Hawaii Tax News
Volume 2, Number 2State of Hawaii • Department of Taxation

Tax Season UpdateStatistics for the 1998 tax season show that the
Department’s efforts to improve services to the
public have proved to be very successful, as
many taxpayers are utilizing the Department’s website andForms by Fax system.
Website - During the past year, the Department of
Taxation’s website traffic increased substantially as people
became comfortable using the Internet. The Department’s
website averages 20,000 to 30,000 hits per month. This isa huge increase over our first year (Department’s website
began in June, 1996) when the Department averaged only
6,000 to 9,000 hits per month. The increase in traffic during
this year’s tax season is even more impressive. From
January to April 1998, the Department’s website had
325,000 hits! April reached a new high with 129,000 hits!
The most popular items downloaded from the website werethe 1997 income tax Forms N-15, N-11, N-101A, N-12,
and N-13, Schedule X, and their instructions. The next mostrequested document was the new Form BB-1.
The Department had visitors from all over the world.
The majority came from the USA, followed by the U.S.
military, Japan, Canada, the UK, and Australia. In themonth of March, the Department even had five visitorsfrom South Africa, and one visitor from India!
Many of these hits represent individuals who
previously would have called to request forms andinformation, further freeing our telephone lines andpersonnel to assist others.
Forms By Fax - For just over a year, taxpayers havebeen able to obtain some of the most commonly requested
income, general excise, transient accommodations, andemployer’s withholding tax forms by fax. Taxpayers on
Oahu request forms by calling 587-7572, while taxpayers
outside Oahu call 808-678-0522 from their fax machines.
Taxpayers have found this to be quite helpful andconvenient since access is available 24-hours a day, 7-daysa week from the Department.
In 1997, 6,160 taxpayers requested 7,437 different
tax forms. From January through April of this year, 7,048
taxpayers already have requested 9,193 different tax
forms.
Discover Card - On March 2, in response toincreased taxpayer interest, the Oahu District Officebegan a pilot program to accept Discover credit cards forthe payment of taxes and fees. The Discover Card was
the only credit card service that allowed the State to pass

SUMMER 1998

on the transaction fee to the cardholder. Thus far, fewer
than 30 taxpayers have used this option. The Department
is working with other credit card services on the pass on
fee issue. 3

Self-Assessment
ProjectIn a move to broaden audit coverage and makemore efficient use of finite resources, theDepartment of Taxation plans to launch a pilot
Self-Assessment Project (SELF) in October. The
SELF’s objective is to educate selected groups of
taxpayers on relevant tax issues and give them theopportunity to report taxes which they may havepreviously overlooked. The Department believes that thebenefits are not only additional revenues, but, througheducation, SELFs will strengthen taxpayers’
competence and enhance future self-compliance.
The Department’s initial SELF will involve
taxpayers which report large retail sales but no, or
minimal, use tax on imported property. From a
population of about 800 taxpayers reporting retail salesof more than $2,000,000, about 30 will be sent
information packets describing Hawaii’s use tax law and(See SELF Project, Page 2)

IN THIS ISSUE
Tax Season Update . . . . . . . . . . . . . . . . . . 1
Self-Assessment Project. . . . . . . . . . . . . . . 1
The Direct Line . . . . . . . . . . . . . . . . . . . . . . 2
Suggestions For Tax Forms . . . . . . . . . . . . 2
Practitioners’ Forum . . . . . . . . . . . . . . . . . . 2
Kona Problem Solving Day . . . . . . . . . . . . . 3
Summer Workshop Report . . . . . . . . . . . . . 3
Third Quarter State Tax Collections . . . . . . 3
Taxpayer Survey Results . . . . . . . . . . . . . . 3
Recently Issued Tax Publications . . . . . . . . 4
Status of Selected Measures 1998 Legislative Session . . . . . . . . . . . . . 5
1998 Income Tax Legislation Income Tax Rates and Low-Income
Tax Credit Schedule . . . . . . . . . . . . . . . . 7

