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

Volume 8, Number 4

State of Hawaii • Department of Taxation

Computer System
Implementation a
Success!

O

ur Integrated Tax Information Management
System (ITIMS) is now a reality! Many of the
key ITIMS functions have been tested and cleared, andDepartment employees have adjusted quickly to the new
system and processes. The backlog of documents to beprocessed into ITIMS is slowly being reduced, although
the Department will continue to check all new data being
uploaded to ensure that ITIMS is working as anticipated.
In short, the success of ITIMS means that we will beable to provide better service to the business community.
All of your income tax and business tax information
is now in one integrated computer system that can beeasily accessed using your social security number or, if a
corporation or other non-individual taxpayer, federal
employer identification number.
Questions about your tax accounts can be more easily
addressed, and any adjustments made online and in realtime in many cases.
Hawaii’s taxpayers have been very understanding
and patient throughout this process, and everyone at the
Department is greatly appreciative. Be assured that thesuccessful conclusion of this five-year project does notmean that the Department will rest on its laurels for the
next few years. We are keeping the momentum going,and plans are already in the works for further
improvements and changes that will make Hawaii abetter place to do business.

New E-Services for
Hawaii Businesses

T

he Internet is making it easier than ever to dobusiness in Hawaii, and a huge step in the right
direction was taken in October when Governor Lingle
unveiled Hawaii Business Express, a joint project of theState Departments of Commerce and Consumer Affairs(DCCA), Labor and Industrial Relations (DLIR),
Business, Economic Development and Tourism(DBEDT), and Taxation, the Internal Revenue Service

WINTER 2004

(IRS), and the Hawaii Information Consortium.
Hawaii Business Express is a one-stop, online,
business registration service that allows new businesses
to register with the State agencies in one easy process.
Simply go to the Hawaii Business Express website atwww.ehawaii.gov/bizex, set up a free account by
providing some basic information, and then answer aseries of questions and pay the fee(s) online. Applicableforms for all of the State agencies are automaticallycompleted based on the answers provided.
Our Form BB-1, which is used to register for general
excise and other business taxes, is transmitted to us
AFTER the business name, if any, is approved by
DCCA, and a Hawaii Tax Identification Number is
e-mailed to the applicant within a few business days.
The benefits are clear when you compare theconvenience and quick turn-around of Hawaii BusinessExpress to the inconvenience of applying in-person or
the four-week period it usually takes for mailed-in
applications.
As an added benefit, there also is a link to the IRS
website for obtaining a federal employer identification
number online, and if you need help, you can “chat”
online with staff at DBEDT’s Business Action Centerfrom 8:00 a.m. to 4:00 p.m. HST.
As good as Hawaii Business Express currently is,
See New E-Services, Page 2

IN THIS ISSUE
Computer System Implementationa Success! . . . . . . . . . . . . . . . . . . . . . . . . 1
New E-Services for Hawaii Businesses . . . 1
The Direct Line . . . . . . . . . . . . . . . . . . . . . . 2
Conformity to Federal Tax Changes . . . . . . 2
New Hawaii Tax ID Numbers . . . . . . . . . . . 2
Tax Department E-Mail Addresses . . . . . . . 3
Semiweekly Payments Beginningin 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Lower Tax Rates Effective
January 1, 2005 . . . . . . . . . . . . . . . . . . . . 3
Changes to 2004 Tax Forms . . . . . . . . . . . 3
Manoa Valley Flooding . . . . . . . . . . . . . . . . 4
Order the 2004 Tax Information CD . . . . . . 5
New Mailing Addresses . . . . . . . . . . . . . . . 5
Recently Issued Tax Publications . . . . . . . . 5
Pending Tax Publications . . . . . . . . . . . . . . 6First Quarter State Tax Collections . . . . . . . 7

Page 2

Hawaii Tax NewsThe Direct Line (By Director Kurt Kawafuchi

Another year has come and gone much too quickly.
The 2005 filing season will be here before we know it.
The following are some changes to look for in 2005:• If you withhold more than $40,000 per year in
Hawaii income taxes from your employees’ wages,
you will need to pay those amounts semiweekly
beginning in 2005. The semiweekly payments must
generally be made by electronic funds transfer(EFT). More information on the withholding can befound on page 3.
• Two phased-in tax rate reductions will once againchange on January 1, 2005 and are discussed on
page 3.
• Most tax returns, payments, and other documents arenow sent directly to Oahu. Neighbor island
taxpayers should check the mailing addresses on
their new forms and instructions. Mailing addresses
are also listed on page 5.
• Last of all, may you have a safe and joyful holiday
season, and a prosperous New Year!

