Hawaii Tax News
Administering the tax laws for the State of Hawaii in a consistent, uniform, and fair manner

Volume 8, Number 1

State of Hawaii • Department of Taxation

Automated Tax Refund
InformationT

axpayers calling our Taxpayer Services Branchfrom a touchtone phone can now obtain
automated information about their individual income tax
refunds 24 hours a day, 7 days a week!
From a touchtone phone, call our Taxpayer Services
Branch at 587-4242 on Oahu, or toll-free from theneighbor islands, Continental U.S., or Canada at
1-800-222-3229. Press 1 to hear a menu of options, andthen press 3 to select the refund information option.
Taxpayers will first be prompted to enter their social
security number. If the social security number matches
an account on the refund information file, they will thenbe prompted to enter the amount of their refund followedby the pound sign. Because all amounts entered on an
individual income tax return must be rounded to thenearest whole dollar, there should be no cents.
If the refund amount entered matches the refund
information file, refund status information will be
provided. If not, taxpayers may choose to enter adifferent social security number, return to the main
menu, or if during business hours, speak with a customer
service representative.
Automated refund information should be available 4
to 6 weeks after a return is filed with the Department andis updated daily.
In addition to refund information, other automatedinformation selections available on the main menu are 1)
street, mailing, and website addresses, and 2)
information on obtaining forms by fax or mail. Callers
who wish to speak to a customer service representative
during business hours may press zero at any time.

Conformity to 2003
Federal Tax Changes

Questions have been raised regarding Senate Bill
No. 2983. This is the annual conformity bill to
update Hawaii’s income tax law to conform with thechanges made to the Internal Revenue Code by the Jobs
and Growth Tax Relief Reconciliation Act of 2003, andthe Military Family Tax Relief Act of 2003.

SPRING 2004

Conformity is proposed with respect to theabove-the-line deduction for overnight travel expenses of
National Guard and Reserve members, the election tosuspend the five-year test period for ownership and use
during certain absences for members of uniformed services
or the Foreign Service in determining the exclusion of gainfrom the sale of a principal residence, and the exclusion for
amounts received under the Department of Defense
Homeowners Assistance Program.
Conformity is NOT proposed with respect to theincrease of the maximum IRC section 179 deduction to$100,000, and the 50% bonus depreciation.
The effective dates will generally be the same as thefederal effective dates unless otherwise provided.
However, none of these provisions will actually be part of
Hawaii law until the conformity bill is actually enacted.

Income Tax DeadlineThe April 20th Hawaii income tax filing deadline
is quickly approaching. If you need tax forms,
information, or assistance, we can help! The following issome of the resources we provide throughout the year:• www.state.hi.us/tax – State tax forms, publications,and much more are posted on the Department’s
website. Forms for 2003 have writable fields thatallow you to type in your entries before printing.
See Federal Conformity, Page 2

IN THIS ISSUE
Automated Tax Refund Information . . . . . . 1
Conformity to 2003 Federal
Tax Changes . . . . . . . . . . . . . . . . . . . . . . 1
Income Tax Deadline . . . . . . . . . . . . . . . . . 1
The Direct Line . . . . . . . . . . . . . . . . . . . . . . 2
2004 Hawaii Small Business Fair . . . . . . . . 3
Standard Mileage Rates for 2004 . . . . . . . . 3
Corrections to 2003 Tax Forms. . . . . . . . . . 3
Audits of Mainland Companies . . . . . . . . . . 4
Abusive Tax Avoidance Transactions . . . . . 4
Abusive Tax Schemes . . . . . . . . . . . . . . . . 4
Recently Issued Tax Publications . . . . . . . . 5
Pending Tax Publications . . . . . . . . . . . . . . 6
Second Quarter State Tax Collections . . . . 7

