Bill Text: HI HB1926 | 2022 | Regular Session | Introduced

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Bill Title: Relating To Taxation.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced - Dead) 2022-02-09 - The committee(s) on ECD recommend(s) that the measure be deferred. [HB1926 Detail]

Download: Hawaii-2022-HB1926-Introduced.html

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HOUSE OF REPRESENTATIVES	H.B. NO.	1926
THIRTY-FIRST LEGISLATURE, 2022
STATE OF HAWAII

A BILL FOR AN ACT

 

 

relating to taxation.

 

 

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

 

     SECTION 1.  The legislature finds that since 1964, when the department of the attorney general issued Attorney General Opinion No. 64-52 (November 5, 1964), operators and their vendors have been treated as exempt from the general excise and other taxes on income from their activities in a foreign-trade zone.  The exemption has been affirmed by opinions issued by the department of the attorney general and guidance issued by the department of taxation and department of business, economic development, and tourism.  The department of taxation's own publications have treated the foreign-trade zone as beyond the taxing power of the State.  For fifty-seven years, taxpayers doing business in the foreign-trade zone relied upon these legal authorities to treat their foreign-trade zone income as exempt from the general excise tax and other taxes.

     The legislature also finds that in 2021, without advance warning or notice, the department of taxation and department of the attorney general took action to reverse their long-standing position on foreign-trade zone taxation.  First, in January 2021, tax forms were changed so that taxpayers could no longer claim the foreign-trade zone exemption for certain activities, such as services, contracting, and other sales within the foreign-trade zone that were exempted pursuant to Attorney General Opinion No. 64-52.  At the time, the department of taxation had no legal authority to remove the foreign-trade zone exemption as an available exemption for those activities.  Taxpayers were caught by surprise and left without guidance by this unilateral action by the department of taxation.

     The legislature further finds that it was not until nine months later that the department of the attorney general, through its issuance of Attorney General Opinion No. 2021-01 (September 22, 2021), reversed Attorney General Opinion No. 64‑52.  One week later, the department of taxation made public through Tax Information Release No. 2021-07 (September 29, 2021) its position that foreign-trade zone income would be subject to taxation by the State.  Furthermore, the department of taxation informed taxpayers doing business in the foreign‑trade zone who had previously claimed the foreign-trade zone exemption that they would be subject to audit and should amend their tax returns retroactively going back three years.

     The legislature finds that the foregoing actions by the department of the attorney general and the department of taxation:

     (1)  Resulted in hundreds of businesses being adversely impacted with the threat of additional taxes, penalties, and interest, without warning or time to plan;

     (2)  Exhibited poor judgment in failing to consult with these businesses to determine the probable impact of the change in the tax rules on foreign-trade zone taxation; and

     (3)  Used questionable legal analysis in reversing Attorney General Opinion No. 64-52.

     Accordingly, the purpose of this Act is to restore the foreign-trade zone exemption first established under Attorney General Opinion No. 64-52 by codifying the exemption as part of the foreign-trade zones law.

     SECTION 2.  Section 212-8, Hawaii Revised Statutes, is amended to read as follows:

     "§212-8  Exemption from taxes.  (a)  Notwithstanding any law to the contrary, sales of all products [which] that are categorized as privileged foreign merchandise, nonprivileged foreign merchandise, domestic merchandise, or zone-restricted merchandise[,] and [which] that are admitted into a foreign-trade zone, as more specifically set forth in the Act of Congress[,] and any rules and regulations promulgated thereunder, made directly to any common carrier in interstate or foreign commerce, or both, whether ocean-going or air, for consumption out-of-state by the crew or passengers on the shipper's vessels or airplanes, or for use out-of-state by the vessels or airplanes, shall be exempt from those taxes imposed under chapters 237, 238, 243, 244D, and 245.

     (b)  Notwithstanding any law to the contrary, the following shall be exempt from those taxes imposed under chapters 237, 238, 243, 244D, and 245:

     (1)  The value or purchase price, as applicable, of any tangible personal property, intangible personal property, services, or contracting imported into a foreign-trade zone; and

     (2)  The gross income from the sale of tangible personal property, from services and contracting rendered, and from the sale of intangible personal property within a foreign-trade zone."

     SECTION 3.  Any tax paid by a taxpayer after September 29, 2021, not consistent with section 212-8, Hawaii Revised Statutes, as amended by section 2 of this Act, upon demand of the taxpayer, shall be refunded to the taxpayer with interest under applicable law; provided that the taxpayer shall be entitled to a refund regardless of whether the taxes were paid as a result of:

     (1)  Tax liabilities incurred by the taxpayer during the current taxable year; or

     (2)  Amendments made to the taxpayer's returns for prior taxable years.

     SECTION 4.  This Act shall be liberally construed in favor of the taxpayer.

     SECTION 5.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 6.  This Act shall take effect upon its approval and shall apply to all taxable years for which the statute of limitations on assessment remains open, including but not limited to sections 231-40.5, 237-40, 238-7, 243-14, 244D-8, and 245-7, Hawaii Revised Statutes.

 

INTRODUCED BY:	_____________________________

 

 

Report Title:

Foreign-Trade Zones; Taxation; Exemption

 

Description:

Retroactively restores the foreign-trade zones exemption from taxation under the general excise tax law, use tax law, fuel tax law, liquor tax law, and cigarette tax and tobacco tax law.

 

 

 

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