New E-Services(From Page 1)

more is on the way with an expansion in the number oftax transactions available through Hawaii BusinessExpress in the works.
Until then, you can still file a number of tax forms andpay taxes online through our e-filing site on the State
Internet Portal at www.ehawaii.gov/efile. If you have any
questions about e-filing, call our eFile Unit at808-587-1740, or e-mail them at Tax.Efile@hawaii.gov.

Winter 2004

applicable to the 2004 tax year.
When preparing 2004 Hawaii income tax returns,
however, it is important to remember that federal tax
provisions enacted in 2004 are NOT currently
applicable to Hawaii returns.
The Department is currently reviewing the federal
legislation, but we will not know what is or is notoperable for Hawaii income tax purposes until theannual conformity measure submitted to the Legislatureis enacted. In the meantime, Hawaii returns cannot be
prepared and filed based on someone’s best guess as towhat may or may not eventually be conformed to.
If you use tax preparation software, be sure tofamiliarize yourself with the idiosyncrasies of thatsoftware. Check a sampling of returns to ensure that thesoftware is preparing Hawaii tax returns correctly,
notify the software vendor of any errors, and visit thevendor’s website periodically for any updates and fixes.

New Hawaii Tax ID
NumbersN

ew business tax applicants have started being
assigned general excise and other business tax
license numbers sporting the new format - the letter “W”
followed by eight randomly assigned numbers plus a
two-digit sequence number. Current licensees shouldhave received a letter in early December regarding thechange to their numbers.
References to the new Hawaii Tax Identification
Numbers will be showing up in various places on
income tax forms for the coming filing season.
See Tax ID Numbers, Page 3

The Hawaii Tax News is a publication of the State of
Hawaii, Department of Taxation.

Conformity to Federal
Tax Changes

F

ederal tax legislation passed in 2004 could
potentially affect 2004 Hawaii income tax
returns. While some provisions, such as the uniform
definition of “qualifying child” in the Working Families
Tax Relief Act of 2004, will not affect 2004 income tax
returns, other provisions, such as the income averaging
for fishermen and the itemized deduction for sales taxes
in the American Jobs Creation Act of 2004, are

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

Winter 2004

Hawaii Tax NewsTax ID Numbers(From Page 2)

You will see it referenced at the end of the Form N-11
if the taxpayer files federal Schedules C, E, and/or F, andyou will also see it referenced on the Schedule X where it
asks for the landlord's license number. However,
because both income tax and business tax accounts canbe accessed by the taxpayer's social security
number/federal employer identification number, neither
the new Hawaii Tax Identification Number nor the oldgeneral excise tax license number will be on net income
tax returns filed for non individual taxpayers such as
partnerships and corporations.
For more information regarding the new license
numbers, see Department of Taxation Announcement
No. 2004-16, which was issued on October 10, 2004. Thisannouncement is available on the Department's website atwww.state.hi.us/tax, by calling the Department's 24 hour
request line at 587-7572 (toll-free at 1-800-222-7572),
and at any district tax office.

Tax Department E-Mail
AddressesIf you are having trouble e-mailing us, you may
have an old address. Our e-mail addresseschanged when we switched to a Lotus Notes e-mailsystem late last year, although the old system was
temporarily maintained to ease the transition. The oldsystem was disabled in September, however, and you
must now use the new e-mail addresses.
Current e-mail addresses are printed in our mostrecent “Hawaii Tax Information at a Glance” brochurewhich 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.

Semiweekly Payments
Beginning in 2005

W

ith 2005 just around the corner, we would
like to remind all employers who annually
withhold more than $40,000 in Hawaii income tax fromtheir employees' wages to make sure that they will beready to make their payments semiweekly instead ofwith their periodic withholding tax returns.

Page 3

Most employers affected by this change will be
required to pay the tax withheld by electronic funds
transfer (EFT). Employers who are not already registered
to make their payments by EFT should complete Form
EFT-1, Authorization Agreement for Electronic Funds
Transfer, and submit it to our EFT Unit.
Additional information will be included in either a
new supplement or a completely revised "Booklet A,
Employer's Tax Guide," which will be mailed to all
Hawaii employers.

Lower Tax Rates
Effective January 1,
2005
•

•

T

he following phased-in tax rate reductions will
once again change on January 1, 2005.
The phased-in general excise tax deduction factor forbusiness-to-business transactions that qualify for
pyramiding relief under Act 71, SLH 1999, and Act
198, SLH 2000, will increase from 0.625 to 0.75, foran effective rate of 1%.
The public service company tax rate on sales oftelecommunications services by a public utility to aninterstate telecommunications provider for resale isreduced from 3.5% to 3% for calendar year 2005.

