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

Volume 8, Number 3

State of Hawaii • Department of Taxation

Business Tax System
Implementation
Computer System Integration
The last major component of our Integrated Tax
Information Management System (ITIMS) is being
implemented!
ITIMS has already transformed tax filing in this State
with e-filing capabilities, an automated billing process,and more. In October, the business tax component isbeing implemented.
No longer will staff have to switch from one system
to the next to assist you with different taxes. The
completed system will integrate income tax and businesstax information – kind of like having each taxpayer’s tax
records all in one folder.
To implement the business tax component, we will
be taking our computer system off-line for up to two
weeks beginning October 1, 2004. During this time, wewill continue to accept tax returns and payments, but
nothing will be uploaded into the computer until thebusiness tax component is integrated, and the entire
system checked and brought back up.
While the system is off-line, Department employees
will have limited tax account information available tothem, and will not be able to update or make any
adjustments to taxpayer accounts. Persons who e-filetheir returns through the joint Federal-State E-filingprogram (JELF) or through the State's lnternet filing
option (ELF) will not be affected by the implementation.
The Department will be able to issue a limited
number of new license numbers and have access toreports and other information that will allow theapproval of tax clearances if the taxpayer's filing records
are up to date and no balances are owed.
When the completed system is brought back on-line,
new tax return and other account information will be
gradually introduced, checked, and tracked to ensure thatthe system is working as anticipated and that any problems
are quickly resolved before full production is resumed.
Once the implementation occurs, you will see several
changes.
For example, the familiar 8-digit number assigned togeneralexcise,use,
withholding,transientaccommodations, and rental motor vehicle and tour
vehicle surcharge tax licensees is being replaced with a
new Hawaii Tax Identification Number. The Hawaii Tax

FALL 2004

Identification Number will consist of the letter “W”, arandomly assigned eight-digit number, and a two-digit
sequence number (e.g., W12345678-01).
Taxpayers that formerly had more than one businessaccount (e.g., more than one general excise tax license)
will be assigned Hawaii Tax Identification Numbers thatare differentiated only by their sequence number.
EXAMPLE: Mr. X currently has two general excise
tax licenses (license number 11111111 and license
number 22222222). Next year, Mr. X will get twogeneral excise tax forms booklets. One booklet will benumbered W12345678-01, and the other booklet will benumbered W12345678-02.
Licensees will be sent a letter regarding their newnumbers after the system implementation. New tax
license certificates are NOT being issued and are NOT
required; the new system will be able to cross reference
the old and new identification numbers. Please makesure, however, that you keep the informational letter inyour permanent files.
Taxpayers should continue to use forms pre-printed
with their old numbers; the new numbers will first
appear on forms booklets issued for their next tax year.
Businesses also will NOT need to obtain new resalecertificates and the like from existing customers.

Department Reorganization
Also occurring on October 1st is the third phase of
our planned reorganization, which will bring ourorganization in line with the system changes andincrease efficiency.
First, document filing and processing is being
See System Implementation, Page 2

IN THIS ISSUE
Business Tax System Implementation . . . . 1
The Direct Line . . . . . . . . . . . . . . . . . . . . . . 2
Year-End Workshops . . . . . . . . . . . . . . . . . 2
New On Our Website . . . . . . . . . . . . . . . . . 2
Digest of Tax Measures . . . . . . . . . . . . . . . 3
Recently Issued Tax Publications . . . . . . . . 3
Criminal Section - Concluded
Investigations Resulting in
Prosecution/Convictions . . . . . . . . . . . . . 4
Pending Tax Publications . . . . . . . . . . . . . . 6
Fiscal Year Ended 2004 State Tax
Collections . . . . . . . . . . . . . . . . . . . . . . . . 7

Page 2

Hawaii Tax NewsThe Direct Line (By Director Kurt Kawafuchi

The business tax component of our Integrated Tax
Information Management System (ITIMS) is being
implemented!
Our ITIMS project, which began in 1999, has
gradually enabled the Department to provide new andimproved services to you. This final component, along withthe third phase of our planned reorganization, brings still
more improvements. Integrating income tax and businesstaxes into a single system will enable our staff to assist you
with your tax accounts much more efficiently.
This implementation is complex, and we should expect
a problem or two. We are working hard to keep them to aminimum and will quickly address any that do occur. Your
patience during the transition will be appreciated.