Page 2

Hawaii Tax NewsThe Direct Line F
By Director Ray K. KamikawaWe devote the bulk of this Hawaii Tax Newsto the 1998 legislative session. As you
read or heard, so much time was spent on
the budget and ERTF tax bill, with the final language ofeach being decided on the last possible day of theextended session. This resulted in many small, but good,money and tax bills getting lost in the shuffle despite their
merits and apparent agreement by both houses. In
addition, the legislature dropped most business tax relief
measures in favor of the governor’s desire for a moregenerous personal income tax package (without
increasing the GET). The governor has promised to seek
even more by way of personal income tax cuts next
session along with reviving some of these business tax
measures, e.g., cut in corporate tax rates and relief ofspecific pyramiding situations under the GET.
The conformity bill did pass with the new section 121
exclusion and retroactive date intact as initially
proposed by us. The new accelerated deduction phase infor self-employed health insurance premiums also
passed as part of this bill, as did the Roth IRA provisions.
What did not pass again this year was the itemized
deduction for long-term health care costs and insurance
premiums passed by Congress in 1996.
During session, you and the department are in the
midst of the filing season. I wish to extend myappreciation for our tax processing crew who, under theleadership of Division Chief Marie Okamura, made it
seem easy once again. We ask for your suggestions on
improving the process for next season, including
suggestions on simplifying our pass-thru entity forms.
I will for the rest of the year be making the rounds atseminars, meetings, and forums trying to explain what
happened at the legislature. Wish me luck. 3

Summer 1998

Suggestions For Tax
Forms

T

he Department is updating and reviewing tax
returns, instructions, and forms for the tax
year 1998 and welcomes suggestions fromusers of the forms. Your suggestions in past years havebeen most helpful in our effort to simplify and improve
the forms.
In particular, we would like to receive input on
converting forms to one page. Thus far, the Department
has converted the individual income tax return andcorporate income tax return to one page and isconsidering converting the returns for flow-throughentities, e.g., partnerships, and S corporations, to one
page as well.
You may submit your suggestions by calling theTechnical Section at (808) 587-1577, faxing yourcomments to (808) 587-1584, or mailing your comments
to the Technical Section, Department of Taxation, P. O.
Box 259, Honolulu, Hawaii 96809-0259. 3

Practitioners’ ForumThe first Practitioners’ Forum of 1998 washeld on May 12 in the Princess Ruth
Keelikolani Building. Topics which werediscussed included legislative updates; problems with
Form N-15, Nonresident and Part-Year Resident Income
Tax Return; miscellaneous processing information;suggestions for next year’s tax forms; update on the(See Practitioners’ Forum, Page 3)

SELF Project(From Page 1)

asked to file amended tax returns for all years in which
the statute of limitations has not expired, if appropriate.
A percentage of the respondents will be asked to verify
their responses to determine if the program was effective
in teaching the requirements of the law. Taxpayers that
do not respond will be subject to a field audit, or may
have assessments prepared against them based upon thebest available information. 3

The Hawaii Tax News is a publication of the State of
Hawaii, Department of Taxation.
Director:
Editors:
Address:
Telephone:
Fax:
Website:Forms by Fax:
Consumer Dial:

Ray K. Kamikawa
Lynne Kuroda & Cathleen Tokishi
Princess Ruth Keelikolani Building
830 Punchbowl Street, Room 220
Honolulu, HI 96813-5094
808-587-1577
808-587-1488
http://www.state.hi.us/tax/tax.html
On Oahu: 808-587-7572
All Others: 808-678-0522 from yourfax machine808-587-1234 (message 7700)

Summer 1998

Hawaii Tax News

Practitioners’ Forum

Page 3surveys; and filing season statistics.
The next tax workshop will be held in August. 3(From Page 2)

Compliance Division; and managed audits.
About 77 practitioners currently have signed up to
participate in these meetings; only 27 attended this forum.
The next meeting will be held in October.
The Practitioners’ Forum is an informal meeting with
the Tax Director and liaisons or representatives from tax
firms to discuss certain matters, brainstorm ideas, bringup questions, and try to resolve problems dealing with
tax issues through panel discussions and audience
participation. If you are interested in participating inthese meetings, send your name, address, telephone
number, and fax number to the Taxpayer Services
Branch, Technical Section, Department of Taxation, 830
Punchbowl Street, Room 220, Honolulu, Hawaii 96813;
or fax this information to the Department of Taxation at(808) 587-1488. 3

