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

Volume 9, Number 2State of Hawaii • Department of Taxation

E-file UpdateM

any thanks to all of you who helped us
increase the number of Hawaii income tax
returns e-filed this filing season. Almost 153,000 N-11
income tax returns had been e-filed as of the end of April
through the Joint Federal/State e-filing program (ascompared to 131,336 returns e-filed last year). In
addition, 3,135 resident short forms, N-13, had been
e-filed via the Internet through the State’s Internal portalat www.ehawaiigov.org/efile (as compared to 1,912
returns e-filed last year). Great job!

Summer Workshops

T

he Department’s summer workshops arescheduled for the following dates:
Kauai – Friday, August 5, 2005
Oahu – Monday, August 8, 2005
Kona – Wednesday, August 10, 2005
Hilo – Thursday, August 11, 2005
Maui – Wednesday, August 17, 2005
All workshops will begin at 8:30 A.M. and end at
12:30 P.M. The $60 registration fee includes acontinental breakfast and workshop materials. As
always, four hours of continuing professional education(CPE) credits will be provided to those who stay for theentire workshop.
Register early, as space is limited and an additional$5 will be charged for persons registering less than 2
weeks prior to the workshop registered for.
An information and registration flyer should beavailable on our website at www.state.hi.us/tax in July,but also can be requested by calling our 24-hour forms
request line at 587-7572, or toll-free at 1-800-222-7572.

Legislative HighlightsT

he following is a digest of bills passed by the2005 Legislature. It includes only thosemeasures which affect Hawaii’s tax laws and is provided
for your information. It is issued solely as a guide and is

SUMMER 2005

not intended to be either authoritative or complete.
Copies of the Senate and House bills passed by theLegislature may be obtained from the Senate and House
printshops, or from the Legislature’s website atwww.capitol.hawaii.gov.
Administrative Tax Measures
ACT 167 (S.B. No. 460, H.D. 1)
Relating to Tax Refunds
Allows taxpayers to appeal a denial of a tax refund claim
by filing a written notice of appeal to the board of review
or to the tax appeal court within 30 days after notice ofthe denial of the claim. Further allows taxpayers to filean appeal of a refund claim when the Department of
Taxation fails to act on the claim within 180 days after
the claim was filed.
Applies to tax refund claims filed after June 30, 2005.
ACT 27 (S.B. No. 840, S.D. 1)
Relating to Income Tax Withholding
Clarifies the State withholding tax provisions for
employers with State withholding tax liabilities
exceeding $40,000 annually. Also conforms State law tofederal withholding provisions by defining a“semi-weekly schedule” similar to the federal
provisions and to incorporate the federal three-day
banking rule.
Effective April 25, 2005.
S.B. No. 1685, S.D. 2, H.D. 1, C.D. 1
Relating to Tax
Allows the State to share taxpayer information with thecounties.
Effective upon approval.
See Legislative Highlights, Page 2

IN THIS ISSUE
E-file Update . . . . . . . . . . . . . . . . . . . . . . . . 1
Summer Workshops . . . . . . . . . . . . . . . . . . 1
Legislative Highlights . . . . . . . . . . . . . . . . . 1
The Direct Line . . . . . . . . . . . . . . . . . . . . . . 2
Practitioners’ Forum . . . . . . . . . . . . . . . . . . 4
Recently Issued Tax Publications . . . . . . . . 4
Pending Tax Publications . . . . . . . . . . . . . . 5
Third Quarter State Tax Collections . . . . . . 6

Page 2

Hawaii Tax NewsThe Direct Line (By Director Kurt Kawafuchi

The 2005 Legislative session has come to an end.
This year, we focused on increasing the standard
deduction; offering a food, medical services, andnon-prescription drugs tax credit for the low and modest
income taxpayers; and providing tax incentives to
employers and employees to purchase long-term careinsurance. Unfortunately, these proposals were notpassed by the Legislature. We will continue our lobbying
effort to assist the lower end of the wage earners in the
future.
A summary of the tax-related bills passed by the 2005
Legislature is included in this issue of the Hawaii Tax
News.
We will be writing a number of announcements on new
tax legislation as the various measures become law. You
can stay abreast of all the latest announcements and otherdevelopments via our website at www.state.hi.us/tax.

