DAVID Y. IGE

LINDA CHU TAKAYAMAGOVERNORDIRECTORJOSH GREEN, M.D.

DAMIEN A. ELEFANTE

LIEUTENANT GOVERNOR

DEPUTY DIRECTOR

STATE OF HAWAII
DEPARTMENT OF TAXATION
830 PUNCHBOWL STREETHONOLULU, HAWAII 96813
http://tax.hawaii.gov/
Phone: (808) 587-1530 / Fax: (808) 587-1560
Email: Tax.Rules.Office@hawaii.gov

July 24, 2019

DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2019-09
RE:Tax Law Changes from the 2019 Regular Legislative Session

This announcement lists and summarizes the measures passed during the Regular
Legislative Session of 2019 that amend or affect the State tax law. Below is a list of the eighteen
Acts addressed in this Announcement, with a short description of the contents of each:••••••••••••••

Act 2: Marketplace Facilitators
Act 3: New Estate Tax Bracket for Estates Exceeding $10 million
Act 17: Income Tax Cleanup
Act 20: Imposes Transient Accommodations Tax on Resort Fees
Act 69: Income and Estate Tax Conformity
Act 96: Market Sourcing for Sales of Services and Intangibles
Act 97: Tax Refund Offsets
Act 174: Amends the Rental Motor Vehicle Surcharge Tax RateAct 221: Establishes an Economic Nexus Standard for Income Tax
Act 232: Withholding on Nonresident Partners and Beneficiaries
Act 260: Establishes a Ship Repair Income Tax Credit
Act 261: Amends the Research Credit
Act 267: Establishes a Historic Preservation Income Tax Credit
Act 275: Amends Motion Picture, Digital Media, and Film Production Tax Credit

Act 2: Marketplace Facilitators
Act 2 (Senate Bill 396, S.D. 1) is effective January 1, 2020. Act 2 deems marketplacefacilitators the sellers of tangible personal property, intangible personal property, and services
sold through the marketplace. Act 2 also deems sales of tangible personal property and services
by sellers to the marketplace facilitator to be sales at wholesale.
Act 2 also defines marketplace facilitator as any person who sells or assists in the sale oftangible personal property, intangible personal property, or services on behalf of another byproviding a forum for the listing or advertisement of the item and by collecting payment from thepurchaser either directly or indirectly.

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July 24, 2019
Page 2 of 5

Act 3: Imposes a New Estate Tax Bracket for Estates Exceeding $10 million
Act 3 (Senate Bill 1361, S.D. 1) is effective April 4, 2019 and applies to decedents dying
after December 31, 2019. Act 3 establishes a new estate tax rate bracket for taxable estates
exceeding $10 million. The new bracket is 20 percent.
Act 17: Income Tax Cleanup
Act 17 (House Bill 114) is effective April 23, 2019. Act 17 repeals section 235-103,
Hawaii Revised Statutes (HRS). Section 235-103, HRS, provided authority similar to thatprovided in section 231-3.1, HRS, and was therefore unnecessary. The repeal has no substantive
effect and does not affect the Department's authority in any way.
Act 20: Imposes Transient Accommodations Tax on Resort Fees
Act 20 (Senate Bill 380, S.D. 1) is effective July 1, 2019. Act 20 imposes the transient
accommodations tax on resort fees and defines resort fees as "any mandatory charge or surcharge
imposed by an operator, owner, or representative thereof to a transient for the use of the transient
accommodation's property, services, or amenities." Fore more information see Tax Information
Release 2019-02.
Act 69: Income and Estate Tax Conformity
Act 69 (Senate Bill 1130, S.D. 1, H.D. 1) is effective June 7, 2019 and applies to taxable
years beginning and to decedents dying after December 31, 2018. Retroactive amendments tooperative Internal Revenue Code (IRC) sections are adopted for Hawaii income tax and estateand generation-skipping transfer tax (estate) tax laws.
Act 69 updates section 235-2.3(a), HRS, to conform to the operative sections of subtitle
A, chapter 1, of the IRC, as amended as of December 31, 2018. Act 69 also updates section
236E-3, HRS, to conform Hawaii's estate tax to subtitle B of the IRC as amended as ofDecember 31, 2018.
Act 69 makes a few minor changes to conformity. First, Act 69 conforms to the federal
tax benefits conferred upon investments made in qualified opportunity zones. These tax benefits
were added to the IRC by the Tax Cuts and Jobs Act but were not conformed to by Hawaii
initially. Hawaii now conforms and provides the tax benefits for Hawaii income tax purposes
but only for qualified opportunity zones in Hawaii.
Second, Act 69 clarifies that the applicable exclusion amount for the Hawaii estate andgeneration-skipping transfer tax law is fixed in the amount applicable for decedents dying on
December 31, 2017. This amount is $5,490,000.
Finally, Act 69 clarifies that Hawaii does not conform to the addition to unrelated
business taxable income of the amount of a disallowed fringe benefit paid by a a nonprofitorganization. This is to ensure that nonprofit organizations are treated the same as ordinary
corporations.

