Source: https://www.capitol.hawaii.gov/session2009/bills/SB972_CD1_.htm
Timestamp: 2017-12-17 21:20:44
Document Index: 441050487

Matched Legal Cases: ['§231', '§231', '§231', '§231', '§231', '§231', '§231', '§231', '§231', '§231', '§231', '§231', '§231', '§231', '§231', '§231', '§237', '§235', '§237']

SB972 CD1.DOC
Ensures Hawaii businesses and residents are paying their fair share of taxes by providing the Department of Taxation with resources to seek enforcement against non-compliant cash-based businesses. (CD1)
SECTION 1. In all tax systems, government administrators are continually working to reduce tax noncompliance known as the "tax gap." In the United States, the tax gap, which is the difference between the amount of tax that is required to be reported and timely paid and the amount of tax that is actually reported and paid, is estimated to be almost $400,000,000,000 per year. Of this tax gap, it is further estimated that about $200,000,000,000, or half of the tax gap, is composed of what is known as the "cash economy." Hawaii's annual tax gap is estimated to be about $2,000,000,000 in unreported and unpaid taxes with approximately $1,000,000,000 attributed to the cash economy. Focusing resources on shoring up compliance in this area should be a priority.
Cash-based transactions are a fundamental part of any economy. As the oldest form of payment, cash continues to dominate many facets of the local economy. Cash is inherently private, efficient, and predictable for both purchaser and seller. However, cash transactions are also the simplest means of underreporting or non-reporting for tax purposes, because no bank, no means of electronic oversight, and no intermediary maintains records of the movement of funds from one pocket to another.
As stated by former Internal Revenue Service Commissioner Mark Everson, "[t]he vast majority of Americans pay their taxes accurately and are shortchanged by those who don't pay their fair share. The magnitude of the tax gap highlights the critical role of enforcement in keeping our system of tax administration healthy." By focusing resources on the cash economy, the department of taxation can ensure fairness in the tax system for those that comply without raising taxes or otherwise substantially burdening Hawaii's economy as a whole.
This Act shall be known as the "Cash Economy Enforcement Act of 2009."
SECTION 2. Chapter 231, Hawaii Revised Statutes, is amended by adding sixteen new sections to be appropriately designated and to read as follows:
"CIVIL COMPLIANCE; SPECIAL ENFORCEMENT SECTION
§231-A Special enforcement section; created. There is created within the department of taxation the special enforcement section to carry out civil enforcement efforts as directed by the director of taxation. The director may staff the section as the exigencies of the public service may require.
§231-B Special enforcement section; functions, powers, and duties. The special enforcement section shall have the following functions, powers, and duties:
(1) Investigate reported or suspected violations of tax laws for civil enforcement purposes, including through covert means, with a stated priority of investigating cash-based businesses as defined in section 231-I;
(8) Perform such other acts as may be incidental to the exercise of the functions, powers, and duties set forth in this section or as otherwise directed by the director of taxation.
§231-C Investigators and personnel, appointment and power. (a) The director of taxation may appoint, commission, or detail to the special enforcement section one or more persons as investigators, investigator assistants, and other support staff as the exigencies of the public service may require. Investigators may be legal or accounting professionals; provided that their primary duty is to conduct investigations pursuant to the authorities of the special enforcement section and they shall not conduct or participate in criminal investigations of the tax laws or render legal advice. Investigators may serve process and apply for and execute search warrants or writs of entry pursuant to section 231-D but shall not otherwise have the powers of a police officer or deputy sheriff.
(5) May be paid overtime as prescribed by an applicable collective bargaining agreement or existing policy for excluded employees. The compensation rights under this section shall apply to persons exempt from or subject to chapters 76 and 89.
§231-D Right to inspection of books, records, and premises; warrants and writs; levy and seizure. (a) Upon presenting credentials, the special enforcement section may examine any books, papers, records, and any article or item of business transacted of any person engaged in business in this State to verify the accuracy of the reporting and payment of the taxes imposed by law. Every person in possession of any books, papers, records, or articles or items of business transacted, and the person's agents and employees, shall provide the special enforcement section the means, facilities, and opportunities for the examinations upon request, to the extent reasonably possible under the circumstances.