Changes to 2004 Tax
Forms

H

awaii tax forms have been revised for 2004 toreflect recent tax law changes, and toaccommodate our new computer system. The following
list summarizes some of the changes to the tax forms andnew forms for 2004.
Individual Income Tax Returns• Form N-11, Individual Income Tax Return(Resident Filing Federal Return) - A line was added
for the above the line deduction for expenditures tomaintain an exceptional tree.
• Form N-12, Individual Income Tax Return(Resident Not Filing Federal Return) - (1) A line wasadded for the above the line deduction for
expenditures to maintain an exceptional tree. (2) Aline was added for the above the line deduction forclean-fuel vehicles. This deduction was previously
See Tax Form Changes, Page 4

Page 4

Hawaii Tax News

Tax Form Changes(From Page 3)

claimed on the Total Adjustments line. (3) A line wasadded for the above the line deduction for certain
expenses of reservists, performing artists, andfee-basis government officials. The deduction for
performing artists and fee-basis government officials
were previously claimed on the Total Adjustments
line. (4) A line was added for the above the line
deduction for health savings accounts. (5) The line toreport the deduction for educator expenses wasdeleted. The federal provision which extends the
deduction for educator expenses has not been adopted
for Hawaii income tax purposes at the present time.
• Form N-15, Nonresident and Part-Year Resident
Tax Return - Same changes as Form N-12.
• All Individual Income Tax Returns - (1) The
taxpayer’s social security number must be written in thespace provided on the tax return since the social
security number is no longer printed on the taxpayer’s
mailing label. (2) Combined “Your occupation” and“Spouse’s occupation” into one block. (3) A line andcheck box was added for the contribution to the Hawaii
Public Libraries Special Fund. Individual taxpayers
will be able to designate $2 of their refund ($4 if
married filing a joint return) to go to this fund.
Designating an amount for the Hawaii Public Libraries
Special Fund will reduce the taxpayer’s refund. Once
made, the designation cannot be revoked.
Business Income Tax Returns• Form N-20, Schedule K-1, Partner’s Share of
Income, Credits, Deductions, etc. - (1) A line wasadded for unrecaptured section 1250 gain to conformto the federal Schedule K-1, but the line on the
Hawaii Schedule K-1 should not have been added, so
the line should be disregarded. (2) The lines for thefollowing expired tax credits were deleted: energy
conservation tax credit, hotel construction andremodeling tax credit (nonrefundable credit), andresidential construction and remodeling tax credit.
• Form N-35, Schedule K-1, Shareholder’s Share of
Income, Credits, Deductions, etc. - Same changes as
Form N-20, Schedule K-1.
Tax Credit Forms• Form N-157, Energy Conservation Tax Credit Since the energy conservation tax credit expired onJune 30, 2003, the form was revised so that a taxpayer
may claim the tax credit only if the taxpayer (1)received a distributive share of the tax credit from apartnership, trust, estate, or S corporation, or (2) has acarryover of the tax credit from a prior year.

Winter 2004•

Form N-314, Hotel Construction and Remodeling
Tax Credit - Since the 10% nonrefundable hotel
construction and remodeling tax credit may not be
claimed for qualified construction or renovation
costs incurred after June 30, 2003, Part I of the form
was revised so that a taxpayer may claim the 10%
nonrefundable tax credit only if the taxpayer (1)received a distributive share of the tax credit from apartnership, trust, estate, or S corporation, or (2) has
a carryover of the tax credit from a prior year.
• Form N-332, Residential Construction andRemodeling Tax Credit - Since the residential
construction and remodeling tax credit may not be
claimed for construction or renovation costs incurred
after June 30, 2003, the form was revised so that a
taxpayer may claim the tax credit only if the taxpayer(1) received a distributive share of the tax credit froma partnership, trust, estate, or S corporation, or (2)has a carryover of the tax credit from a prior year.
General Excise Tax, Transient Accommodations
Tax, Withholding, and Rental Motor Vehicle andTour Vehicle Surcharge Tax Booklets• The booklets were redesigned to letter size. The tax
return is smaller since the voucher is still attached.
When a payment is being made with the tax return,the voucher and check must be attached to the tax
return. If the voucher and check are not attached, theprocessing of the payment may be delayed.
New Forms• Form VP-2, Miscellaneous Fee Payment Voucher Used to send payment to the Department of Taxation
for the fees to register for the Cigarette/Tobacco,
Liquor, or Fuel Taxes on Forms BB-1 or BB-1X.
• Form 587, Low-Income Housing Credit Disposition
Bond - Used to post a bond under Internal Revenue
Code section 42(j)(6), adopted by Hawaii, to avoid
recapture of the low-income housing credit.