Kona Problem
Solving Day

T

he Department of Taxation and the Internal
Revenue Service held a joint problem solving
day in Kailua-Kona on May 16. The
Department assisted a handful of taxpayers with problems
ranging from non-filed general excise and net income tax
returns to inquiries about their tax liabilities. A “small
business help desk” was also available where State and IRS
representatives provided general information on tax
matters that can be troublesome for small business owners,
such as payroll taxes and deposits, recordkeeping, ScheduleC, estimated taxes, and employee vs. independent
contractor issues. Earlier in the year, joint problem solving
days were held on Oahu and Maui. 3

Summer Workshop
ReportA

total of almost 190 people attended theDepartment’s Summer Workshop which
was held on June 4 at the McCoy Pavilion.
The workshop covered such topics as legislative updates;
the application of state taxes to tourist related activities
such as timesharing, export exemptions for omiyage,
taxability of coupons, TAT issues, tourist weddings, etc.;
audit procedures geared towards tourist related
activities; update on the systems replacement project;electronic filing initiatives; results of the practitioner

Third Quarter StateTax Collections

S

tate tax collections totaling $825.1 million for
the third quarter of fiscal year 1998, represent
a 2.7% ($21.8 million) increase over the$803.3 million collected in the third quarter of fiscal year
1997. January through March monthly collections
totaled $317.0 million, $276.3 million, and $231.8
million, respectively, averaging $275.0 million permonth. For the first nine months of fiscal year 1998,
collections are $0.2 million behind last fiscal year.
While third quarter general excise (+$9.9 million),
net individual income (+$20.4 million), insurance
premiums (+$2.7 million), transient accommodations(+$2.0 million) and public service (+$1.1 million) tax
collections showed increases in revenues, corporation
income (-$7.5 million), employment contributions(-$4.1 million) and fuel (-$2.2 million) tax collections
dropped, resulting in the overall $21.8 million increase.
Of the $825.1 million collected in the third quarter ofthis fiscal year, $714.5 million was deposited into thestate general fund. This compares with $688.7 million in
the third quarter of last fiscal year. As a result, generalfund revenues grew 3.7% in the third quarter of fiscal
year 1998. This moves cumulative general fund revenues
through the first three quarters of the current fiscal year
0.5% ahead of last year. 3

Taxpayer Survey
ResultsT

he Department recently conducted a survey,
enclosed with the Form 1099-G, whichtargeted the individual taxpayer. Close to
4,000 responses were received out of the 200,000 Form
1099-Gs mailed out. Most taxpayers completing thesurvey contacted the Department for tax information and
rated our overall services as:
40% Excellent
33% Good
8% Fair
6% Poor
12% Undecided
The majority of the taxpayers were pleased with theservices provided, complementing the aloha spirit, our(See Taxpayer Survey, Page 4)

Page 4

Hawaii Tax News

Taxpayer Survey(From Page 3)

constant efforts to improve services, and theimplementation of the Forms by Fax service. Someareas needing improvement were the processing ofrefunds, non-receipt of notices/forms, and customer
improvement (e.g. telephone lines, technique, etc.).
The Department will be reviewing the results of thesurvey to help in our quest for excellence. 3

Recently Issued Tax
Publications

T

he following is a list of the publications
issued by the Department of Taxation from
April 1997 through June 1998. Copies ofthese publications may be obtained from any district tax
office, by calling the Forms Request Line on Oahu, or
via the Internet. Addresses and telephone numbers areprovided on the last page of this newsletter.
Section 18-235-7-03(c), HAR - Relating to thetaxation of pensions under the Hawaii Income Tax Law.
Section 18-235-98, HAR - Relating to therequirements for extensions of time for filing income tax
returns.
Chapter 18-237 and Sections 18-238-1 and18-238-2, HAR - Relating to the application of thegeneral excise tax and use tax to the sale of tangible
personal property by an out-of-state seller, including
drop shipments.
TIR No. 97-2 - Reiterates the requirement that a
corporate taxpayer engaged in a unitary business as partof a unitary group must file a combined Hawaii income
tax return and clarifies that if any corporation in theunitary group has sufficient nexus with Hawaii, thecombined income tax return must include the income andapportionment factors of all corporations of the unitarygroup.
TIR No. 97-3 - Provides information on the
expansion of the “timely mailing treated as timely
filing/paying rule” to documents and payments deliveredby a designated private delivery service.
TIR No. 97-4 - Provides guidance regarding theapplication of the business entity classification rules
under the “check-the-box” regulations to the Hawaii
income tax and other taxes.
TIR No. 97-5 - Explains the proper interpretation of
the law regarding business development corporations
and associated tax benefits.
TIR No. 98-1 - Provides information on the income
tax exemption and credits available for persons engaged