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July 24, 2019
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Act 96: Market Sourcing for Sales of Services and Intangibles
Act 96 (Senate Bill 394, S.D. 1, H.D. 1, C.D. 1) is effective June 7, 2019 and applies totaxable years beginning after December 31, 2019. Act 96 changes the sales factor sourcing rules
for income from the sale of services and intangibles to market sourcing. Income from the sale oftangible personal property is already sourced using market sourcing.
In general, market sourcing rules are meant to source a sale to where the taxpayer's sales
are located. This contrasts with prior sourcing rules, which sourced sales generally to where thetaxpayer's business activity was located.
Act 97: Tax Refund Offsets
Act 97 (Senate Bill 1271, S.D. 1, H.D. 1) is effective June 7, 2019. Act 97 clarifies thattax refund offsets may be performed by the Department of Accounting and General Services(DAGS) and the Department of Taxation (Department). Act 97 authorizes both DAGS and theDepartment to perform tax refund offsets, notify debtors, and provide certain information to theclaimant agencies.
Act 174: Amends the Rental Motor Vehicle Surcharge Tax Rate
Act 174 (S.B. 162, S.D. 2, H.D. 3, C.D. 1) is effective July 1, 2019. Act 174 repeals thetwo percent rental motor vehicle surcharge on lessees without a valid Hawaii driver's license andincreases the rate of the rental motor vehicle surcharge tax from three percent to five percent perday. The repeal of the two percent surcharge was necessary due to likely unconstitutionality
under the dormant commerce clause of the United States Constitution.
Act 174 additionally repeals the special allocations of the two percent surcharge. The
two percent surcharge was originally to be deposited into a special fund for the county where therental took place. As amended the full five percent per day is deposited into the highway fund.
For more information see Tax Announcement 2019-05.
Act 221: Establishes an Economic Nexus Standard for Income Tax
Act 221 (Senate Bill 495, S.D. 2, H.D. 1) is effective July 2, 2019 and applies to taxable
years beginning after December 31, 2019. Act 221 establishes an economic nexus standard for
Hawaii income tax. The Act states that a person without physical presence is engaging inbusiness in the State if the person has $100,000 or more in income sourced to the state or has 200
or more transactions sourced to the state.
Act 221 establishes a standard very similar to the economic nexus standard for general
excise tax established by Act 41, Session Laws of Hawaii 2018.

