NEIL ABERCROMBIE

FREDERICK D. PABLO

GOVERNORDIRECTOR OF TAXATIONSHAN TSUTSUIJOSHUA WISCH

LT. GOVERNOR

DEPUTY DIRECTOR

STATE OF HAWAII

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

PHONE NO: (808) 587-1530
FAX NO: (808) 587-1584

September 8, 2014

DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2014-05
RE:Tax-Related Acts from the 2014 Regular Legislative Session

The purpose of this Announcement is to list and summarize the Acts, enacted as part of theState of Hawaii's 2014 Legislative Session, amending or affecting the State Tax Law. Specificallythis announcement will address:
Act 42, Relating to General Excise Tax Wholesale Rate Imposed Upon Sale ofTangible Personal Property
Act 44, Relating to the Estate and Generation-Skipping Transfer Taxes
Act 88, Relating to Conformity of the Hawaii Income Tax Law to the Internal
Revenue CodeAct 89, Relating to Taxpayer Education
Act 101, Relating to Tax Credits
Act 107, Relating to Energy
Act 110, Relating to a Car-Sharing Vehicle Surcharge Tax
Act 136, Relating to Financial Audit of the State of Hawaii by the Legislative
AuditorAct 143, Relating to the General Excise Tax
Act 174, Relating to Transient Accommodations Tax
Act 200, Relating to the Capital Infrastructure Tax Credit
Act 235, Relating to Condominium Associations
Act 42, Session Laws of Hawaii (SLH) 2014
On April 23, 2014, Governor Neil Abercrombie signed into law Senate Bill 2896, S.D. 1,
as Act 42, SLH 2014 ("Act 42"). Act 42 is effective upon approval.
Act 42 clarifies that wholesale sales of tangible personal property are subject to theGeneral Excise Tax at the rate of one-half of one per cent of the gross proceeds of sales. Act 42addresses the inadvertent repeal of this rate by Act 135, SLH 2003, and represents no change inapplication of the tax.

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Act 44, SLH 2014
On April 23, 2014, Governor Neil Abercrombie signed into law Senate Bill 2887, S.D. 1,
as Act 44, SLH 2014 ("Act 44"). Act 44 applies to decedents dying or taxable transfers occurring
after December 31, 2013.
Act 44 conforms the State's estate and generation-skipping transfer tax law to the Internal
Revenue Code of 1986, as amended as of December 31, 2013. It also amends the definition of"applicable exclusion amount" for Hawaii estate tax purposes to close a loophole which allowed
decedents to substantially reduce or eliminate any Hawaii estate taxes by gifting away property,
even on the eve of death. Specifically, the Hawaii applicable exclusion amount is now reducedby the amount of taxable gifts made by the decedent that also reduces the amount of the federal
applicable exclusion amount (or the exemption equivalent of the unified credit).
Act 88, SLH 2014
On June 16, 2014, Governor Neil Abercrombie signed into law Senate Bill 2886, S.D. 1,H.D. 1, as Act 88, SLH 2014 ("Act 88"), required by section 235-2.5(c), Hawaii Revised Statutes("HRS"). Act 88 is effective June 16, 2014, and applies to taxable years beginning after
December 31, 2013.
Act 88 conforms Hawaii income tax law to the Internal Revenue Code ("Code") as ofDecember 31, 2013, and makes various technical amendments.
Section 2 of Act 88 amends section 235-2.3(a), HRS, to conform the Hawaii income tax
law to the operative Code sections of subtitle A, chapter 1, as amended on December 31, 2013.
Generally, subtitle A, chapter 1, refers to Code sections 1 through 1400T.
The following pieces of legislation amending the Code, enacted previous to December
31, 2013, were analyzed to determine if amendments to conformity were necessary:
1.

"To amend the Internal Revenue Code of 1986 to include vaccines against
seasonal influenza with the definition of taxable vaccines," P.L. 113-15,enacted June 25, 2013;2.

"To rename section 219(c) of the Internal Revenue Code of 1986 as theKay Bailey Hutchison Spousal IRA," P.L. 113-22, enacted July 25, 2013;

3.

"Continuing Appropriations Act, 2014," P.L. 113-46, enacted October 17,2013;

4.

"Fallen Firefighters Assistance Tax Clarification Act of 2013," P.L. 11363, enacted December 20, 2013.