Page 2

Hawaii Tax NewsThe Direct Line (By Director Kurt Kawafuchi

There’s only a couple of weeks left until the State’s
April 20th income tax filing deadline. If you’re getting a
refund this year, you can now check on the status of yourrefund 24 hours a day, 7 days a week! Automatedindividual income tax refund information is one of the
new features of the interactive voice response telephonesystem recently installed in our Oahu Taxpayer Services
Branch. Instead of calling only during business hours
for a customer service representative, you can get refund
information anytime at your convenience.
With the implementation of our One-Stop Taxpayer
Services, our goal was to have an answer rate of 80% of
all incoming telephone calls. As of March 27, 2004, theyear-to-date call answer rate was 81%, compared to31.4% during the same period last year. Automatedanswer rate accounts for 22.6%, and the rest of the calls(58.4%) were answered by live persons.
A number of tax bills have been introduced at theLegislature. Our staff is working hard to track all of themand we will issue formal announcements about the tax
measures that are enacted. This legislative session, we
are focusing on increasing the standard deduction,
capital formation, and tightening Act 221. To follow the
progress of any bill, go to the Hawaii State Legislature
website at www.capitol.hawaii.gov.

Federal Conformity

Spring 2004

though the building will be closed and walk-in
service unavailable.
Just a reminder that e-filing your Form N-11 throughthe joint federal-state e-filing program often results in
fewer errors and faster processing. Refunds are extra fast
if you both e-file and choose to direct deposit yourrefund.
For those of you filing a paper return, the Department
will offer curbside service on Oahu for last minute filers
on Tuesday, April 20, 2004, from 5:00 P.M. to midnight.
You may drive up to either the Punchbowl Street or
Halekauwila Street sides of the Princess Ruth
Keelikolani Building where volunteer Department
employees will be stationed to accept tax returns,
extension requests, and other documents.
If you cannot complete your State tax return on time,
you may generally obtain an automatic 4-monthextension of time to file your Hawaii individual income
tax return without filing Form N-101A. Use Form
N-101A only if you need to make a payment. A payment
should be made if additional taxes are due because theextension of time to file an income tax return is not an
extension of time to pay the tax owed. Form N-101B isstill required to obtain the additional 2-month extension.
The most convenient way to file an extension is byusing our E-Filing via the Internet site on the State’s
Internet portal at www.ehawaiigov.org/efile. Just
register online and e-file your extension.
There is a nominal $2.50 transaction fee that goes tothe vendor operating the website, but only if a payment ismade. Pay with an electronic check or credit card, but beaware that credit card companies charge an additional
fee if you use your credit card. Check your total charges
before confirming your payment.

(From Page 1)

•

•

•

Forms by Fax/Mail Service – Call 24-hours a day,
7-days a week, to have tax forms and publications
mailed to you. Selected forms are available by fax.
Call 587-7572 from Oahu; toll-free from theneighbor islands, continental U.S., and Canada at
1-800-222-7572.
District Tax Offices – Tax forms, information, andassistance are available during business hours at the
Oahu, Maui, Hawaii (Hilo), and Kauai district tax
offices.
One-Stop Taxpayer Services – The department’s
reorganized and expanded Taxpayer Services
Branch provides one-stop service to Hawaii
taxpayers statewide. Call 587-4242 from Oahu
(toll-free at 1-800-222-3229), or e-mail them at
Taxpayer.Services@hawaii.gov. To assist you inmeeting the filing deadline, our telephone lines will
be open on the April 9th Good Friday holiday even

The Hawaii Tax News is a publication of the State of
Hawaii, Department of Taxation.
Director:
Editor:Address:
Telephone:
Fax:
E-mail:Website:Forms By
Fax/Mail:
Consumer Dial:

Kurt Kawafuchi
Lynne Kuroda
Princess Ruth Keelikolani Building
830 Punchbowl Street, Room 219
Honolulu, HI 96813-5094
808-587-1577
808-587-1584
Tax.Technical.Section@hawaii.gov
www.state.hi.us/tax
808-587-7572
Toll-Free 1-800-222-7572
808-587-1234, code 7700