System
Implementation(From Page 1)

centralized on Oahu. All new tax forms and instructions
will only list an Oahu mailing address.
Second, our Taxpayer Services Branch, which went
through a major reorganization to create its one-stop
Customer Inquiry Section last October, will now add
two new sections. The new Licensing Section will
centralize the processing of license applications andchanges. The new Account Management Section willassume responsibility for resolving errors on documents
so that they can be posted to our tax processing system.
Shifting this function from the Compliance Division to
the Tax Services and Processing Division will allow the
Office Audit Branch and Office Audit sections in all
districts to focus on compliance-related activities.
Finally, the External Training and Outreach Section of
the Rules Office will become a separate staff office toprovide for more direct contact between the Director’s
Office and the public information functions of this program.
As with any major system implementation, we expect
a glitch here and there, but we are confident that our staff,
along with our CGI-AMS project partners, will keep these
to a minimum and quickly resolve any that may occur.
With both a system implementation and a reorganization
happening concurrently, your patience and understanding
in the coming months will be appreciated.

Fall 2004

Year-End Workshops

P

lanning has begun for our year-end workshop
series. Topics are not yet finalized, but you’ll be
sure to hear about our revised tax forms since many
income tax and business tax forms have changed as aresult of the business tax system implementation. CPE
credit will be available to attendees.
The information and registration flyer will beavailable on our website at www.state.hi.us/tax sometimein October. For more information, contact our External
Training and Outreach Office by phone at 808-587-1786,
or by e-mail at Tax.Training.Outreach@hawaii.gov.

New On Our Website

Something new is on the Tax Department’s
website at www.state.hi.us/tax. There are
actually a couple of new pages. The first is a listing ofpending offers in compromise.
In a very limited number of situations, taxpayers
unable to meet their tax obligations can arrange acompromise settlement. These offers in compromise
usually must be approved by the Governor. The law waschanged last year to allow the tax director to accept
compromise offers without the Governor’s approval IF
the tax liability, exclusive of any penalty and interest
charges, is $50,000 or less.
Before the tax director can accept the offer, however,pending offers must first be posted on the Department’s
website for 5 days.
To view posted information about pending offers
See Department’s Website, Page 3

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

Fall 2004

Hawaii Tax News

Department’s Website(From Page 2)(e.g., taxpayer’s name, amount assessed, settlement
amount, reasons for the compromise, etc.), go to thebottom of the Department’s homepage, select “Useful
Links” and then select “Offers in Compromise.”
For more information on offers in compromise, see
Tax Facts No. 2000-2 and Announcement No. 2003-6.
Both are available on the Department’s website or bycalling the Department’s request line at 587-7572(toll-free at 1-800-222-7572).
The second new page, also accessible under “Useful
Links,” is a list of authorized tobacco licensees.
This year’s Act 157, in part, prohibits anyone fromcircumventing Hawaii’s cigarette tax (currently sevencents per cigarette) by obtaining cigarettes from
unlicensed sellers via telephone, mail order, the Internet,
etc. Violating this provision is a class C felony if it
involves 1,000 or more cigarettes, and a misdemeanor if
less than 1,000 cigarettes, so smokers beware! Check
this list before making an on-line or mail order purchase.

Digest of Tax
MeasuresT

he Department of Taxation’s Digest of Tax
Measures is now available on the Department’s
website at www.state.hi.us/tax!
As it does each year, the Department has published asummary of State tax legislation enacted and vetoed thisyear. The Digest also lists the specific sections of the
Hawaii Revised Statutes that were affected by the newlegislation, as well as provisions of the 2003 federal tax
legislation that are operative and inoperative for Hawaii
income tax purposes.
A limited number of hard copies are available bycalling the Department’s request line at 587-7572(toll-free at 1-800-222-7572), or from any district tax
office.

Recently Issued Tax
Publications

T

he following is a list of the publications issued
by the Department of Taxation from October2003 through September 2004. Copies of these

Page 3

publications may be obtained from our website atwww.state.hi.us/tax. With the exception of the Reports,
copies of these publications also may be obtained bycalling our request line at 587-7572 (toll-free at
1-800-222-7572), or from any 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.
Announcement No. 2003-12 - Announces the
adoption of the IRS optional standard mileage rates for
2004.
Announcement No. 2004-01 - Provides informationon the increase in the cigarette tax to 7 cents per cigarettefor sales, use, or possession of cigarettes after June 30,
2004.
Announcement No. 2004-02 - Provides informationon Act 89, SLH 2004, which brings Hawaii Income Tax
Law into conformity with many but not all of thechanges made to the Internal Revenue Code as ofDecember 31, 2003.
Announcement No. 2004-03 - Provides informationon Act 96, SLH 2004, which lowers the tax rate on
alternative fuel sold for use in operating an internal
combustion engine from 1 cent to .25 cents per gallon;
and lowers the percentages that are applied to the rate fordiesel oil in determining the rates on alternative fuel soldfor use in operating a motor vehicle on public highways
as follows: ethanol (from .29 to .145); methanol (from.22 to .11); biodiesel (from .5 to .25); and otheralternative fuels, other than liquefied petroleum gas(from .5 to .25).
Announcement No. 2004-04 - Provides informationon Act 97, SLH 2004, which provides clarifications to
the renewable energy technologies income tax credit.
Announcement No. 2004-05 - Provides informationon Act 140, SLH 2004, which encourages theconstruction of operational, large-capacity ethanol
production facilities by changing the ethanol investment
tax credit to a facility tax credit.
Announcement No. 2004-06 - Announces thedecrease in the Kauai County biodiesel fuel tax rate from
6.5 cents to zero cents per gallon, effective July 1, 2004.
Announcement No. 2004-07 - Provides informationon Act 197, SLH 2004, which increases the allowable
exclusion from Hawaii net income tax for members ofthe Hawaii National Guard and reserve components of
the Army, Air Force, Marine Corps, and Coast Guard
over five years starting January 1, 2005.
Announcement No. 2004-08 - Provides informationon Act 157, SLH 2004, which prohibits the distributionof untaxed cigarettes via the telephone, mail order, theInternet, and other on-line sources.
Announcement No. 2004-09 - Provides information
See Recent Publications, Page 6