(e) The special enforcement section may seize and levy any assets in the custody or control of any person pursuant to this chapter, and subject to all rights of appeal set forth herein.
§231-E Identification of cash-economy cases; retention of funds. Notwithstanding any law to the contrary, each fiscal year, the special enforcement section may identify any taxpayer, assessment, investigation, or collection matter as a matter of the special enforcement section. All revenues collected from special enforcement section matters shall be deposited into the tax administration special fund.
§231-F Violent interference with a tax official. Any person who interferes, hinders, obstructs, prevents, or impedes any investigator or employee of the department with violence or threat of violence, shall be guilty of a class C felony and, upon conviction, shall be subject to one or any combination of the following:
(1) A fine of not more than $4,000;
(2) Imprisonment for not more than three years; or
provided that a corporation shall be fined not less than $10,000.
This section shall be construed in accordance with regulations and judicial interpretations given to similar provisions of the Internal Revenue Code.
§231-G Citations for violations; deposits. (a) The special enforcement section may issue cease and desist citations to any person if the special enforcement section has cause to believe the person has violated, is violating, or is about to violate any provision of title 14 or administrative rule adopted thereunder. A cease and desist citation may include a monetary fine for any unlawful act.
(c) Any fine assessed under this section shall be a matter of the special enforcement section under section 231-E and shall be retained and deposited into the tax administration special fund.
(e) Cease and desist citations may be appealed to the director of taxation or the director's designee, and the determination of the director may be appealed to the circuit court, pursuant to chapter 91.
§231-H Cash-based businesses; injunction. The special enforcement section, with the director of taxation's approval, may bring civil actions in the circuit court where the cash-based business is located to enjoin any unlawful act under title 14, including any administrative rule adopted thereunder, by a cash-based business. To the extent provided by statute, the special enforcement section may include in any action an assessment of a monetary fine.
§231-I Cash-based business; defined. For purposes of sections 231-G to 231-P, "cash-based business" means any person who operates a business, including for-profit or not-for-profit, where transactions in goods or services are exchanged substantially for cash and where the business is found, based upon reasonable cause including observation or evidence, to have met one of the following factors:
(8) Offers price differentials or otherwise deviates from usual business practices when the business transaction substantially involves payment of cash, except where there is a bona-fide business reason for a price differential, such as the avoidance of merchant fees imposed by credit card companies; or
provided that a business shall not be deemed to have met any of these factors while a genuine dispute as to that factor is pending in a contested case before any administrative agency or in any court.
§231-J Failure to produce license upon demand. Every person required to be licensed or permitted under title 14, whether or not so licensed or permitted, shall be required to produce the license or permit upon demand by the special enforcement section. Failure to produce the license or permit upon demand shall be unlawful. Any person who violates this section shall be subject to a fine not to exceed $500; provided that if the person is a cash-based business, the fine shall not exceed $1,000. It shall be an absolute defense to this section if the person produces a license or permit number on file with the department and the department confirms that the person associated with the number is true and accurate.
§231-K Failure to keep adequate books and records. It shall be unlawful for any person required under title 14 to keep books or records to fail to produce the books or records upon demand by the special enforcement section, or as soon thereafter as is reasonable under the circumstances. Any person who violates this section shall be subject to a fine not to exceed $1,000; provided that if the person is a cash-based business, the fine shall not exceed $2,000.
§231-L Failure to record transaction by receipt. It shall be unlawful to conduct more than ten taxable business transactions per day in cash and fail to provide a receipt or other record of the transaction when the means for issuing a receipt or recording the transaction are available. Each day a person is in violation of this section shall be treated as a separate violation. Any person who violates this section shall be subject to a fine not to exceed $1,000; provided that if the person is a cash-based business, the fine shall not exceed $2,000.