Spring 2004

Hawaii Tax News

2004 Hawaii Small
Business FairT

he 2004 Hawaii Small Business Fair is coming
soon to Kapiolani Community College (KCC)!
This FREE event will be held on Saturday, May 22,
2004, from 8:30 A.M. to 2:30 P.M. in the KCC Cafeteriaon the upper level of the Ohia Building. Any interested
person can attend, and there is no registration.
Hawaii’s economy depends on small business, andthis fair is an important source of information on the
many free and low-cost support services available tosmall businesses.
Many government and nonprofit organizations
provide counseling, mentoring, training, and otherservices to small businesses, and resources such as
computer access, libraries, loans, and more!
Representatives of a number of agencies will beavailable that day for people to speak with one-to-one.
In addition, seminars and panel discussions on a wide
range of topics will be held in nearby classrooms. Of
course taxes will be covered, but also how to start a small
business, choosing the right form of business, writing abusiness plan, recordkeeping, marketing, financing
options, importing and exporting, doing business withthe government, and more!
Interested? Visit the Hawaii Small Business Fair’s
website at http://smallbusinessfair.state.hi.us for
directions to KCC, a map of the campus, and all the latest
information.
Still have questions? Contact our External Training& Outreach staff by phone at 587-1786, or by e-mail at
Tax.Training.Outreach@hawaii.gov.
See you there!

Standard Mileage
Rates for 2004

Y

ou may be able to deduct certain car expenses if
you use your car for business purposes. In
general, you may use either the standard mileage rate or
the actual expenses method to compute your deduction.
The standard mileage rate is easier for most people, but
until this year, the actual expenses method was required
if you used more than one vehicle at a time.
Starting in 2004, you can use the standard mileagerate as long as you use no more than four vehicles at thesame time for business purposes. Better still, thestandard mileage rate for business use of a car has
increased from 36 cents per mile in 2003 to 37.5 cents permile in 2004.

Page 3Car expense deductions are also allowed for certain
non-business uses. If you itemize your deductions(instead of claiming the standard deduction), you may beable to claim a deduction for using your car for medical
reasons or while giving services to a charitableorganization. If you move to a new home because you’rechanging job locations or starting a new job, you may beable to claim a moving expense deduction for use of yourcar in a qualifying move on Form N-139.
The standard mileage rates for using your car for
medical reasons or in a qualifying move have both been
increased from 12 cents per mile in 2003 to 14 cents permile in 2004. The standard mileage rate for using yourcar while giving services to a charitable organization isunchanged at 14 cents per mile.
For more information, see Department of Taxation
Announcement No. 2003-12, which is available on our
website at www.state.hi.us/tax, by calling our request
line at 587-7572 (toll-free at 1-800-222-7572), and at
any district tax office.

Corrections to 2003
Tax Forms

T

he following is a listing of errors found on the2003 Hawaii tax forms:
Form F-1 Instructions• On page 3, Instruction XIV. Payment of Tax., lastparagraph which starts, “Line 72. . . .” should read“Line 73. . . .”Form N-11/N-12 Instructions• On page 28, “Tax on Capital Gains Worksheet”, line
5, which reads “. . . (Form 1040, Schedule D, line
17)” should read “. . . (Form 1040, Schedule D, line
17a)”
Form N-15 Instructions• On page 39, “Tax on Capital Gains Worksheet”, line
5, which reads “. . . (Form 1040, Schedule D, line
17)” should read “. . . (Form 1040, Schedule D, line
17a)”
Form N-318• On page 1, Part II, in the “Note” that says “. . . skip
Lines through 6 and include on Line 7 . . .” should
read “. . . skip Lines 1 through 6 and include on Line 7. . .”• On page 1, Line 10, “through” is misspelled(trhough).
See Tax Forms Corrections, Page 4

Page 4

Hawaii Tax News

Tax Forms Corrections(From Page 3)

Form N-334• On page 1, line 22, which reads, “. . . (Subtract line 21
from line 22 and enter result)” should read “. . .
(Subtract line 21 from line 20 and enter result)”
Form N-334A• On page 1, line 22, which reads, “. . . (Subtract line 21
from line 22 and enter result)” should read “. . .
(Subtract line 21 from line 20 and enter result)”

Audits of Mainland
Companies

R

ecently, Small Business Hawaii Vice President,
Jack Schneider, had an article posted on theInternet. In it, he wrote that the Tax Department is not
pursuing mainland companies that are doing business in
Hawaii and not paying Hawaii taxes, and that he wants
the Tax Department to “go get ‘em.”
Local businesses should rest assured that we havebeen pursuing mainland companies for a long time.
All of our senior field auditors have mainland
companies in their audit inventories. In fact, we audit
both mainland and local companies to ensure thateveryone pays their fair share, because any company thatshould be paying Hawaii taxes and isn’t places theirlaw-abiding competitors at a disadvantage.
If you suspect a company of not paying Hawaii taxes,
let us know. Call our Taxpayer Services Branch(anonymously if you wish) or e-mail them at
Taxpayer.Services@hawaii.gov with any evidence. If
you prefer, e-mail our Director’s office at
Tax.Directors.Office@hawaii.gov.

