Hawaii-2023-HB232-Introduced

SECTION 1. The legislature finds that Hawaii's taxation system disproportionately impacts working families. According to the Institute on Taxation and Economic Policy, Hawaii places the second-highest tax burden on low-income households, with Hawaii's lowest-income households paying approximately fifteen per cent of their income in state and local taxes. In comparison, Hawaii's highest earning households pay roughly nine per cent of their income in state and local taxes.

The legislature further finds that Hawaii has a low capital gains tax rate in comparison to other states. This tax break primarily benefits wealthy individuals, including nonresidents who invest in real estate in the State. According to the department of taxation, taxing capital gains at the same rate as ordinary income could generate over $132,000,000 in the next fiscal year, an amount that would rise to an estimated $187,000,000 within six years.

The legislature additionally finds that the revenue generated by taxing capital gains at the same rate as ordinary income could be used to strengthen basic government programs, including public education affordable housing construction, mental health services, public preschool programming, childcare access, tax credits for working families, climate change adaptation and mitigation, regenerative agriculture investment, and homeless service programs.

The legislature further finds that because section 55(b)(3) of the Internal Revenue Code, which covers the maximum rate of tax on net capital gain of noncorporate taxpayers, is inoperative for the state, a simple repeal of the applicable provisions of Hawaii's tax laws will impose the ordinary rate to capital gains income.

Accordingly, the purpose of this Act is to improve public support for working families by taxing capital gains at the same rate as ordinary income.

SECTION 2. Section 235-51, Hawaii Revised Statutes, is amended to read as follows:

"§235-51 Tax imposed on individuals; rates. (a) There is hereby imposed on the taxable income of every:

(1) Taxpayer who files a joint return under section 235-93; and

(2) Surviving spouse,

a tax determined in accordance with the following table:

In the case of any taxable year beginning after December 31, 2017:

If the taxable income is: The tax shall be:

Not over $4,800 1.40% of taxable income

Over $4,800 but $67.00 plus 3.20% of

not over $9,600 excess over $4,800

Over $9,600 but $221.00 plus 5.50% of

not over $19,200 excess over $9,600

Over $19,200 but $749.00 plus 6.40% of

not over $28,800 excess over $19,200

Over $28,800 but $1,363.00 plus 6.80% of

not over $38,400 excess over $28,800

Over $38,400 but $2,016.00 plus 7.20% of

not over $48,000 excess over $38,400

Over $48,000 but $2,707.00 plus 7.60% of

not over $72,000 excess over $48,000

Over $72,000 but $4,531.00 plus 7.90% of

not over $96,000 excess over $72,000

Over $96,000 but $6,427.00 plus 8.25% of

not over $300,000 excess over $96,000

Over $300,000 but $23,257.00 plus 9.00% of

not over $350,000 excess over $300,000

Over $350,000 but $27,757.00 plus 10.00% of

not over $400,000 excess over $350,000

Over $400,000 $32,757.00 plus 11.00% of

excess over $400,000.

(b) There is hereby imposed on the taxable income of every head of a household a tax determined in accordance with the following table:

In the case of any taxable year beginning after December 31, 2017:

If the taxable income is: The tax shall be:

Not over $3,600 1.40% of taxable income

Over $3,600 but $50.00 plus 3.20% of

not over $7,200 excess over $3,600

Over $7,200 but $166.00 plus 5.50% of

not over $14,400 excess over $7,200

Over $14,400 but $562.00 plus 6.40% of

not over $21,600 excess over $14,400

Over $21,600 but $1,022.00 plus 6.80% of

not over $28,800 excess over $21,600

Over $28,800 but $1,512.00 plus 7.20% of

not over $36,000 excess over $28,800

Over $36,000 but $2,030.00 plus 7.60% of

not over $54,000 excess over $36,000

Over $54,000 but $3,398.00 plus 7.90% of

not over $72,000 excess over $54,000

Over $72,000 but $4,820.00 plus 8.25% of

not over $225,000 excess over $72,000

Over $225,000 but $17,443.00 plus 9.00% of

not over $262,500 excess over $225,000

Over $262,500 but $20,818.00 plus 10.00% of

not over $300,000 excess over $262,500

Over $300,000 $24,568.00 plus 11.00% of

excess over $300,000.