§231-M Failure to record transaction by register. It shall be unlawful to conduct more than ten taxable business transactions per day in cash and fail to record the transaction in a cash register when the means for recording the transaction in a cash register are available. Each day a person is in violation of this section shall be treated as a separate violation. Any person who violates this section shall be subject to a fine not to exceed $1,000; provided that if the person is a cash-based business, the fine shall not exceed $2,000.
§231-N Tax avoidance price fixing. It shall be unlawful for any person to sell, offer to sell, or otherwise convey more than one price for any business to be transacted when the lower price is offered if the transaction is paid for in cash. It shall not be an offense under this section if a business charges a higher price for legitimate business purposes, such as for the purpose of recovering any charges assessed the business, including for facilitating electronic payment. Any person who violates this section shall be subject to a fine not to exceed $2,000; provided that if the person is a cash-based business, the fine shall not exceed $3,000.
§231-O Possession of currency for tax avoidance purposes. It shall be unlawful for any person engaged in business in this State to possess currency in the form of coin or note, where the possession is for tax avoidance purposes. It shall be the department's burden to establish that currency is possessed for tax avoidance purposes; provided that circumstantial evidence may be used by the department in any proceeding. Any person who violates this section shall be subject to a fine not to exceed $2,000; provided that if the person is a cash-based business, the fine shall not exceed $3,000.
§231-P Interference with a tax official. It is unlawful for any person to intentionally interfere with, hinder, obstruct, prevent, or impede any investigator, auditor, collector, or other employee of the department from obtaining license information, books, records, articles, or items of business transacted, or other information or property rightfully entitled the department. Any person who violates this section shall be subject to a fine of not more than $2,000. It shall be an absolute defense to the fine under this section that the person acted with good cause."
"§237- Reporting requirement for contractors on federal construction projects. All persons who do not possess a valid license under this chapter at the time of the contract award and who contract with the federal government for any construction project located in the State shall report to the department, on forms prescribed by the department, its estimated gross receipts or any other information requested by the department on the prescribed form, from the construction project within thirty days of the contract being awarded. Failure to report as provided in this section shall result in a penalty of $1,000 per month, or fraction thereof, for each month that a failure to report exists; provided that the maximum penalty allowed under this section in the aggregate shall not be more than $6,000."
SECTION 4. Section 231-1, Hawaii Revised Statutes, is amended by amending the definition of "person" to read as follows:
""Person" [as used in sections 231-34, 231-35, and 231-36] includes one or more individuals, a company, corporation, a partnership, an association, or any other type of legal entity, and also includes an officer or employee of a corporation, a partner or employee of a partnership, a trustee of a trust, a fiduciary of an estate, or a member, employee, or principal of any other entity, who as such officer, employee, partner, trustee, fiduciary, member, or principal is under a duty to perform and is principally responsible for performing the act [in respect of which the violation occurs]."
SECTION 5. Section 235-20.5, Hawaii Revised Statutes, is amended to read as follows:
"§235-20.5 Tax administration special fund; established. (a) There is established a tax administration special fund, into which shall be deposited [fees]:
(1) Fees collected under sections 235-20, 235-110.9, and 235-110.91[, and penalties];
(2) Penalties collected under section 2 of Act 206, [[]Session Laws of Hawaii 2007[].]; and
(3) Revenues collected by the special enforcement section pursuant to section 231-E; provided that in each fiscal year, of the total revenues collected by the special enforcement section, all revenues in excess of $500,000 shall be deposited into the general fund.