Abusive Tax
Avoidance
Transactions

Hawaii joined tax agencies in 33 other states and
New York City in signing a joint Federation ofTax Administrators (FTA) memorandum of agreement
to share information on abusive tax shelters and illegaltransactions, a move intended to strengthen the fightSpring 2004

against this complex problem.
The FTA agreement complements an agreement
signed last September between the Internal Revenue
Service (IRS) and 45 states including Hawaii, theDistrict of Columbia, and New York City. While the IRS
agreement covers the sharing of abusive tax avoidance
transaction (ATAT) information between the IRS andindividual states, the FTA agreement focuses on ATAT
information to be shared amongst and between the states
and cooperative audit and enforcement actions.

Abusive Tax Schemes

T

he Internal Revenue Service and the State
Department of Taxation advise taxpayers not tofall victim to one of the tax scams that surface each year
during the filing season. Victims of these abusive
schemes often pay promoters or unscrupulous tax
preparers large fees, then end up facing a staggering
amount of back taxes, interest and penalties.
“At the IRS, we’re augmenting our enforcement
resources to attack schemes and scams. While we’re
actively targeting promoters, taxpayers themselves
should be wary of anyone who promises to eliminate
their taxes”, said IRS Commissioner Mark W. Everson.
“Don’t be fooled by these outrageous claims. There is nosecret way to escape paying taxes.”“It’s not just the wealthy who are targeted," said StateTax Director, Kurt Kawafuchi. “In Hawaii, some of ourmost vulnerable taxpayers have fallen victim, and we haveproposed legislation to prevent this from continuing."
House Bill 2514 and Senate Bill 2989 are currently
before the State Legislature. If passed, they would allow
the State Department of Taxation to impose civil
penalties and injunctions on individuals who promote
abusive tax shelters and on tax preparers who support
unrealistic positions on their clients’ tax returns.
The IRS and State Department of Taxation urge
people to avoid these common schemes:• Return Preparer Fraud. Most tax return preparers
are honest, but taxpayers should choose a tax
preparer carefully. Unscrupulous tax preparers cause
problems for those who use their services while
enriching themselves. Here are some tips:(1) Avoid tax preparers who guarantee large
refunds before seeing your tax records or who
want a portion of your refund as payment.
(2) If your refund is considerably higher this year
than last year and your situation hasn’t changed
very much, you may want to get a second
opinion. It could be because your current tax
preparer claimed false deductions.
See Tax Schemes, Page 5

Spring 2004

Hawaii Tax NewsTax Schemes(From Page 4)

