KURT KAWAFUCHILINDA LINGLE
GOVERNORDIRECTOR OF TAXATIONJAMES R. AIONA, JR.

SANDRA YAHIRODEPUTY DIRECTOR

LT. GOVERNORSTATE OF HAWAII

DEPARTMENT OF TAXATIONP.O. BOX 259
HONOLULU, HAWAII 96809

PHONE NO: (808) 587-1510
FAX NO: (808) 587-1560

March 10, 2006

DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2006-01
RE:Relief for Taxpayers Affected by Heavy Rains and Flooding From February
20, 2006 to March 3, 2006*, in the Windward Oahu Communities andPortions of Kauai and Maui

In light of the recent rainstorms that caused substantial damage to homes andbusinesses in the Windward Oahu communities and portions of Kauai and Maui, theDepartment of Taxation ("Department") recognizes that affected taxpayers may havedifficulty meeting their tax obligations. The Department, therefore, will consider
requests for extensions to file and pay taxes and waivers of penalties and interest on acase-by-case basis. In addition, the Department will also follow federal casualty loss
provisions in the event of a Presidential declaration of a natural disaster.
I.

Mark Returns "2006 Windward Oahu/Kauai/Maui Flood Relief"All returns (both individual and business) that are filed under the provisions of
this Announcement should be clearly marked "2006 Windward Oahu/Kauai/Maui FloodRelief" on the top center of the return. Do not place the words "2006 Windward
Oahu/Kauai/Maui Flood Relief" in the "DO NOT WRITE IN THIS SPACE" area in theupper right corner of any return. Taxpayers and tax practitioners who want to use theprovisions of this Announcement, but whose addresses (on file with the Department) arenot within the areas directly affected, should also include a brief statement as to how thedisaster adversely affected their ability to meet their tax obligations.
II.

Hawaii Employer's Withholding Taxes

Taxpayers whose Hawaii employer's withholding tax returns are due March 15,
2006, and who, as a result of the rains and flooding cannot meet these due dates, may filetheir returns and pay the tax due by April 15, 2006, without incurring any penalties orinterest. No late filing penalty will be imposed for returns that are postmarked on or
before April 15, 2006. This also applies to those who are required under 235-62, HRS,
to file monthly and remit payments on a semi-weekly schedule (tax payments may bemade when the return is filed).

Department of Taxation Announcement No. 2006-01
March 10, 2006
Page 2
Employers who have employees at several locations in the State, including
locations affected by the rains and flooding, must file their returns on time, including
payments for taxes due. If complete information from locations affected by the rains andflooding is not available by the due date of the return, an amended return should be filed
when the information becomes available.
III.

Special Consideration

The Department will consider requests for extensions to file and pay other taxes
and waivers of penalties and interest on a case-by-case basis. Each request should
include a statement as to how the 2006 Windward Oahu or Kauai or Maui rains andflooding adversely impacted the taxpayer.
IV.

Casualty Losses

For purposes of the Hawaii Income Tax Law, you may claim all of the casualty
loss deductions allowed by §165 of the Internal Revenue Code (See IRS Publication 547
for more information). Casualty losses on business property are deductible in full. Thefirst $100 of the eligible unreimbursed casualty losses on nonbusiness property is notdeductible. The remaining loss is deductible to the extent it exceeds 10 per cent (10%) of
the taxpayer's Hawaii adjusted gross income. The following options are available after
you have determined the amount of your losses:
1. Taxpayers may deduct the losses on their 2006 income tax returns; or
2. In the event that the President of the United States of America issues aproclamation of a natural disaster, taxpayers may elect to claim a casualty loss
deduction on their 2005 income tax returns, instead of on their 2006 income tax
returns, for losses from the rains and flooding February 20, 2006 to March 3,
2006 (an amended return may need to be filed if this option is chosen); or
3. Taxpayers may elect to deduct the losses in five (5) equal installments over a
period of five (5) consecutive years, beginning with the 2006 Hawaii income tax
return; or
4. If your casualty loss is more than your income, you may have a net operating loss.
A net operating loss may be used to lower your taxes in an earlier year, allowing
you to receive a refund for taxes that you have already paid. Or if you properly
elect, a net operating loss may be used to lower your taxes in a later year. You do
not have to be a business to claim this benefit; all taxpayers may claim thiscarryback or carryover net operating loss.
V.

General Excise Tax Exemption for Insurance Proceeds Received Because of a
Natural Disaster, § 237-24.7(6), HRSDepartment of Taxation Announcement No. 2006-01
March 10, 2006
Page 3On March 2, 2006, the Governor signed a State Disaster Proclamation in which
she determined (pursuant to §209-2, HRS) that a disaster had occurred in the Windward
Oahu communities and portions of Kauai and Maui. Therefore, taxpayers may be
eligible for this general excise tax exemption if they receive amounts under property andcasualty insurance policies for damage or loss of inventory used in a trade or businesslocated within the Windward Oahu area or the affected portions of Kauai or Maui. Pleaserefer to the instructions for Forms G-45 and G-49 for more information.
Tax forms and information are available on the Department's website atwww.hawaii.gov/tax. If you know which tax form or publication you need, please callthe Department's Forms Request Line at 808-587-7572, or toll-free from the neighborislands and continental U.S. at 1-800-222-7572. This service is available 24 hours a day,
7 days a week. Additional information is available by calling the Taxpayer Services
Branch during business hours at 587-4242, or toll-free at 1-800-222-3229, or by emailing them at Taxpayer.Services@hawaii.gov.
*The March 3, 2006 date may be extended by future announcements.

KURT KAWAFUCHI
Director of Taxation