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

Volume 9, Number 1

State of Hawaii • Department of Taxation

New Imaging
SystemB

uilding on the successful implementation ofbusiness tax processing to our new Integrated
Tax Information Management System (ITIMS), theDepartment has commenced development of an imaging
system add-on. The imaging system will scan incoming
paper returns into digital images, enabling Department
staff to retrieve taxpayer returns directly from theirdesktop computers.
Some of the benefits of the new imaging system
include:• More efficient and effective processing,• Quicker responses to taxpayer’s inquiries on their tax
returns due to faster image retrieval of online images,• Reduced physical space for storage since paper
returns will be stored electronically, and• Advanced recognition technology.
The first forms to be redesigned for the new imaging
system include Form G-45, General Excise/Use Tax
Periodic Return, and Form G-49, Annual Return andReconciliation General Excise/Use Tax. The redesigned
Forms G-45 and G-49 will be available for filing the2006 returns.
More information on our new imaging system will be
provided in future issues of the Hawaii Tax News.

Use the Payment
Vouchers!

Daily, hundreds of tax payments come into the
Department of Taxation without a payment
voucher. This creates problems – for the Department andfor you. Very early in the processing cycle for returns, thereturns are separated from the accompanying checks andpayment vouchers. The payment and voucher are sent
through a separate process from the returns and arescanned by our automated remittance processing system.
The payment voucher identifies the taxpayer, the tax type,
the tax period, and the amount of tax being paid. Without
an accompanying payment voucher, the time frame forprocessing a payment is significantly prolonged. The

SPRING 2005

Department must research and attempt to identify which
taxpayer, tax account and period the payment is to be
applied to. Then a voucher is manually created so that thepayment can be processed and posted, hopefully, to thecorrect taxpayer, tax type and account. If a return andpayment come in without a payment voucher, it is very
likely that the return will post to your account creating a
tax due amount before your payment can be credited
against that liability. You will then receive a bill for thetax due, even if you sent in a check (but not a payment
voucher!) with the return. The Department receives many
telephone calls from very unhappy taxpayers who receivea tax bill because they did not include the appropriate
payment voucher with their tax payment.
We ask for your help by including the appropriate
payment vouchers for your returns with payments. Also,
please use your new Hawaii Tax I.D. number. Doing thesethings will help the returns and payments process smoothly
through our system, ensure the payment is applied to theproper account, eliminate the necessity of sending you abill for taxes due, and reduce the cost of government. If you
don’t know your new Hawaii Tax I.D. number, you may
find it using our Internet Tax License Search program bygoing to our home page at www.state.hi.us/tax andchoosing “Search the Tax Licenses” on the right side of thescreen under the heading “On-line Services”. Please notethat all Hawaii Tax I.D. numbers begin with “W” followedby an 8-digit randomly assigned number.

IN THIS ISSUE
New Imaging System . . . . . . . . . . . . . . . . . 1
Use the Payment Vouchers! . . . . . . . . . . . . 1
The Direct Line . . . . . . . . . . . . . . . . . . . . . . 2
Conformity to Federal Tax Changes . . . . . . 2
Reporting Semiweekly Withholding
Payments . . . . . . . . . . . . . . . . . . . . . . . . . 2
Revamped Website. . . . . . . . . . . . . . . . . . . 3
Certification for High Technology
Tax Credits. . . . . . . . . . . . . . . . . . . . . . . . 3
April 20 Deadline. . . . . . . . . . . . . . . . . . . . . 3
Standard Mileage Rates for 2005 . . . . . . . . 4
Corrections to 2004 Tax Forms . . . . . . . . . 4
Recently Issued Tax Publications . . . . . . . . 5
Pending Tax Publications . . . . . . . . . . . . . . 6
Second Quarter State Tax Collections . . . . 7