•

•

•

(3) Make sure your tax preparer goes over your tax
return with you line-by-line, and explains
everything thoroughly. Even if you don’t knowmuch about completing your tax return, you willknow what your wages were, how much you
donated to charitable organizations, and otherbasic information reported on your tax return.
(4) Do not sign a tax return before you review it andare sure that the information is correct. No
matter who prepares the return, the taxpayer isultimately responsible for all of the informationon that return and for the payment of any tax,
penalty, and interest charges that may beassessed.
(5) Do not accept a return if the preparer does not
sign it. If the tax preparer doesn’t want to takeresponsibility for the information on yourreturn, neither do you.
Employment Tax Evasion. The IRS and the State
Department of Taxation have seen a number ofillegal schemes in which promoters tell employees toclaim to be exempt from the withholding of taxes
from their wages when they are not exempt, or toclaim incorrectly an excessive number ofwithholding exemptions so that no taxes arewithheld. If you did not pay enough tax, either
through withholding or by making estimated tax
payments, you may have to pay penalties.
Improper Home-Based Business. This scheme
purports to offer tax “relief” but is an illegal tax
avoidance scheme in reality. Its promoters claim that
individual taxpayers can deduct most, or all, of theirpersonal expenses as business expenses by setting up
a bogus home-based business. The tax code firmly
establishes that a clear business purpose and profit
motive must exist before a taxpayer can deduct
anything as a business expense. This scam has beenaround for years, but the IRS and State Department of
Taxation continue to see activity in this area.
Misuse of Trusts. Promoters of abusive tax
avoidance transactions are increasingly urging
taxpayers to transfer assets into trusts. The promoterspromise a variety of benefits, such as the reduction ofincome subject to tax, deductions for personal
expenses paid by the trust, and reduction of gift or
estate taxes. Taxpayers should be aware that abusive
trust arrangements will not produce the tax benefits
advertised by their promoters, and that the IRS andthe State Department of Taxation are actively
examining these types of trust arrangements. Morethan a dozen injunctions have been obtained by the

Page 5

IRS against promoters, and numerous promoters andtheir clients have been criminally prosecuted. Before
entering any trust arrangements, taxpayers shouldseek the advice of a trusted tax professional.
• Share/Borrow EITC Dependents. Unscrupulous
tax preparers “share” one client’s qualifying children
with another client in order to allow both clients toclaim the federal Earned Income Tax Credit. For
example, one client may have four children, but only
needs to list two to get the maximum EITC. The
preparer will list two children on the first client’s tax
return and the other two on another client’s return.
The preparer and the client “selling” the dependents
split a fee. The IRS prosecutes the preparers of such
fraudulent claims, and participating taxpayers could
be subject to civil penalties.
If you suspect tax fraud, you can report it to us bycalling our Taxpayer Services Branch at 587-4242(toll-free at 1-800-222-3229) or by e-mailing them at
Taxpayer.Services@hawaii.gov. Tax fraud also can bereported to the IRS at 1-800-829-0433. Moreinformation on tax scams and schemes is available byvisiting “The Newsroom” section of the IRS website atwww.irs.gov.

Recently Issued Tax
Publications

T

he following is a list of the publications issued
by the Department of Taxation from April 2003
through March 2004. Copies of these publications may
be obtained from our website at www.state.hi.us/tax.
With the exception of the Reports, copies of thesepublications also may be obtained by calling our request
line at 587-7572 (toll-free at 1-800-222-7572), or fromany district tax office.
A limited number of the Reports are available for anominal fee from our Tax Research and Planning Office.
Contact them by phone at 808-587-1440 or by e-mail at
Tax.Research@hawaii.gov to request an order form.
TIR No. 2003-2 - Provides information on theextension of deadlines and other tax relief for members of
the armed forces, reserves, and Hawaii National Guard.
Announcement No. 2003-1 - Provides informationon the new and revised high technology business
investment tax credit forms.
Announcement No. 2003-2 - A listing of new andobsolete tax forms, instructions, and schedules; errors
found on Hawaii tax forms.
Announcement No. 2003-3 - Provides a list of
candidates for political office who voluntarily filed
See Recent Publications, Page 6

Page 6

Hawaii Tax News

Recent Publications(From Page 5)