Summer 1998

in the motion picture and television film production
business.
TIR No. 98-2 - Explains the application of thegeneral excise tax to income received from leasing
personal property.
TIR No. 98-3 - Provides information regarding the1998 Legislation on business development corporations.
Announcement No. 97-7 - Informs taxpayers of theincrease in the cigarette tax rates.
Announcement No. 97-8 - Informs taxpayers of thepenalties for electronic funds transfer payments that aredishonored and the penalties for failure to remit by an
EFT method approved by the Department of Taxation.
Announcement No. 98-1 - Provides a list of
candidates for political office who have registered withthe campaign spending commission.
Announcement No. 98-2 - Announces the adoptionof Hawaii Administrative Rules, relating to the taxationof pensions under the Hawaii Income Tax Law.
Announcement No. 98-3 - Announces the adoptionof Hawaii Administrative Rules, relating to therequirements for extensions of time for filing income tax
returns.
Announcement No. 98-4 - A listing of the Tax
Information Releases in effect and obsolete as of January
23, 1998, and a listing of Hawaii Administrative Rules.
Announcement No. 98-5 - Informs taxpayers of the
Department’s administration of the dividends received
deduction under section 235-7(c), HRS.
Announcement No. 98-6 - A Listing of New and
Obsolete/Retired Tax Forms, Instructions, andSchedules; Errors Found on Hawaii Tax Forms as ofMarch 1, 1998.
Announcement No. 98-7 - Informs taxpayers of theincrease in the liquor tax rates.
Announcement No. 98-8 - Requesting suggestions
for improving the tax forms.
Announcement No. 98-9 - Informs taxpayers of the
Hawaii Income Tax Law conformity to the Internal
Revenue Code.
Tax Facts No. 97-3 - Provides information on thegeneral requirements for individuals starting a business.
Tax Facts No. 97-4 - Provides information on the1997 Form N-15 which was revised as a nonresident andpart-year resident income tax return.
Tax Facts No. 98-1 - Provides information regarding
the general excise tax on medical and dental charges.
Tax Advisory, dated April 21, 1997 - Provides
information regarding the application of the general
excise tax to tourist wedding activities of churches.
Tax Information, dated April 9, 1998 - Provides
information on Act 281, SLH 1997, with respect tononresident active duty military personnel and theirspouses. 3

Summer 1998

Hawaii Tax News

Page 5STATUS OF SELECTED MEASURES
1998 LEGISLATIVE SESSIONBRIEF DESCRIPTION OF LEGISLATION

Pass

Dead

Chapter 420, Business Development Corporations

U

Phase out of tax benefits and repeal of chapter
Administration of the Tax Laws

U
U
U
U
U

Criminal penalties for perjury
Direct sellers collection agreements
Income tax set off for fines owed to the Judiciary
Income tax set off for Medicaid overpayments made to providers
Income tax set off for child/spouse support payments owed
Private collection agency’s authority to collect fees directly from taxpayers

U

Conveyance Tax

URedistribution of conveyance tax revenues
Certain real property transfers exempt from tax

U

General Excise/Use Tax
Aircraft maintenance facility GET and use tax exemption clarification
Sales of imported goods from wholesaler to wholesaler GET exemption
Elimination of GET subcontract deduction liability/collection requirementsfor prime contractor

U
UHigh technology development corporation research grant GET exemption

U
U

Employee payroll and benefit costs for telecommunication managementcompanies GET exemptionU