Page 2

Hawaii Tax NewsThe Direct Line (By Director Kurt Kawafuchi

It’s a new year and a new beginning. In line with ourgoal to become more transparent, I have submitted thefollowing Department Goals and Objectives to thelegislature:• Goal 1: To promote and achieve a high level ofvoluntary compliance, i.e., where taxpayers arevoluntarily paying the proper taxes on a timely basis.
- Objective 1: Increase the collection of delinquenttaxes by an additional $35 million over the next
three fiscal years. We are seeking additional
resources to achieve this goal.
- Objective 2: To promote increased awareness ofthe Hawaii tax system and help taxpayers meettheir tax obligations to the State of Hawaii.
• Goal 2: Being more business and customer friendly.
- Objective 1: Improve the quality and timeliness ofservices provided to taxpayers and taxpayers’
representatives.
- Objective 2: Be more accessible, flexible,
transparent, and solution-oriented.
- Objective 3: Improve morale and upgrading theskill level of our staff.
- Objective 4: Provide a better working
environment for the staff.
• Goal 3: Promote a tax system that assures the publicthat the tax laws are administered and enforced
fairly, efficiently, and with integrity for all taxpayers.
- Objective 1: Diligently pursue taxpayers who failto pay their fair share of taxes with appropriate
consideration for the issue, amount andcircumstances.
- Objective 2: Work closely with the Department of
the Attorney General, Tax Division, to protect the
government’s tax claims in the U.S. Bankruptcy
Court, foreclosure suits, probate courts, andinterpleaders.
- Objective 3: Coordinate and work closely with
the Internal Revenue Service to jointly achieve as
high a level of voluntary compliance as possible.
Also seek to share resources and experiences toimprove Hawaii’s tax system.
Goal
4: Integrate and maximize the benefits of new•technology.
- Objective 1: Maximize the new technology in the
Department of Taxation.

Spring 2005

Conformity to Federal
Tax Changes

Of interest to you right now are the annual
conformity measures in Senate Bill No. 834,
especially with respect to federal provisions that impact
returns currently being filed for the 2004 tax year. At thepresent time, Hawaii has not adopted any changes tofederal tax law enacted by Congress in 2004 or 2005,
including the charitable deduction on a taxpayer’s 2004
return for contributions made in January 2005 fortsunami relief, the optional itemized deduction for state
sales taxes instead of state income taxes, and theextension of the above-the-line deduction for certain
educator expenses. As you know, taxpayers can’t file
Hawaii returns based on federal law that has not yet been
adopted by Hawaii. Returns filed now must be preparedbased on current law and amended later if an applicable
federal provision is later adopted. An alternative is todelay filing until the conformity measure becomes law.
In this case, taxpayers may obtain an automatic 4-monthextension of time to file the return.

Reporting Semiweekly
Withholding PaymentsE

mployers who are required to makesemiweekly withholding payments must also
complete Schedule B of federal Form 941 with their
Hawaii tax information. Federal Schedule B (Form 941)
See Withholding Payments, 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

Spring 2005

Hawaii Tax News

Withholding Payments(From Page 2)

accompanies the Form HW-14, Withholding Tax
Return, that is submitted for the last month of a calendar
quarter. On federal Schedule B (Form 941), list your tax
liability (i.e., the Hawaii income tax you withheld fromyour employees’ paychecks) for each payday during thecalendar quarter.
Do not show your Hawaii withholding tax
remittances on the federal Schedule B (Form 941).
Remittance information is taken from your submitted
electronic funds transfer (EFT) or from the Form
VP-1W, Tax Payment Voucher - Withholding. The
Department of Taxation uses federal Schedule B (Form941) to determine if you have timely remitted your
Hawaii withholding tax liability.
Department of Taxation Announcement 2005-1
provides general instructions and examples which may
assist your completion of this form and is available on
our website at www.state.hi.us/tax, by calling ourrequest line at 587-7572 (toll-free at 1-800-222-7572),
and from any district tax office.

Revamped WebsiteWe recently implemented our new revamped
website. The new website design goal is toprovide a more user-friendly experience to our visitors witha fresh look, quicker navigation, and better-organizedcontent. Visit us soon!

Certification for HighTechnology Tax
CreditsI

f you are planning to claim the (1) Tax Credit for
Research Activities for research expenses
incurred on or after July 1, 2004, or (2) High Technology
Business Investment Tax Credit for investments madeon or after July 1, 2004, you must have the researchexpenses and the new investments certified before thehigh technology tax credits may be claimed.
Certification Forms N-318A and N-319A need to besubmitted before March 31, 2005 (for tax returns filed ona calendar year basis), for research expenses incurred orinvestments made on or after July 1, 2004.
We encourage you to submit your forms forPage 3certification early. Once administrative rules imposing
certification fees are adopted, you will have to pay a feein order to get your certificate. If you submit yourcertification requests before the rules are adopted,
certification is free!
A draft Department of Taxation Announcement
regarding the new certification forms is available on our
website at www.state.hi.us/tax. Forms N-318A andN-319A are available on our website, by calling ourrequest line at 587-7572 (toll-free at 1-800-222-7572),
and at any district tax office.