affidavit forms with the campaign spending commission.
Announcement No. 2003-4 - Provides informationon Act 14, SLH 2003, which provides corrective legislation
to Hawaii’s estimated tax underpayment penalty andclarifies the law regarding extensions to file tax returns.
Announcement No. 2003-5 - Provides informationon Act 100, SLH 2003, which provides a nonrefundable
attractions and educational facilities tax credit equal to100% of certain costs incurred after May 31, 2003, andbefore June 1, 2009, for the development of such
facilities at Ko Olina Resort and Marina and the Makaha
Resort.
Announcement No. 2003-6 - Provides informationon Act 136, SLH 2003, which changes tax
administration by (1) authorizing the Department of
Taxation to waive penalties and interest on tax liabilities
that have been delinquent for more than 90 days, (2)streamlining the offers in compromise process byauthorizing the tax director, instead of the Governor, toaccept offers in compromise for tax liabilities that are$50,000 or less (exclusive of penalties and interest), and(3) allowing the tax director to hire tax criminal
investigators.
Announcement No. 2003-7 - Provides informationon the increase in the cigarette tax to 6.5 cents per
cigarette for sales, use, or possession of cigarettes afterJune 30, 2003.
Announcement No. 2003-8 - Announces theincrease in the Maui County gasoline and diesel fuel tax
rate from 13 cents to 18 cents per gallon, effective July 1,
2003.
Announcement No. 2003-9 - Provides informationon Act 135, SLH 2003, which amends or repeals
obsolete tax laws.
Announcement No. 2003-10 - Provides informationon Act 172, SLH 2003, which brings Hawaii Income Tax
Law into conformity with many but not all of the changes
made to the Internal Revenue Code as of December 31,
2002.
Announcement No. 2003-11 - Provides informationon Act 173, SLH 2003, which authorizes Hawaii’s
participation in multistate discussions relating to the
Streamlined Sales Tax Project which is a nationwide
effort being undertaken among the various states.
Announcement No. 2003-12 - Announces the
adoption of the IRS optional standard mileage rates for
2004.
Digest of Tax Measures - Enacted by the State of
Hawaii, Twenty-Second Legislature, Regular Session of
2003.

•
•
•

Spring 2004

Reports:
Annual Report 2002-2003
Tax Credits Claimed by Hawaii Taxpayers - 2001
Hawaii Income Patterns - Individuals - 2001

Pending Tax
Publications

T

he following is a list of some of the
Department’s pending tax publications.
Administration of Taxes• Application of penalties and interest and the waiverof penalties and interest - sections 231-3 and 231-39,
HRS.
• Clarification of the offers in compromise process.
Income Tax Law• Clarification of the application of the Hawaii tax
credit for increasing research activities.
General Excise Tax Law• Clarification of the general excise tax rules,
including the application of the general excise tax forreimbursements - section 237-20, HRS.
Transient Accommodations Tax• Clarification of the application of the transient
accommodations tax.
Conveyance Tax Law• Clarification of the application of the conveyancetax.

Spring 2004

Hawaii Tax News

Page 7

Second Quarter State Tax Collections
October 2003 - December 2003
(In Millions of Dollars)
Difference
Individual Income Tax
Corporate Income Tax
General Excise Tax
Transient Accommodations Tax
All Others
Total Tax Collections

FY 2004$ 297.1
-0.3
438.1
38.0
166.9
$ 939.9

FY 2003$ 271.9
6.7
410.3
36.7
170.8
$ 896.5

Amount$ 25.2
-7.0
27.8
1.2
-3.9
$ 43.4

Percent
9.3%
nm*
6.8%
3.3%
-2.3%
4.8%

General Fund Revenues$ 806.6$ 776.0$ 30.6

3.9%(Note: Totals may not add up due to rounding.)
nm* = not meaningful

Total tax collections for the second quarter of fiscal year 2004 amounted to $939.9 million, or $43.4 million more than
the same period of last fiscal year. General fund revenues of $806.6 million for the second quarter also advanced$30.6 million from last year’s total of $776.0 million. As the economy continues to show growth, general excise,individual income, and transient accommodations tax collections showed fairly large increases from the previous year.
Corporate income tax collections dropped slightly due to an increase in the number of income tax refunds processed.
For the first half of fiscal year 2004, total state tax collections are $58.6 million, or 3.1% over the first half of last
fiscal year.

Taxpayer Services BranchState of Hawaii
Department of Taxation
P.O. Box 259
Honolulu, HI 96809-0259

TAXPAYER SERVICES BRANCH
Princess Ruth Keelikolani Building
830 Punchbowl Street
Honolulu, HI 96813-5094
Website: www.state.hi.us/tax
E-mail: Taxpayer.Services@hawaii.gov
Fax: 808-587-1488
Telephone:808-587-4242
1-800-222-3229 (Toll-Free)808-587-1418 (TDD - For the hearing impaired)
1-800-887-8974 (TDD Toll-Free - For the hearing impaired)
Forms By Fax/Mail:
808-587-7572
1-800-222-7572 (Toll-Free)