(b) The moneys in the fund shall be [expended by the department to offset the costs associated with:] used for the following purposes:
(1) Issuing comfort letters[;], letter rulings, written opinions, and other guidance to taxpayers;
(2) Administering the tax [credit] credits under [section] sections 235-110.9[,including issuing certificates; and
(3) Issuing certificates under section] and 235-110.91[.]; and
SECTION 6. Section 237-9, Hawaii Revised Statutes, is amended to read as follows:
"§237-9 Licenses; penalty. (a) Except as provided in this section, any person who has a gross income or gross proceeds of sales or value of products upon which a privilege tax is imposed by this chapter, as a condition precedent to engaging or continuing in such business, shall in writing apply for and obtain from the department of taxation, upon a one-time payment of the sum of $20, a license to engage in and to conduct such business, upon condition that the person shall pay the taxes accruing to the State under this chapter, and the person shall thereby be duly licensed to engage in and conduct the business. [Any person licensed or holding a license under this chapter before January 1, 1990, shall pay a one-time license renewal fee of $20 on or before January 31, 1990, as a condition precedent to engaging or continuing in business.] The license shall not be transferable and shall be valid only for the person in whose name it is issued and for the transaction of business at the place designated therein. The license may be inspected and examined, and shall at all times be conspicuously displayed at the place for which it is issued.
[(c)] (d) If the license fee is paid, the department shall not refuse to issue a license or revoke or cancel a license for the exercise of a privilege protected by the First Amendment of the Constitution of the United States, or for the carrying on of interstate or foreign commerce, or for any privilege the exercise of which, under the Constitution and laws of the United States, cannot be restrained on account of nonpayment of taxes, nor shall section 237-46 be invoked to restrain the exercise of such a privilege, or the carrying on of such commerce.
[(d)] (e) The director may permit a person engaged in network marketing, multi-level marketing, or other similar business to obtain the license required under this section for purposes of becoming a tax collection agent on behalf of its direct sellers. The tax collection agent shall report, collect, and pay over the taxes due under this chapter and chapter 238 on behalf of its direct sellers who are covered by the tax collection agreement. The tax collection agent's direct sellers shall be deemed to be licensed under this chapter; provided that the licensure shall apply solely to the business activity conducted directly through the marketing arrangement. Under this section, a tax collection agent shall:
(2) If required by the director as a condition of obtaining the license, furnish with the annual return, a list (including identification numbers) of all direct sellers for the taxable year who have been provided (by the tax collection agent) information returns required under [section] Section 6041A of the Internal Revenue Code of 1986, as amended, and any other information that is relevant to ensure proper payment of taxes due under this section; and
[(e)] (f) For the purposes of this section:
"Cash-based business" has the same meaning as in section 231-I.
SECTION 7. Section 237-12, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:
"(b) In the case of any person entitled to the protection of section [237-9(c),] 237-9(d), the tax shall be collected only through ordinary means."
SECTION 8. The department of taxation may establish six new full-time equivalent (6.0 FTE) positions that may be staffed by investigators, investigator assistants, licensed attorneys, or other support staff, in addition to using current and existing employees of the department of taxation, to staff the special enforcement section established in section 2 of this Act as the exigencies of the public service may require.
SECTION 9. The department of taxation shall report to the legislature no later than thirty days prior to the convening of each regular session the state resources committed to implementing this Act, and the additional revenues raised therefor.
SECTION 11. In codifying the new sections added to chapter 231, Hawaii Revised Statutes, by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating and referring to the new sections in this Act.
SECTION 13. This Act shall take effect upon its approval; provided that:
(1) The amendments made to section 235-20.5, Hawaii Revised Statutes, by this Act shall not be repealed when section 235-20.5, Hawaii Revised Statutes, is reenacted on January 1, 2011, pursuant to section 8 of Act 206, Session Laws of Hawaii 2007;
(2) Sections 231-F, 231-J, 231-K, 231-L, 231-M, 231-N, 231‑O, and 231-P, Hawaii Revised Statutes, in section 2 of this Act shall take effect on July 1, 2009; and
(3) This Act shall be repealed on June 30, 2014, and section 235-20.5, Hawaii Revised Statutes, shall be reenacted in the form in which it read on the day prior to the effective date of section 8 of Act 206, Session Laws of Hawaii 2007; provided further that sections 231-1, 237-9, and 237-12(b), Hawaii Revised Statutes, shall be reenacted in the form in which they read on the day prior to the effective date of this Act.