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No amendments to conformity were necessary due to the above-listed federal legislation.
Section 3 of Act 88 amends section 235-2.4, HRS, to update conformity to various
individual Code sections and to make various technical amendments. Section 235-2.4(b), HRS, isamended to reflect the repeal of two provisions already inoperative for Hawaii income tax
purposes. Section 235-2.4(g), HRS, is amended to clean up the dates of inoperability regarding
Code sections 132(f)(2)(A) and (B), due to an extension affecting the two provisions.
Section 3 of Act 88 also amends conformity to Code section 164 in order to disallow adouble tax benefit for income taxes paid to a foreign jurisdiction. The amendment disallows thededuction for foreign income taxes paid if the taxpayer has taken the credit allowed under section
235-55, HRS.
Section 4.1 of Act 88 amends section 235-2.45(e), HRS, to provide that the 100 per centexclusion for gain on certain small business stock is not operative for Hawaii income tax
purposes.
Section 4.2 of Act 88 amends section 235-2.45(h), HRS, to continue nonconformance tothe shortened recognition periods provided in Code section 1374(d)(7)(B), (C), and (D).
Section 4.3 of Act 88 amends section 235-2.45(m), HRS, to provide for nonconformanceto the provisions of Subchapter C of the Code that deal with administrative procedures. The
amendment maintains conformity with provisions of Subchapter C of the Code that define thesubstantive tax treatment of partnership items. The amendment will allow the Department ofTaxation to impose its own administrative procedures to this area of law to remain consistent
with the administration of the remainder of Hawaii income tax law.
Section 5 of Act 88 amends section 235-2.5(c), HRS, by removing the date contained inthat section. This amendment will alleviate the need to amend section 235-2.5(c), HRS, each year
but will maintain the meaning and intention of that section.
Act 89, SLH 2014
On June 16, 2014, Governor Neil Abercrombie signed into law Senate Bill 2895, S.D. 1,H.D. 1, C.D. 1, as Act 89, SLH 2014 ("Act 89"). Act 89 is effective upon approval.
Act 89 allows the Department of Taxation to use Tax Administration Special Fundmonies for taxpayer education programs, including tax publications.
Act 101, SLH 2014
On June 19, 2014, Governor Neil Abercrombie signed into law House Bill 2464, H.D. 1,

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S.D. 1, C.D. 1, as Act 101, SLH 2014 ("Act 101"). Act 101 applies to taxable years beginning
after July 1, 2008.
Act 101 amends the Important Agricultural Land Qualified Agricultural Cost Tax Credit
to clarify the credit amounts. In the first year in which the credit is claimed, the taxpayer may
claim a credit equaling 25% of incurred qualified agricultural costs or $625,000, whichever isless. In the second year in which the credit is claimed, the taxpayer may claim a credit equaling
15% of incurred qualified agricultural costs or $250,000, whichever is less. In the third year inwhich the credit is claimed, the taxpayer may claim a credit equaling 10% of qualified
agricultural costs incurred or $125,000, whichever is less.
Act 107, SLH 2014
On June 20, 2014, Governor Neil Abercrombie signed into law Senate Bill 2196, S.D. 2
H.D. 1, C.D. 1, as Act 107, SLH 2014 ("Act 107"). Act 107 is effective July 1, 2014.
Act 107 does the following:
Extends the sunset of the $1.05 per barrel rate of the Environmental
Response, Energy and Food Security Tax ("Environmental ResponseTax") to June 30, 2030.
Re-establishes the Energy Systems Development Special Fund, which wasrepealed after June 30, 2013.
Re-establishes allocation of a portion of Environmental Response Tax
revenues to the Energy Systems Development Special Fund, with theallocation set to sunset June 30, 2030.
Extends the sunset of allocations of portions of the Environmental
Response Tax to the Environmental Response Revolving Fund, the Energy
Security Special Fund, and the Agricultural Development and Food
Security Special Fund from June 30, 2015 to June 30, 2030.
Act 110, SLH 2014
On June 20, 2014, Governor Neil Abercrombie signed into law Senate Bill 2731, S.D. 2,H.D. 2, as Act 110, SLH 2014 ("Act 110"). Act 110 is effective January 1, 2015.
Act 110 imposes a surcharge tax on car-sharing organizations. The car-sharing surcharge
tax is 25 cents per half-hour that a vehicle is rented by a car-sharing organization. The surcharge
tax is capped at $3 per day, matching the per-day, per-rental rate for the rental motor vehicle
surcharge tax.