Legislative Highlights(From Page 1)

General Excise/Use Tax Measures
H.B. No. 1224, S.D. 1, C.D. 1
Relating to Taxation
Establishes requirements, procedures, standards, andguidelines for compliance with the Streamlined Sales
and Use Tax Agreement project. Allows contractors
contracted by the Legislative Auditor to support the
project to inspect tax returns and other information forthe purposes of conforming the State’s general excise
and use taxes to the Model Agreement and Act.
Appropriates $50,000 to be expended by the Legislative
Auditor.
Effective upon approval, provided that the appropriation
section takes effect on July 1, 2005.
H.B. No. 1309, H.D. 2, S.D. 2, C.D. 1
Relating to Taxation
Allows counties the option of adding a surcharge of up to
0.5 percent to the State’s 4 percent general excise tax tobe levied not earlier than January 1, 2007 to fund public
transportation systems in their respective counties. The
Department of Taxation shall levy, assess, collect, andadminister the county surcharge on state tax.
Effective upon approval, provided that the counties
adopt an ordinance to levy the county surcharge by
December 31, 2005.

Summer 2005

S.B. No. 179, S.D. 3, H.D. 2, C.D. 1
Relating to Housing
First, establishes a general excise tax exemption fordevelopers of certified housing projects when: (1) atleast 50 percent of the available units are for householdswith incomes at or below 80 percent of the area medianfamily income; and (2) at least 20 percent of theavailable units are for households with incomes at or
below 60 percent of the area median family income.
Second, increases the low-income housing tax credit
from 30 to 50 percent of the applicable percentage of thequalified basis of each building located in Hawaii.
Third, provides a conveyance tax exemption for theconveyance of real property to any nonprofit orfor-profit organization that has been certified by the
Housing and Community Development Corporation of
Hawaii for low-income housing development.
Effective July 1, 2005.
Income Tax Measures
H.B. No. 1554, H.D. 2, S.D. 2, C.D. 1
Relating to Leasehold Conversion
Allows a fee owner of residential leasehold property to
exclude, from the fee owner’s taxable income, 50
percent of the proceeds the fee owner receives from thesale, provided that the exclusion does not exceed$75,000 in the aggregate for all taxpayers in the State inany tax year.
Applies to taxable years beginning after December 31,
2005, and ending prior to January 1, 2007.
ACT 116 (S.B. No. 116, S.D. 2, H.D. 2, C.D. 1)
Relating to Nurses
Establishes a nursing scholars program and exempts
See Legislative Highlights, 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

Summer 2005

Hawaii Tax News

Legislative Highlights(From Page 2)

