Bill Text: HI HB1044 | 2020 | Regular Session | Introduced


Bill Title: Relating To Market-based Sourcing.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Engrossed - Dead) 2019-12-01 - Carried over to 2020 Regular Session. [HB1044 Detail]

Download: Hawaii-2020-HB1044-Introduced.html

HOUSE OF REPRESENTATIVES

H.B. NO.

1044

THIRTIETH LEGISLATURE, 2019

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO MARKET-BASED SOURCING.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


     SECTION 1.  The purpose of this Act is to adopt market-based sourcing for purposes of apportioning income under the Uniform Division of Income for Tax Purposes Act (UDITPA), part II of chapter 235, Hawaii Revised Statutes.  UDITPA governs the imposition of the Hawaii net income tax to taxpayers that carry on business both within and without the state.  Historically, UDITPA has sourced intangibles and services to the place where the income-producing activity is performed or where most of the costs of performance are incurred.

     As intangible property and services have become a greater part of the economy, states have transitioned to market-based sourcing for intangibles and services.  Market-based sourcing imposes tax in the place where taxpayers' markets are located rather than only the location of taxpayers' activities.  Today, more than half of all states have made the transition to market-based sourcing.  This Act will amend UDITPA to transition to market-based sourcing for income from intangibles and services.  Specifically, this Act will change the sourcing rules for the Hawaii sales factor for sales of services or intangibles to market-based sourcing.

     This transition will ensure that Hawaii's income tax is keeping up with the changing economy and will foster uniformity with states that have also transitioned to market-based sourcing.  This will reduce inter-state complexity and simplify inter-state compliance.

     In addition, Hawaii's general excise tax utilizes a version of market-based sourcing.  Therefore, transitioning the net income tax to market-based sourcing will increase consistency and efficiency between the two taxes.

     SECTION 2.  Section 235-37, Hawaii Revised Statutes, is amended to read as follows:

     "§235-37  Apportionment; sales factor; nontangible personalty.  Sales, other than sales of tangible personal property, are in this State [if]:

     (1)  [The income producing activity is performed in this State; or] In the case of intangible property, to the extent the intangible property is used in this State; or

     (2)  [The income-producing activity is performed both in and outside this State and a greater proportion of the income-producing activity is performed in this State than in any other state, based on costs of performance.] In the case of a service, to the extent the service is used or consumed in this State."

     SECTION 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect upon its approval and shall apply to taxable years beginning after December 31, 2018.

 

INTRODUCED BY:

_____________________________

 

 

BY REQUEST


 


 

Report Title:

Net Income Tax; Sales Factor; Market-based Sourcing.

 

Description:

Amends the rules for sourcing the sales factor for net income tax to impose market sourcing for sales of other than tangible personal property.  Provides specific rules for intangibles and services.

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

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