Page 4

Hawaii Tax News

Fall 2004

Criminal Section – Concluded Investigations Resulting
in Prosecution/Convictions
Fiscal Year 2004
Concluded criminal investigations resulting in prosecution/convictions for fiscal year ended 2004 are summarized in thechart below. The Department continues to encourage taxpayers to voluntarily file their tax returns. The Department
generally will not initiate a criminal investigation when taxpayers voluntarily come forward to report their failure to file orother omissions.

VIOLATIONSNameBusiness Activity

Violation

ResultConviction
Date

Richard Basuel

Return Preparer

False Return, Theft

Guilty - Jury

02/17/04

Richard Camacho

Individual Taxpayer

False Return, Theft

Pled Guilty

08/05/04

James Dysarz

Gov’t Employee

False Returns, Theft

Pled Nolo

09/12/03

Felise Fainuu

WelfareFalse Returns

Pled Nolo11/03/03

Julieta Fainuu

WelfareFalse Returns

Pled Nolo11/03/03

Stephen Girald, Sr.

Trucking Company

Failure to File GE,
PSC, Theft

Pled Nolo

11/18/03

Ashlet Girald

Trucking Company

Failure to File GE,
PSC, Theft

Pled Nolo

11/18/03

Elizabeth Jeffries

Individual Taxpayer

Failure to File NI

Pled Guilty

03/23/04

Kauai Freight Service

Trucking Company

Failure to File GE,
PSC, Theft

Pled Nolo

11/18/03

Stephen Schaefer

Minister

EvasionPled Nolo03/19/04

April Schaefer

Minister’s Spouse

EvasionPled Nolo03/19/04

Robert Ancheta

Optometrist

Failure to File GE

Pled Nolo12/05/03

George Brown

Contractor

Failure to File GE,
Theft WH

Pled Nolo

01/07/04

Crush, Inc.

Gym

Failure to File GE

Pled Nolo

05/21/04

Diamond Head Termite,
Inc.

Contractor

Failure to File GE,
Theft WH

Pled Nolo

01/07/04

Ernest Fain

Individual Taxpayer

EvasionPled Nolo

01/08/04

Ferrari Adventures, Inc.

Rental Vehicle

Failure to File GE, RV

Pled Nolo11/03/03

Hitoshi Ikeguchi

Entertainment

Failure to File GE

Pled Nolo03/25/04

See Criminal Section, Page 5

Fall 2004

Hawaii Tax News

Page 5

Criminal Section(From Page 4)

VIOLATIONSNameBusiness Activity

Violation

ResultConviction
Date

Marks Kahikina, Jr.

Individual Taxpayer

False Return, Theft

Pled Nolo

02/11/04

KIK, Inc.

Entertainment

Failure to File GE

Pled Nolo03/25/04

Bryant LaPorte

DentistFailure to File GE

Pled Nolo

02/17/04

Alejandro Lazo D C, Inc.

Chiropractor

Failure to File GE, WH Pled Nolo

06/17/04

Alejandro Lazo

Chiropractor

Failure to File GE, WH Pled Nolo

06/17/04

Nicholas Lovretich

Individual Taxpayer

Failure to File GE,
TATPled Guilty

05/07/04

Dennis Makinodan

Wholesale/Retail

Failure to File GE,
Theft

Pled Nolo

11/24/03

James Moser

Gym

Failure to File GE

Pled Nolo

05/21/04

Rosemond Nebres

Individual Taxpayer

False Return, Theft

Pled Guilty

04/12/04

Joseph Nuuanu

Individual Taxpayer

EvasionPled Nolo03/22/04

Charles Reindhardt

Individual Taxpayer

False Return, Theft

Pled Nolo

10/13/03

Linda Reinhardt

Individual Taxpayer

False Return, Theft

Pled Nolo

10/13/03

Howard Ritchie

RetailFailure to File GE

Pled Guilty

05/07/04

S&D Sales, Inc.