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July 24, 2019
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Act 232: Withholding of Taxes on Income of Nonresident Partners and Beneficiaries ofPartnerships, Estates, and Trusts
Act 232 (Senate Bill 1360, S.D. 1, H.D. 1) is effective July 2, 2019 and applies to taxable
years beginning after December 31, 2018. Act 232 requires income tax withholding for
nonresident taxpayers based on the taxpayers’ distributive share of income attributable to theState reflected on the partnership’s, estate’s, and trust’s return for the taxable period. The
amount withheld equals to the highest marginal tax rate applicable to a nonresident taxpayer
multiplied by the amount of the taxpayer’s distributive share of income attributable to the State.
Withholding is not required by a publicly traded partnership, as defined by section
7704(b) of the Internal Revenue Code (IRC). A publicly traded partnership is required to file anannual information return of each unit holder with income sourced to Hawaii.
Act 260: Ship Repair Industry Tax Credit
Act 260 (Senate Bill 972, S.D. 1, H.D. 1, C.D. 1) is effective on January 1, 2020 andapplies to taxable years beginning after December 31, 2021. Act 260 establishes a new Ship
Repair Industry Tax Credit which is intended to offset costs incurred in constructing and placing
into service a purpose-built floating drydock at Pearl Harbor for use by the United States Navy,provided that no credit is allowed after December 31, 2026. This Act also repeals the Capital
Infrastructure Tax Credit under section 235-17.5, HRS.
Act 261: Amends the Income Tax Credit for Research Activities
Act 261 (Senate Bill 1314, S.D. 1, H.D. 1, C.D. 1) is effective for taxable years beginning
after December 31, 2019. Act 261 amends the Tax Credit for Research Activities (TCRA) suchthat references to the base amount contained in section 41 of the IRC do not apply, and credit
may be taken based upon all qualified research expenses incurred in Hawaii without regard to theamount of expenses for previous years.
Act 261 provides that the Department of Business, Economic Development, and Tourism
must certify all claims for the tax credit and establishes an annual aggregate cap of $5,000,000.
Taxpayers must still claim the federal research credit under IRC section 41 to claim the TCRA.
Act 261 extends the TCRA through December 31, 2024.
Act 267: Establishes a Historic Preservation Income Tax Credit
Act 267 (Senate Bill 1394, S.D. 2, H.D. 2, C.D. 1) is effective July 1, 2019 and applies toqualified rehabilitation expenditures incurred in taxable years beginning after December 31,
2019 and is repealed on December 31, 2024.
Act 267 establishes a new, nonrefundable income tax credit for taxpayers whorehabilitate historic structures pursuant to a rehabilitation plan certified by the Department ofLand and Natural Resources' State Historic Preservation Division (SHPD). The credit is equal to
30% of the qualified expenses incurred as part of the certified rehabilitation plan. In addition,
the credit is subject to an aggregate cap of $1,000,000 per year, and is subject to recapture if theDepartment of Taxation Announcement No. 2019-09
July 24, 2019Page 5 of 5

projected expenditures do not materialize, or the rehabilitation does not proceed in a timely
manner or in accordance with the approved plan.
Act 267 requires owners of certified historic structures to notify the SHPD when therehabilitation has been completed and requires SHPD to review the rehabilitation and verify thatit has been completed in accordance with the approved rehabilitation plan. Act 267 also requires
SHPD, in consultation with the Department, to determine the information necessary to enable anassessment of the outcome of this tax credit, and to submit an annual report to the Legislature.
The Act authorizes the Department to require proof to claim the credit, including
requiring the taxpayer to file its certificate received from the SHPD when it files its tax return.
This Act also specifies that all information submitted to the SHPD by taxpayers claiming thiscredit is public information.
Act 275: Motion Picture, Digital Media, and Film Production Tax Credit
Act 275 (Senate Bill 33, S.D. 3, H.D. 2, C.D. 1) is effective July 10, 2019 and applies totaxable years beginning after December 31, 2018. Act 275 amends motion picture, digital
media, and film production income tax credit (film credit) by increasing the film credit annual
aggregate cap from $35 million to $50 million.
Act 275 directs University of Hawaii (UH) West Oahu to execute a memorandum of
understanding with Hawaii Technology Development Corporation (HTDC) for a no-cost leaseagreement of certain lands for a minimum of 60 years by no later than December 31, 2020. Act
275 also requires UH West Oahu to transfer title of certain lands to HTDC within a certain timeframe.

For more information, please contact the Rules Office at (808) 587-1530 or by email at
Tax.Rules.Office@hawaii.gov.

LINDA CHU TAKAYAMA
Director of Taxation