Use tax on imported services
Exported services GET exemption
GET pyramiding relief for sales of goods and services
Hotel room rentals GET exemption
Aviation training facility and cargo facilities GET and use tax exemptions
Employee leasing companies exempt from GET on certain receipts
Expansion of GET exemption for related entities (management fees and rental income)Corporate sponsorship payment GET exemption
Capital contributions made in aid of construction GET exemption
Cure of technical error in the effective dates for the sublease deduction
GET income split treatment for tourism related services; destination managers
Preferential 1.5% GET rate for nonprofits and other persons currently exempt
GET base broadening; elimination of selected exemptions

U
U
U
U
U
U
U
U
U
U
U
U
U

(See Status of Selected Measures, Page 6)

Page 6

Hawaii Tax News

Summer 1998

STATUS OF SELECTED MEASURES
1998 LEGISLATIVE SESSION(From Page 5)

BRIEF DESCRIPTION OF LEGISLATION

Pass

Dead

U
U
U
U
U

Real estate investment trusts GET exemption for certain receipts
Sales of nonprescription drugs GET exemption
Tax relief for various health care services and providers
Sales of food GET exemption
Amnesty program for GET delinquencies
Insurance Premium Tax

UU

Repeal of the insurance premium tax credit
Low-income housing premium tax credit for insurance companies to set off premium tax
Net Income Tax
Conformity to the Internal Revenue Code
Individual income tax rate relief; bracket expansion
Low-income refundable tax credit; food tax credit repeal
Motion picture credit clarification
Individual Housing Account amendment affecting those established before January 1, 1990

U
U
U
U
U

Expansion of dividends received deduction
Election for nonresident pass-throughs to file composite returns at highest
marginal income tax rate

U
U
U
U
U
U
U
U
U

Long-term care deduction (Conformity to IRC)
Reduction of capital gains rate by 30%
Taxation of pensions
Business meals/entertainment income tax deduction increase (50% to 80%)
Purchase of recycling machinery credit
Small business credit for advertising
Small business credit for renovating home or officePublic Service Company Tax
PSC tax income split treatment for motor carriersU

Tobacco Tax
Tobacco stamp tax
Deferral of tobacco tax increase to January 1, 1999

U
U

Restoration of the cigarette tax exemption for sales to the militaryTransient Accommodations Tax
Rate increase from 6% to 7.25%
Time share subject to TATUUUSummer 1998

Hawaii Tax News

Current
TAXABLE INCOME
BRACKETS
lower
upper

1998 Income Tax Legislation
TAX
RATES

I. SINGLE$0$1,500$2,500$3,500$5,500$10,500$15,500
over

TAXABLE INCOME
BRACKETS
lower
upper

TAX RATES
1999-2000
2001

2002

PERCENTTAX REDUCTION
1999-2000
2001
2002

I. SINGLE$1,500$2,500$3,500$5,500$10,500$15,500$20,500$20,500

2.00%
4.00%
6.00%
7.25%
8.00%
8.75%
9.50%
10.00%$3,000$5,000$7,000$11,000$21,000$31,000$41,000$41,000

2.00%
4.00%
6.00%
7.25%
8.00%
8.75%
9.50%
10.00%

II. JOINT$0$3,000$5,000$7,000$11,000$21,000$31,000
over

Page 7$0$2,000$4,000$8,000$12,000$16,000$20,000$30,000
over$2,000
1.60%
1.50%
1.40%
-26.3%$4,000
3.90%
3.70%
3.20%
-30.5%$8,000
6.80%
6.40%
5.50%
-22.9%$12,000
7.20%
6.90%
6.40%
-17.4%$16,000
7.50%
7.30%
6.80%
-16.4%$20,000
7.80%
7.60%
7.20%
-16.5%$30,000
8.20%
7.90%
7.60%
-16.8%$40,000
8.50%
8.20%
7.90%
-16.7%$40,000
8.75%
8.50%
8.25%
-13.0%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16.1%-30.9%-34.4%-27.2%-21.8%-20.2%-19.9%-20.0%-19.8%-15.9%-19.3%-35.5%-41.3%-36.6%-30.8%-28.2%-27.0%-25.9%-24.8%-19.7%-25.1%-30.1%-34.7%-26.5%-21.7%-20.2%-19.9%-19.9%-19.8%-15.6%-18.9%-34.7%-41.6%-36.1%-30.8%-28.1%-27.0%-25.9%-24.8%-19.2%-24.5%-33.9%-39.2%-27.2%-22.6%-21.2%-21.2%-20.4%-19.7%-15.5%-21.1%-38.3%-45.5%-36.6%-31.7%-29.1%-28.3%-26.4%-24.7%-19.1%-27.9%-19.2%-24.9%

