Bill Text: HI SB2128 | 2010 | Regular Session | Introduced

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Bill Title: Taxation; Controlling Interest Transfer Tax

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced - Dead) 2010-01-20 - (S) Referred to CPN, WAM. [SB2128 Detail]

Download: Hawaii-2010-SB2128-Introduced.html

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THE SENATE	S.B. NO.	2128
TWENTY-FIFTH LEGISLATURE, 2010
STATE OF HAWAII

A BILL FOR AN ACT

 

 

relating to a controlling interest transfer tax.

 

 

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

 

     SECTION 1.  The legislature finds that there are numerous complex transactions occurring in Hawaii that involve the purchase, transfer, or exchange of real property located in Hawaii through the sale or exchange of ownership interests in legal entities.  Under the State's current tax laws, many of these complex transactions involving the transfer of real property located in Hawaii are taking place without any tax considerations, including the payment of conveyance taxes.

     The purpose of this Act is to create a new tax separate from the conveyance tax that is imposed on an entity with a controlling interest of the entity that transfers ownership of real property owned by the entity through the sale of the entity.  It is the intent of this Act that the newly created tax would capture taxes on transactions designed to avoid liability under the conveyance tax.

     SECTION 2.  The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

CONTROLLING INTEREST TRANSFER TAX

     §   -1  Definitions.  As used in this chapter:

     "Controlling interest" means:

     (1)  In the case of a corporation, more than fifty per cent of the total combined voting power of all classes of stock of the corporation, and;

     (2)  In the case of a partnership, association, trust, or other entity, more than fifty per cent of the capital, profits, or beneficial interest in the partnership, association, trust, or other entity.

     "Director" means the director of taxation.

     "Entity" means a natural person or any other legal business organization utilized in the State pursuant to law, including a corporation, partnership, sole proprietor, etc.

     "True and actual value" means the fair market value as of the time of the transfer of a controlling interest, not including the amount of any mortgage, lien, or other encumbrance.

     §   -2  Administration by director; rules.  (a)  This chapter shall be administered by the director.  All forms necessary to enforce this chapter shall be prescribed, printed, and furnished by the director.  The director may adopt and shall enforce rules pursuant to chapter 91 to administer and enforce this chapter.

     (b)  In addition to any other rules necessary to administer and enforce this chapter, the director shall adopt rules:

     (1)  Establishing a system to notify the department of changes in the controlling interest of any entity subject to this chapter;

     (2)  Establishing requirements as to the responsibility for filing returns if there is no single person who conveys the controlling interest in any entity subject to this chapter; and

     (3)  Providing for the filing of any liens necessary to enforce the payment of taxes, and any penalties or interest required by this chapter.

     §   -3  Tax on transfer of controlling interest in entity possessing real property; rate of tax applied to the value of the real property.  (a)  There is imposed, a tax at the rate of one and eleven one-hundredths of one per cent on the sale or transfer of a controlling interest in any entity, when:

     (1)  The transfer of a controlling interest is made by a seller or transferor or by a group of sellers or transferors acting in concert; provided that sellers or transferors who are related to each other by blood or marriage are presumed, unless shown to the contrary, to be acting in concert;

     (2)  The transfer is made for consideration;

     (3)  The entity in which a controlling interest is being transferred owns an interest in real property in this State;

     (4)  The present true and actual value of the interest in real property equals or exceeds $2,000; and

     (5)  The controlling interest in an entity transfers real property to a transferee or to a group of transferees acting in concert; provided that:

         (A)  Where transferees are related and one influences or controls the actions of another (such as parent and subsidiary corporations, parents and children, husbands and wives, etc.), the transferees shall be presumed to be acting in concert; and

         (B)  Where transferees have negotiated and will consummate their purchase of ownership interests in unity (such as transfers that are closely related in time, transferees that are few in number, or purchase contracts that contain mutual terms, and agreements among transferees binding them to a course of action with respect to the transfers, etc.), the transferees shall be presumed to be acting in concert;

payable by the entity or entities selling or transferring the controlling interest, or as designated by the director pursuant to rule.  If the entity owns less than a one hundred per cent interest in the real estate, the tax shall be based on the actual percentage of ownership, with no further discounts on account of minority ownership.

     (b)  A taxable sale or transfer of a controlling interest may occur in one transaction or in a series of transactions.  Transactions that occur within six months of each other are presumed, unless shown to the contrary, to be a series of transactions.

     (c)  The tax imposed by subsection (a) shall not apply to:

     (1)  Any sale or transfer of a controlling interest in any entity to the extent that the entity possesses, directly or indirectly, an interest in real property located in an area of any county designated as an enterprise zone in accordance with section 209E-4, but shall apply to the extent the entity possesses, directly or indirectly, an interest in real property in this State located outside the area designated as an enterprise zone, and;

     (2)  Any sale or transfer of a controlling interest in any entity to effectuate a change of identity or form of ownership or organization where there is no change in beneficial ownership.

     §   -4  Filing return and payment of tax.  On or before the last day of the month following the month in which the sale or transfer of a controlling interest in an entity that is subject to the tax imposed by section    -3, a return shall be filed with the director by the entity or entities conveying the controlling interest, as designated by, and in a form as the director may prescribe pursuant to rules adopted under chapter 91.

     §   -5  Penalties.  Any person in violation of this chapter shall be subject to penalties provided under title 14 and shall be guilty of a misdemeanor.

     §   -6  Records maintenance.  Any entity with respect to which there is a sale or transfer of a controlling interest in the entity, which sale or transfer is subject to the tax imposed by section    -3, shall maintain a record of the seller or transferor, and report every transfer of a controlling interest in its stock or in its capital, profits, or beneficial interests, and other information as the director may require.  The report shall be filed at least annually or more frequently as may be required at a location pursuant to rules adopted by the director."

     SECTION 3.  This Act shall take effect on July 1, 2010 and shall apply to taxable years beginning after December 31, 2009.

 

INTRODUCED BY:	_____________________________

Report Title:

Taxation; Controlling Interest Transfer Tax

 

Description:

Establishes the controlling interest transfer tax of 1.11% to be administered by the director of taxation on any transfer of interest of more than 50% in an entity holding real property in the State.

 

 

 

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