scholarship grants received by a student under the
program from taxable income.
Effective July 1, 2005.
ACT 60 (S.B. No. 834, S.D. 2, H.D. 1)
Relating to Conformity of the Hawaii Income Tax
Law to the Internal Revenue Code
Amends section 235-2.3(a), HRS, to conform the
Hawaii Income Tax Law to the operative Internal
Revenue Code (IRC) sections of subtitle A, chapter 1,
amended as of December 31, 2004. Generally, subtitle
A, chapter 1, refers to IRC sections 1 through 1400. For
conformity purposes, the federal effective dates foramendments to operative IRC sections are adopted. Thisbill conforms Hawaii’s income tax law to the followingchanges in the IRC:
• Uniform definition of a qualifying child.
• New state and local general sales tax deduction.
• Extension of the deduction for certain expenses of
educators.
• New deduction for costs involving discrimination
suits.
• Contributions for relief of tsunami victims.
Amends section 235-2.4, HRS, relating to operative IRC
sections for which the State provides specific treatmentby providing that Hawaii does not conform to:• Extension of the bonus depreciation provisions of
IRC section 168(k) for certain property acquired
after September 10, 2001, and before January 1, 2005
(including the extension of the qualifying aircraft
placed in service before January 1, 2006).
• Extension of the increased IRC section 179 limits
relating to the maximum deduction amount andqualifying investment amount for taxable years
beginning after 2002 and before 2008.
Applies to taxable years beginning after December 31,
2004, except as otherwise provided.
ACT 23 (S.B. No. 842, S.D. 1)
Relating to Withholding of Tax on the Disposition
of Real Property by Nonresident Persons
Clarifies that where a limited liability company (LLC)
formed or registered to do business in Hawaii consists ofa single member and the LLC has not elected to be taxed
as a corporation, the LLC shall be disregarded for
purposes of section 235-68, HRS, and section 235-68,
HRS, shall be applied as if the sole member is thetransferor.
Applies to taxable years beginning after December 31,
2004.

Page 3

Miscellaneous Tax Measures
ACT 67 (H.B. No. 390, H.D. 1, S.D. 2, C.D. 1)
Relating to Rental Motor Vehicle Surcharge Tax
Permanently exempts lessors who lease vehicles tolessees whose own vehicles are under repair from therental motor vehicle surcharge tax.
Effective May 23, 2005.
ACT 58 (H.B. No. 631, H.D. 1, S.D. 2, C.D. 1)
Relating to the Employees’ Retirement System
Clarifies and corrects the Employees’ Retirement
System (ERS) statutes and conforms ERS statutes tocurrent practices. Among other things, requires the ERS
to comply with federal income tax limits oncompensation in determining ordinary death benefits.
Effective July 1, 2005, provided that the federal limits
on annual compensation for ordinary death benefits
takes effect retroactively to July 1, 1996.
ACT 156 (H.B. No. 1308, H.D. 1, S.D. 2, C.D. 1)
Relating to Land Conservation
Increases conveyance tax rates based on a sliding scalefor (1) all categories of property sold for $600,000 or
more, and (2) the sale of a condominium or single family
residence for which the purchaser is ineligible for acounty homeowner’s exemption on property tax.
Requires that revenues collected from the conveyancetax be allocated as follows: 10 percent to the Land
Conservation Fund, 30 percent to the Rental Housing
Trust Fund, 25 percent to the Natural Area Reserve
Fund, and 35 percent to the General Fund.
Effective July 1, 2005.
H.B. No. 1640, H.D. 3, S.D. 2, C.D. 1
Relating to Important Agricultural Lands
Establishes State and county policies and procedures for
identifying important agricultural lands. Requires the
Department of Agriculture, with the assistance of the
Department of Taxation, to conduct a study and develop
proposals for agricultural incentives.
Effective July 1, 2005.
ACT 131 (S.B. No. 682, S.D. 2, H.D. 3, C.D. 1)
Relating to Tobacco
Requires businesses engaged in the sale of cigarettes andother tobacco products at the retail level to obtain a retailtobacco permit from the Department of Taxation
beginning December 1, 2006. Makes it a criminal
offense for any retailer to sell cigarettes and othertobacco products without a valid retail tobacco permit.
Effective upon approval, provided that the Act shall be
repealed on July 1, 2009, and sections 245-1 and 245-2,
HRS, shall be reenacted in the form in which they readon the day before the approval of this Act.
See Legislative Highlights, Page 4

Page 4

Hawaii Tax News

Legislative Highlights(From Page 3)