Wholesale/Retail

Failure to File GE,
Theft

Pled Nolo

11/24/03

Vernon Silva

Individual Taxpayer

False Return, Theft

Pled Nolo

06/07/04

T&D Stores, Inc.

RetailFailure to File GE

Pled Nolo

05/28/04

Nonito Tadeo

Auto Retail

Failure to File GE

Pled Nolo

11/19/03

Dennis Torres

RetailFailure to File GE

Pled Nolo

05/28/04

Alvin Tung

Individual Taxpayer

False Return, Theft

Pled Nolo

11/12/03

Betty Tung

Individual Taxpayer

False Return, Theft

Pled Nolo

11/12/03

Gilbert Tung

Individual Taxpayer

False Return, Theft

Pled Nolo11/25/03

Tevita Ungounga

Contractor

Failure to File GE

Pled Guilty

07/22/04

Page 6

Hawaii Tax News

Recent Publications(From Page 3)

on Act 159, SLH 2004, which requires wirelessproviders to charge customers a 66-cent monthly
surcharge to be deposited into a special fund that will be
dedicated to upgrading wireless carrier locations and911 call centers to allow public safety agencies to better
locate wireless callers.
Announcement No. 2004-10 - Provides informationon Act 214, SLH 2004, which provides a fraternalbenefit, religious, charitable, scientific, educational, orother nonprofit organization under section 501(c) of theInternal Revenue Code, a general excise tax exemption
for gross income derived from fees for convention,
conference, or trade show exhibit or display spaces.
Announcement No. 2004-11 - Provides informationon Act 228, SLH 2004, which establishes a net income
tax check-off to allow taxpayers to voluntarily
contribute $5 on their state income tax returns to beallocated as follows: (1) One-third to the Hawaii
Children’s Trust Fund, and (2) Two-thirds to be divided
equally among the Domestic Violence Prevention
Special Fund of the Department of Health and theSpouse and Child Abuse Special Accounts under the
Department of Human Services and the Judiciary.
Announcement No. 2004-12 - Provides informationon Act 115, SLH 2004, which extends the “sunset date”
of the Integrated Tax Information Management Systems(ITIMS) Special Fund from July 1, 2004 to July 1, 2005.
Announcement No. 2004-13 - Provides informationon Act 195, SLH 2004, which permits a tax deduction of
up to $3,000 for one tax year out of every threeconsecutive tax years for an individual taxpayer’s
qualified expenditures to maintain an exceptional treethat is on the taxpayer’s private land and is designated as
an exceptional tree by the local county arborist
committee under chapter 58, Hawaii Revised Statutes.
Announcement No. 2004-14 - Provides informationon Act 123, SLH 2004, which provides for the first tax
appeal to either the district board of review or the tax
appeal court to be made without payment of the assessedtax.
Announcement No. 2004-15 - Provides informationon Act 215, SLH 2004, which amends various
provisions of Act 221, SLH 2001, relating to hightechnology investment tax credits, extends the sunset
date for certain tax incentives to December 31, 2010, andestablishes a State Private Investment Fund.
Hawaii Tax Information at a Glance Brochure Revised April 2004.
Digest of Tax Measures - Enacted by the State of
Hawaii, Twenty-Second Legislature, Regular Session of
2004.

•
•
•

Fall 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.

Fall 2004

Hawaii Tax News

Page 7

Fiscal Year Ended 2004 State Tax Collections
July 2003 - June 2004
(In Millions of Dollars)
Difference
Individual Income Tax
Corporate Income Tax
General Excise Tax
Transient Accommodations Tax
All Others
Total Tax Collections

FY 2004$ 1,169.0
56.7
1,900.4
181.8
736.4$ 4,044.2

FY 2003$ 1,038.1
8.3
1,792.7
170.9
723.6$ 3,733.5

Amount$ 130.8
48.4
107.7
11.0
12.8
$ 310.7

Percent
12.6%
585.7%
6.0%
6.4%
1.8%
8.3%

General Fund Revenues$ 3,446.4$ 3,182.0$ 264.3

8.3%(Note: Totals may not add up due to rounding.)

Total tax collections for fiscal year 2004 amounted to $4,044.2 million, or $310.7 million more than the same period
last year. Indicative of a strong economy, general excise tax collections grew by $107.7 million, or 6.0%, to $1,900.4
million for fiscal year 2004. Corporate and individual income taxes also showed sizable increases of $48.4 million
and $130.8 million, respectively, as the previous fiscal year totals were low from the lingering effects of theSeptember 11, 2001 attack and the onset of the 2003 war in Iraq. Transient accommodations taxes also advanced$11.0 million to $181.8 million.
Of the $4,044.2 million collected, $3,446.4 million was deposited into the state general fund. This $264.3 million
growth over the previous fiscal year represents an 8.3% increase.

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)