act 240: Extends the Honolulu County Surcharge; Authorizes Other Counties to Adopt
Surcharge
Act 240 (House Bill 134, H.D. 1, S.D. 2, C.D. 1) takes effect July 1, 2015. It authorizes
the extension of the City and County of Honolulu surcharge on state general excise and use taxes("county surcharge") at the 0.5% rate, authorizes other counties to adopt ordinances establishinga county surcharge at a rate of no more than 0.5%, and limits the use of the county surcharge
revenues for the City and County of Honolulu to capital costs.
Act 240 amends section 46-16.8(b), HRS, by giving authority to the City and County ofHonolulu to elect to extend the sunset of its county surcharge from January 1, 2023 to December
31, 2027 at the 0.5% rate. The election to extend the county surcharge must be done byordinance adopted prior to January 1, 2016, but no earlier than July 1, 2015. The City andCounty of Honolulu must hold a public hearing on the ordinance before it is adopted. Act 240
requires the Department to continue to collect and administer any extended county surcharge.

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Act 240 amends section 46-16.8(c), HRS, by giving authority to the other counties toestablish a county surcharge at a rate of no more than 0.5%. An election to establish a county
surcharge must be done by ordinance adopted prior to January 1, 2016, but no earlier than July 1,2015. The county must hold a public hearing on the proposed adoption of the ordinance before itis adopted. Act 240 requires the Department to collect and administer a county surcharge
adopted by any of the other counties.
Act 240 limits how the counties can spend their county surcharge revenues. The City andCounty of Honolulu is limited to using its county surcharge revenue for capital costs of theHonolulu Rail Transit project and expenses in complying with the Americans with Disabilities
Act of 1990 with respect to that project. The City and County of Honolulu cannot use thesurcharge to build or repair public roads, highways, or bicycle paths, or to support public
transportation systems already in existence prior to July 13, 2005.
The other counties must use their county surcharge revenues for the operation or capitalcosts of public transportation systems within their county. In contrast to the City and County ofHonolulu, the other counties may use their county surcharge revenue to pay for costs including
public roadways or highways, public buses, trains, ferries, pedestrian paths or sidewalks, orbicycle paths, as well as expenses in complying with the Americans with Disabilities Act of 1990
with respect to those public transportation systems.
For more information, please contact the Rules Office at 808-587-1530 or by email atTax.Rules.Office@hawaii.gov.

MARIA E. ZIELINSKI
Director of Taxation