S.B. No. 1127, S.D. 1
Relating to the Public Procurement CodeEliminates the requirement that small purchase contracts
awarded (less than $25,000) by the State must obtain tax
clearances, certificates of good standing, and certificatesof compliance.
Effective upon approval.
ACT 146 (S.B. No. 1453, S.D. 2, H.D. 1, C.D. 1)
Relating to Public Service Company Tax
Imposes the public service company tax on the grossincome of a private sewer company or facility.
Effective July 1, 2005.
S.B. No. 1729, S.D. 2, H.D. 2, C.D. 1
Relating to Tourism
Increases the transient accommodations tax (TAT)
allocation to the Tourism Special Fund to 34.2 percent toprovide a dedicated source of funding for the Hawaii
Tourism Authority. Requires excess TAT revenues to bedeposited into the general fund. Repeals the TAT TrustFund. Revises the allocation of the TAT revenue for theState Parks Special Fund and the Special Land andDevelopment Fund.
Effective July 1, 2005, provided that the TAT increase to
the Tourism Special Fund and the repeal of the TAT
Trust Fund takes effect on July 1, 2007.
Announcements describing the provisions of the acts
will be posted on the Department of Taxation website atwww.state.hi.us/tax.

Practitioners’ ForumThe Department of Taxation held its 2005
Practitioners’ Forum on May 25 in the Princess
Ruth Keelikolani Building. Unlike our workshops
where we present a fixed program of topics, thePractitioners’ Forum is an opportunity for tax
practitioners to discuss tax issues, problems, concerns orshare great ideas with our senior staff andadministration.
Topics discussed included the Department’s plansfor expanding its electronic filing programs, an update
on tax services and processing, initiatives for processing(imaging project), bills passed by the 2005 Legislature,and compliance tools.

Summer 2005

Recently Issued Tax
Publications

T

he following is a list of the publications issued
by the Department of Taxation from July 2004
through June 2005. Copies of these publications may beobtained from our website at www.state.hi.us/tax, bycalling our request line at 587-7572 (toll-free at
1-800-222-7572), and from any district tax office.
Tax Information Release No. 2004-01 - Provides
information on Act 113, SLH 2004, which conforms thestate withholding tax remittance due date for employers
with an annual state withholding tax liability thatexceeds $40,000 to the semi-weekly remittance due daterequired under federal employment tax provisions.
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.
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 wirelessSee Recent Publications, Page 5

Summer 2005

Hawaii Tax News

Recent Publications(From Page 4)

providers 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
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

Page 5

Valley area in the City and County of Honolulu.
Announcement No. 2004-18 - Announces the
adoption of the IRS optional standard mileage rates for2005.
Announcement No. 2005-01 - Provides instructions
on filing federal Schedule B (Form 941), Report of Tax
Liability for Semiweekly Schedule Depositors, for
Hawaii withholding tax purposes.
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.

Page 6

Hawaii Tax News

Summer 2005

Third Quarter State Tax Collections
January 2005 - March 2005
(In Millions of Dollars)
Difference
Individual Income Tax
Corporate Income Tax
General Excise Tax
Transient Accommodations Tax
All Others
Total Tax Collections

FY 2005$ 338.6
12.4
579.5
54.6
216.5
$ 1,201.6

FY 2004$ 261.8
12.0
506.1
50.2
190.9
$ 1,021.0

Amount$ 76.8
0.4
73.4
4.4
25.6
$ 180.6

Percent
29.4%
3.2%
14.5%
8.7%
13.4%
17.7%

General Fund Revenues$ 1,054.8$ 874.0$ 180.8

20.7%(Note: Totals may not add up due to rounding.)

Total tax collections of $1,201.6 million for the third quarter of fiscal year 2005 represent a 17.7% growth, or $180.6
million increase over the same period of last fiscal year. General fund revenues increased 20.7% from $874.0 million
to $1,054.8 million for the third quarter. General excise tax collections jumped $73.4 million, while transient
accommodations tax collections went up by $4.4 million. The sizeable $76.8 million increase in individual income tax
collections was mostly due to a $57.7 million increase in withholding taxes and $27.3 million in estimated taxes.

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)