April 20 Deadline

The Hawaii income tax filing deadline is just a
few weeks away. The Department provides thefollowing services to taxpayers needing tax forms,
information, and assistance:• www.state.hi.us/tax – The Department’s recently
updated website is a convenient way for taxpayers to
obtain Hawaii tax forms and other information.
Forms for the 2004 tax year have writable fields thatallow users to type in their entries before printing,and a search feature helps taxpayers find specificinformation.
• 2004 Hawaii Tax Information CD – Available at a
cost of $10, this CD contains the 2004 tax forms withwritable fields, Tax Information Releases,
Announcements, Tax Facts, brochures, and more.
• Forms by Fax/Mail Service – Taxpayers may request
State tax forms and publications 24 hours a day, 7days a week. All forms and publications can bemailed to the requestors; selected forms can be faxed.
Callers must provide the specific form number inorder to be assisted since this service is not staffedwith Department of Taxation employees. On Oahu,
call 587-7572. From the neighbor islands,
continental U.S., and Canada, call toll-free at
1-800-222-7572.
• One-Stop Taxpayer Services – For State tax
information and individual assistance on accounts
Mondays through Fridays (except State holidays)
from 7:45 A.M. to 4:30 P.M., taxpayers statewide
should call the Tax Information Line at 587-4242, or
toll-free at 1-800-222-3229. Taxpayers who arehearing impaired should call 587-1418, or toll-free at
1-800-887-8974, for assistance. Requests for general
information and assistance (not confidential tax
return or account information) may also be e-mailed
to Taxpayer.Services@hawaii.gov.
• District Tax Offices – Hawaii tax forms,
See Tax Deadline, Page 4

Page 4

Hawaii Tax NewsTax Deadline(From Page 3)

publications, and individual assistance are available
during business hours at all four district tax offices
which are located on Oahu, Hawaii, Maui, andKauai. On Oahu, the most commonly requested form
and instruction packages are available after hours on
shelves located outside the Punchbowl Street
entrance to the Princess Ruth Keelikolani Building.
Just a reminder that e-filing your Form N-11 throughthe joint federal-state e-filing program often results in
fewer errors and faster processing. Refunds are extra fast
if you both e-file and choose to direct deposit yourrefund.
For those of you filing a paper return, the Department
will offer curbside service on Oahu for last minute filers
on Wednesday, April 20, 2005, from 5:00 P.M. to
midnight. You may drive up to either the Punchbowl
Street or Halekauwila Street sides of the Princess Ruth
Keelikolani Building where volunteer Department
employees will be stationed to accept tax returns,
extension requests, and other documents.
If you cannot complete your State tax return on time,
you may generally obtain an automatic 4-monthextension of time to file your Hawaii individual income
tax return without filing Form N-101A. Use Form
N-101A only if you need to make a payment. A payment
should be made if additional taxes are due because theextension of time to file an income tax return is not an
extension of time to pay the tax owed. Form N-101B isstill required to obtain an additional 2-month extension
beyond the 4 months.
The most convenient way to file an extension is byusing our E-Filing via the Internet site on the State’s
Internet portal at www.ehawaiigov.org/efile. Just
register online and e-file your extension.
There is a nominal $2.50 transaction fee that goes tothe vendor operating the website, but only if a payment ismade. Pay with an electronic check or credit card, but beaware that credit card companies charge an additional
fee if you use your credit card. Check your total charges
before confirming your payment.

Standard Mileage
Rates for 2005

I

f you use your car for business purposes, you may
be able to deduct certain car expenses. In general,
you may use either the standard mileage rate or the actual
expenses method to compute your deduction. The

Spring 2005

standard mileage rate for business use of a car has
increased from 37.5 cents per mile in 2004 to 40.5 cents
per mile in 2005.
Car expense deductions are also allowed for certain
non-business uses. If you itemize your deductions(instead of claiming the standard deduction), you may beable to claim a deduction for using your car for medical
reasons or while giving services to a charitableorganization. If you move to a new home because you’rechanging job locations or starting a new job, you may beable to claim a moving expense deduction for use of yourcar in a qualifying move on Form N-139.
The standard mileage rates for using your car for
medical reasons or in a qualifying move have both been
increased from 14 cents per mile in 2004 to 15 cents permile in 2005. The standard mileage rate for using yourcar while giving services to a charitable organization isunchanged at 14 cents per mile.
For more information, see Department of Taxation
Announcement No. 2004-18, which 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.