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Act 110 defines a "car-sharing organization" as a rental motor vehicle lessor that operates
a membership program in which:1.

Self-service access to a fleet of vehicles is provided, with or without
requiring a reservation, exclusively to members of the organization whohave paid a membership fee;2.

Members are charged a usage rate, either hourly or by the minute, for eachuse of a vehicle;

3.

Members are not required to enter into a separate written agreement withthe organization each time the member reserves and uses a vehicle; and4.

The average paid use period for all vehicles provided by the organization
during any taxable period is six hours or less.

Act 136, SLH 2014
On June 24, 2014, Governor Neil Abercrombie signed into law Senate Bill 2779, S.D. 1,H.D. 1, C.D. 1, as Act 136, SLH 2014 ("Act 136"). Act 136 is effective upon approval.
Act 136 authorizes the Department of Taxation to release tax return information to theLegislative Auditor to the extent necessary and relevant to the scope of the comprehensive annual
financial report audit of the State.
Additionally, Act 136 increases the punishment for intentional disclosure of tax return
information to a Class C felony. A person convicted of a Class C felony may be subject toimprisonment of up to five years, a fine of up to $10,000, or both.
Act 143, SLH 2014
On June 24, 2014, Governor Neil Abercrombie signed into law House Bill 1772, H.D. 1,S.D. 1, C.D 1, as Act 143, SLH 2014 ("Act 143"). Act 143 is effective July 1, 2014.
Act 143 exempts from the General Excise Tax amounts received by a contractor of thePatient-Centered Community Care program for costs or advancements to third party health careproviders pursuant to a contract with the United States. The receipts retained by these contractors
are still subject to GET.
Act 174, SLH 2014
On July 1, 2014, Governor Neil Abercrombie signed into law House Bill 1671, H.D. 1,

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S.D. 1, C.D. 1, as Act 174, SLH 2014 ("Act 174"). Act 174 is effective July 1, 2014.
Act 174 increases the amount of the transient accommodations tax ("TAT") revenues tobe distributed to the counties to $103,000,000 per year for two years (for fiscal year 2014-2015
and fiscal year 2015-2016). The amount shall return to $93,000,000 per year for fiscal year 20162017 and thereafter.
Act 174 also creates a joint state-county working group that shall (1) evaluate the way thestate and counties divide the duties and responsibility for providing public services, and (2)recommend the proper distribution of the TAT revenues among the State and the counties to theLegislature. The working group is administratively attached to the Office of the Auditor.
Act 200, SLH 2014
On July 1, 2014, Governor Neil Abercrombie signed into law House Bill 1702, H.D. 2,S.D. 2, C.D. 1, as Act 200, SLH 2014 ("Act 200"). Act 200 is effective July 1, 2014 and applies
to taxable years beginning after December 31, 2013.
Act 200 establishes a capital infrastructure tax credit for tenants who are relocating due tothe Kapalama container terminal modernization project. The credit equals 50% of infrastructure
costs incurred by an eligible tenant, up to maximum costs of $2,500,000 per tenant per taxable
year. The credit is available for tax years beginning after December 31, 2013 and expires for tax
years beginning after December 31, 2019.
Act 200 also establishes a recapture provision if the tenant generating the credit fails tocontinue the line of business it conducted as of July 1, 2014, or if a taxpayer claiming the credit
disposes of its interest (whether in whole or in part) in the qualified infrastructure tenant.
Recapture is mandatory irrespective of how the disposition is accomplished. The recapture isequal to 100% of capital infrastructure tax credit claimed in the preceding five (5) years.
Act 235, SLH 2014
On July 8, 2014, Governor Neil Abercrombie allowed Senate Bill 2483, S.D. 1, H.D. 1
C.D. 1, to become law without his signature as Act 235, SLH 2014 ("Act 235"). Act 235 iseffective July 1, 2014.
Act 235 amends the priority of liens in the event a condominium association files a lien
against a unit due to unpaid maintenance fees. Act 235 provides that a State tax lien will not havepriority over a condominium association lien, even if the State tax lien were filed before theassociation's lien. However, real property tax liens will continue to have priority overcondominium association liens. In addition, Act 235 cannot affect federal tax liens.

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

FREDERICK D. PABLO
Director of Taxation