Manoa Valley Flooding

T

he Tax Department was happy to join otherstate, county and private agencies at theDisaster Assistance and Relief Center at Manoa Valley
District Park to assist residents and businesses affectedby the floods on October 30 to October 31. Althoughmost affected taxpayers lived in Manoa Valley, people
from other areas of Oahu also came to find out about thekinds of assistance that could be offered to them.
If you or someone you know was affected by theflooding, see Announcement No. 2004-17, Relief for
See Flood Relief, Page 5

Winter 2004

Hawaii Tax News

Flood Relief(From Page 4)

Taxpayers Affected by Heavy Rains and Flooding on
October 30 and 31, 2004, in the Manoa Valley Area in
the City and County of Honolulu, which summarizes thevarious tax provisions that may apply to you. Thisannouncement is available on the Department's website
at www.state.hi.us/tax, by calling the Department's 24hour request line at 587-7572 (toll-free at
1-800-222-7572), and at any district tax office.

Order the 2004 Tax
Information CDT

he 2004 Tax Information CD will be available
for a nominal price of $10.00. The 2004 CD will
include Tax Information Releases, Announcements, Tax
Facts, brochures, 2004 tax forms, business registration
forms, and employer’s reporting forms. All forms will
have writable fields.
Order forms are available on our website atwww.state.hi.us/tax, by calling our request line at587-7572 (toll-free at 1-800-222-7572), and from any
district tax office. Persons who attended our year-end
workshop may purchase the 2004 CD at a discounted
price of $5.00.

New Mailing
AddressesW

e are transitioning to a centralized mailingprocess in which most tax documents,
including those from the neighbor islands, would be
filed centrally on Oahu. The following are the newcentralized mailing addresses:• Income Tax Returns: Hawaii Department of
Taxation; P. O. Box 3559; Honolulu, HI 96811-3559• Extensions and Payment Vouchers: Hawaii
Department of Taxation; P. O. Box 1530; Honolulu,
HI 96806-1530• General Excise/Use Tax Returns: Hawaii
Department of Taxation; P. O. Box 1425; Honolulu,
HI 96806-1425• Withholding Tax Returns: Hawaii Department of
Taxation; P. O. Box 3827; Honolulu, HI 96812-3827•

Page 5

Transient Accommodations Tax Returns and Rental
Motor Vehicle and Tour Vehicle Surcharge Tax
Returns: Hawaii Department of Taxation; P. O. Box
2430; Honolulu, HI 96804-2430

Recently Issued Tax
Publications

T

he following is a list of the publications issued
by the Department of Taxation from January
2004 through December 2004. Copies of thesepublications may be obtained from our website atwww.state.hi.us/tax, by calling our request line at587-7572 (toll-free at 1-800-222-7572), and from any
district tax office.
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 other alternative 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.
See Recent Publications, Page 6

Page 6

Hawaii Tax News

Recent Publications(From Page 5)

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 informationon 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 assessed tax.
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.
Announcement No. 2004-16 - Provides information

Winter 2004

regarding the new Hawaii Tax Identification Numbersthat will be issued to replace the eight-digit general
excise license numbers.
Announcement No. 2004-17 - Provides information
regarding relief for taxpayers affected by the heavy rains
and flooding on October 30 and 31, 2004 in the Manoa
Valley area in the City and County of Honolulu.
Hawaii Tax Information at a Glance Brochure Revised April 2004.
Digest of Tax Measures - Enacted by the State of
Hawaii, Twenty-Second Legislature, Regular Sessionof 2004.
The following Reports are available on our website atwww.state.hi.us/tax. A limited number of the Reports
also are available for a nominal 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.
• 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 conveyance tax.

Winter 2004

Hawaii Tax News

Page 7First Quarter State Tax Collections
July 2004 - September 2004
(In Millions of Dollars)
Difference
Individual Income Tax
Corporate Income Tax
General Excise Tax
Transient Accommodations Tax
All Others
Total Tax Collections
General Fund Revenues

FY 2005$ 325.9
15.2
519.1
53.3
193.3
$ 1,106.9

FY 2004$ 274.4
8.2
473.3
46.8
178.8
$ 981.4

Amount$ 51.5
7.0
45.9
6.5
14.5
$ 125.4

Percent
18.8%
85.9%
9.7%
14.0%
8.1%
12.8%

$ 946.2$ 819.2$ 127.0

15.5%(Note: Totals may not add up due to rounding.)

Total tax collections for the first quarter of fiscal year 2005 were $1,106.9 million, or $125.4 million more than forthe corresponding period last year. A robust economy helped grow general excise tax receipts by $45.9 million, or
9.7%, to $519.1 million for the first quarter. Net corporate and individual income taxes also showed sizable increasesof $7 million and $51.5 million, respectively, as the strong job market gave no hint of faltering. Transient
accommodations taxes advanced $6.5 million to $53.3 million, providing continuing evidence of a recovering tourist
trade.
From total collections, first quarter deposits into the state general fund rose 15.5% to $946.2 million, or $127 million
more than for the first quarter 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)