Corrections to 2004
Tax Forms

T

he following is a listing of errors found on the2004 Hawaii tax forms:
Form N-20• Lines 6 and 14, which read, “ . . . from federal Form
4797, Part II, line 18”, should read “ . . . from federal
Form 4797, Part II, line 17”• Schedule K, line 4f, which reads, “Unrecaptured
section 1250 gain . . .” should be deleted.
• Schedule K, line 28b(1) which reads, “Investment
income included on lines 4a, 4b, 4c, and 4f, ScheduleK”, should read “Investment income included onlines 4a, 4b, and 4c, Schedule K”
Schedule K-1 (Form N-20)• Line 4f, which reads, “Unrecaptured section 1250
gain . . .” should be deleted.
• Line 28b(1), which reads, “Investment income
included on Schedule K-1, lines 4a, 4b, 4c, and 4f”,
should read “Investment income included on
Schedule K-1, lines 4a, 4b, and 4c”
N-20 Instructions and Instructions for Schedule K-1(Form N-20)• Line 4f instructions regarding unrecaptured section
See Tax Form Corrections, Page 5

Spring 2005

Hawaii Tax News

Tax Form Corrections(From Page 4)1250 gain should be deleted.
Form N-35• Schedule K, line 11b(1) which reads, “Investment
income included on lines 4a, 4b, 4c, and 4f, above”,
should read “Investment income included on lines
4a, 4b, and 4c, above”
Schedule K-1 (Form N-35)• Line 4f which reads, “Unrecaptured section 1250
gain . . .” should be deleted.
• Line 11b(1) which reads, “Investment income
included on lines 4a, 4b, 4c, and 4f, above”, should
read “Investment income included on lines 4a, 4b,
and 4c, above”
Form N-40• Schedule E, Line 11 which reads, “Residential
Construction and Remodeling Tax Credit carryover(Attach Form N-334)”, should read “Residential
Construction and Remodeling Tax Credit carryover(Attach Form N-332)”
Schedule K-1 (Form N-40)• Line 3c, which reads, “Unrecaptured section 1250
gain” should be deleted.
Form N-100• Page 2, the revision year should be 2004 instead of
2003.
Form N-318• 2nd Note under Part II which reads, “If you are only
reporting your share of the credit that is shown on
Schedule K-1, skip lines through 6 . . . ” should read
“If you are only reporting your share of the credit thatis shown on Schedule K-1, skip lines 1 through 6 . . .”• Line 14, which reads, “Carryover of unused credit(line 9 minus line 13). Enter the difference here (butnot than zero) . . .” should read “Carryover of unused
credit (line 9 minus line 13). Enter the difference here
(but not less than zero) . . .”Recently Issued Tax
Publications

T

he following is a list of the publications issued
by the Department of Taxation from April 2004
through March 2005. Copies of these publications may

Page 5be obtained 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. 2004-01 - 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.
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 and
See Recent Publications, Page 6

Page 6

Hawaii Tax News

Recent Publications(From Page 5)

911 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
Valley area in the City and County of Honolulu.
Announcement No. 2004-18 - Announces the
adoption of the IRS optional standard mileage rates for

Spring 2005

2005.
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.
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.

Spring 2005

Hawaii Tax News

Page 7

Second Quarter State Tax Collections
October 2004 - December 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$ 312.3
11.3
483.4
39.5
172.7
$ 1,019.3

FY 2004$ 297.1
-0.3
438.1
38.0
171.0
$ 943.9

Amount$ 15.2
11.5
45.3
1.5
1.8
$ 75.3

Percent
5.1%
nm*
10.3%
4.0%
1.0%
8.0%

$ 885.4$ 806.5$ 78.99.8%(Note: Totals may not add up due to rounding.)
nm* = not meaningful

Total tax collections for the second quarter of fiscal year 2005 amounted to $1,019.3 million, or $75.3 million morethan the same period of last fiscal year. General fund revenues of $885.4 million for the second quarter also advanced$78.9 million from last year’s total of $806.5 million. As the economy continues to show strong growth, general
excise, individual income, and transient accommodation tax collections showed fairly large increases from theprevious year figures, as shown in the table. For the first half of fiscal year 2005, total state tax collections are $200.8
million, or 10.4%, over the first half 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)