(c) There is hereby imposed on the taxable income of (1) every unmarried individual (other than a surviving spouse, or the head of a household) and (2) on the taxable income of every married individual who does not make a single return jointly with the individual's spouse under section 235-93 a tax determined in accordance with the following table:

In the case of any taxable year beginning after December 31, 2017:

If the taxable income is: The tax shall be:

Not over $2,400 1.40% of taxable income

Over $2,400 but $34.00 plus 3.20% of

not over $4,800 excess over $2,400

Over $4,800 but $110.00 plus 5.50% of

not over $9,600 excess over $4,800

Over $9,600 but $374.00 plus 6.40% of

not over $14,400 excess over $9,600

Over $14,400 but $682.00 plus 6.80% of

not over $19,200 excess over $14,400

Over $19,200 but $1,008.00 plus 7.20% of

not over $24,000 excess over $19,200

Over $24,000 but $1,354.00 plus 7.60% of

not over $36,000 excess over $24,000

Over $36,000 but $2,266.00 plus 7.90% of

not over $48,000 excess over $36,000

Over $48,000 but $3,214.00 plus 8.25% of

not over $150,000 excess over $48,000

Over $150,000 but $11,629.00 plus 9.00% of

not over $175,000 excess over $150,000

Over $175,000 but $13,879.00 plus 10.00% of

not over $200,000 excess over $175,000

Over $200,000 $16,379.00 plus 11.00% of

excess over $200,000.

(d) The tax imposed by section 235-2.45 on estates and trusts shall be determined in accordance with the following table:

In the case of any taxable year beginning after December 31, 2001:

If the taxable income is: The tax shall be:

Not over $2,000 1.40% of taxable income

Over $2,000 but $28.00 plus 3.20% of

not over $4,000 excess over $2,000

Over $4,000 but $92.00 plus 5.50% of

not over $8,000 excess over $4,000

Over $8,000 but $312.00 plus 6.40% of

not over $12,000 excess over $8,000

Over $12,000 but $568.00 plus 6.80% of

not over $16,000 excess over $12,000

Over $16,000 but $840.00 plus 7.20% of

not over $20,000 excess over $16,000

Over $20,000 but $1,128.00 plus 7.60% of

not over $30,000 excess over $20,000

Over $30,000 but $1,888.00 plus 7.90% of

not over $40,000 excess over $30,000

Over $40,000 $2,678.00 plus 8.25% of

excess over $40,000.

(e) Any taxpayer, other than a corporation, acting as a business entity in more than one state who is required by this chapter to file a return may elect to report and pay a tax of .5 per cent of the taxpayer's annual gross sales if the:

(1) Taxpayer's only activities in this State consist of sales;

(2) Taxpayer does not own or rent real estate or tangible personal property; and

(3) Taxpayer's annual gross sales in or into this State during the tax year is not in excess of $100,000.

[~~(f) If a taxpayer has a net capital gain for any taxable year to which this subsection applies, then the tax imposed by this section shall not exceed the sum of:~~

~~(1)~~ ~~The tax computed at the rates and in the same manner as if this subsection had not been enacted on the greater of:~~

~~(A)~~ ~~The taxable income reduced by the amount of net capital gain, or~~

~~(B)~~ ~~The amount of taxable income taxed at a rate below 7.25 per cent, plus~~

~~(2)~~ ~~A tax of 7.25 per cent of the amount of taxable income in excess of the amount determined under paragraph (1).~~

~~This subsection shall apply to individuals, estates, and trusts for taxable years beginning after December 31, 1986.~~]"

SECTION 3. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 4. Statutory material to be repealed is bracketed and stricken.

SECTION 5. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2022.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	232
THIRTY-SECOND LEGISLATURE, 2023
STATE OF HAWAII