II. JOINT$0$4,000$8,000$16,000$24,000$32,000$40,000$60,000
over$4,000
1.60%
1.50%
1.40%
-25.4%$8,000
3.90%
3.70%
3.20%
-30.8%$16,000
6.80%
6.40%
5.50%
-22.1%$24,000
7.20%
6.90%
6.40%
-17.3%$32,000
7.50%
7.30%
6.80%
-16.3%$40,000
7.80%
7.60%
7.20%
-16.5%$60,000
8.20%
7.90%
7.60%
-16.7%$80,000
8.50%
8.20%
7.90%
-16.6%$80,000
8.75%
8.50%
8.25%
-12.7%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15.6%

III. HEAD OF HOUSEHOLD

III. HEAD OF HOUSEHOLD$0$1,500$2,500$3,500$5,500$11,000$21,000
over$0$3,000$6,000$12,000$18,000$24,000$30,000$45,000
over$1,500$2,500$3,500$5,500$11,000$21,000$41,000$41,000

2.00%
3.00%
4.50%
5.90%
7.25%
8.60%
9.60%
10.00%$3,000
1.60%
1.50%
1.40%
-29.5%$6,000
3.90%
3.70%
3.20%
-35.5%$12,000
6.80%
6.40%
5.50%
-22.9%$18,000
7.20%
6.90%
6.40%
-18.3%$24,000
7.50%
7.30%
6.80%
-17.3%$30,000
7.80%
7.60%
7.20%
-17.9%$45,000
8.20%
7.90%
7.60%
-17.2%$60,000
8.50%
8.20%
7.90%
-16.6%$60,000
8.75%
8.50%
8.25%
-12.6%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17.5%

Revenue Loss ($mill.)($159)($192)($249)

Low-Income Tax Credit Schedule
Adjusted
Gross Income

Credit Amountper Exemption

Under $10,000$10,000 under $15,000$15,000 under $20,000$20,000 and over

$35
$25
$10
$0

Effective for taxable years beginning after December 31, 1998.

-15.9%

WEB INFORMATION AND FORMS
http://www.state.hi.us/tax/tax.html

OAHU DISTRICT OFFICE
Princess Ruth Keelikolani Building
830 Punchbowl Street
Honolulu, HI 96813-5094
FAX: 808-587-1488
TELEPHONE:For Tax Information:808-587-6515 (January - April 20)
808-587-4242
1-800-222-3229 (Toll-Free From Neighbor
Islands and Mainland U.S.)
To Request Tax Forms and Order CD-ROM (Nominal
Cost) by Mail:
808-587-7572
1-800-222-7572 (Toll-Free From Neighbor
Islands and Mainland U.S.)
To Request Tax Forms by Fax:
On Oahu: 808-587-7572
All Others: 808-678-0522 from your fax machine

MAUI DISTRICT OFFICE
State Office Building
54 S. High Street, #208
Wailuku, HI 96793-2198
FAX: 808-984-8522
TELEPHONE: 808-984-8500

HAWAII DISTRICT OFFICE
State Office Building
75 Aupuni Street, #101
Hilo, HI 96720-4245
FAX: 808-974-6300
TELEPHONE: 808-974-6321

KAUAI DISTRICT OFFICE
State Office Building
3060 Eiwa Street, #105
Lihue, HI 96766-1889
FAX: 808-274-3461
TELEPHONE: 808-274-3456

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

DISTRICT TAX OFFICES
Forms and Information may be obtained from any district tax office,Mondays through Fridays, except State holidays, from 7:45 A.M. to 4:30
P.M.