REPORT TITLE:
Income Tax


DESCRIPTION:
Adopts the foreign earned income exclusion found in sections 911
and 912 of the Internal Revenue Code into the state income tax
law.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
HOUSE OF REPRESENTATIVES                H.B. NO.1428       
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO INCOME TAXATION.



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

 1      SECTION 1.  The legislature finds that the foreign earned
 
 2 income exclusion found in sections 911 and 912 of the Internal
 
 3 Revenue Code was established to provide tax relief to United
 
 4 States citizens or residents living abroad for income allowances
 
 5 earned outside the United States.  Sections 911 and 912 provide
 
 6 that:
 
 7      (1)  Up to $70,000 of income earned by United States
 
 8           citizens and residents living abroad may be excluded
 
 9           from federal income taxation; and
 
10      (2)  A limited amount of employer-provided housing expenses
 
11           of United States citizens and residents living abroad
 
12           may be excluded from federal income tax.
 
13 The $70,000 exclusion is scheduled to increase to $80,000 by the
 
14 year 2002.
 
15      Although the state income tax generally conforms with
 
16 corresponding federal provisions, the foreign earned income
 
17 exclusion provisions were not adopted by the State of Hawaii when
 
18 state income tax laws were enacted in 1957.  As a result, any
 
19 income a Hawaii resident earns outside the United States is fully
 
20 taxable.
 

 
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                                     H.B. NO.1428       
                                                        
                                                        

 
 1      The legislature also finds that the State's adoption of the
 
 2 foreign earned income exclusion could:
 
 3      (1)  Stimulate foreign investment capital into Hawaii by
 
 4           allowing an investor to establish Hawaii residency yet
 
 5           remain outside Hawaii for a period of time during the
 
 6           transition years, and have qualifying foreign earned
 
 7           income excluded from Hawaii taxes;
 
 8      (2)  Improve the attractiveness for domestic United States
 
 9           businesses to relocate to Hawaii by reducing the cost
 
10           of sending employees abroad;
 
11      (3)  Encourage Hawaii residents to expand their business
 
12           opportunities abroad and increase their wealth; and
 
13      (4)  Result in little or no loss of current tax revenues.
 
14      The purpose of this Act is to adopt the foreign earned
 
15 income exclusion found in sections 911 and 912 of the Internal
 
16 Revenue Code into the state income tax law.
 
17      SECTION 2.  Section 235-2.3, Hawaii Revised Statutes, is
 
18 amended by amending subsection (b) to read as follows:
 
19      "(b)  The following Internal Revenue Code subchapters, parts
 
20 of subchapters, sections, subsections, and parts of subsections
 
21 shall not be operative for the purposes of this chapter, unless
 
22 otherwise provided:
 

 
 
 
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                                     H.B. NO.1428       
                                                        
                                                        

 
 1      (1)  Subchapter A (sections 1 to 59A) (with respect to
 
 2           determination of tax liability), except section 1(h)(3)
 
 3           (relating to net capital gain reduced by the amount
 
 4           taken into account as investment income), except
 
 5           section 42 (with respect to low-income housing credit),
 
 6           and except sections 47 and 48, as amended, as of
 
 7           December 31, 1984 (with respect to certain depreciable
 
 8           tangible personal property).  For treatment, see
 
 9           sections 235-110.7 and 235-110.8;
 
10      (2)  Section 78 (with respect to dividends received from
 
11           certain foreign corporations by domestic corporations
 
12           choosing foreign tax credit);
 
13      (3)  Section 86 (with respect to social security and tier 1
 
14           railroad retirement benefits);
 
15      (4)  Section 103 (with respect to interest on state and
 
16           local bonds).  For treatment, see section 235-7(b);
 
17      (5)  Section 120 (with respect to amounts received under
 
18           qualified group legal services plans).  For treatment,
 
19           see section 235-7(a)(9) to (11);
 
20      (6)  Section 122 (with respect to certain reduced uniformed
 
21           services retirement pay).  For treatment, see section
 
22           235-7(a)(3);
 

 
 
 
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                                     H.B. NO.1428       
                                                        
                                                        

 
 1      (7)  Section 135 (with respect to income from United States
 
 2           savings bonds used to pay higher education tuition and
 
 3           fees).  For treatment, see section 235-7(a)(1);
 
 4      (8)  Subchapter B (sections 141 to 150) (with respect to tax
 
 5           exemption requirements for state and local bonds);
 
 6      (9)  Section 151 (with respect to allowance of deductions
 
 7           for personal exemptions).  For treatment, see section
 
 8           235-54;
 
 9     (10)  Section 196 (with respect to deduction for certain
 
10           unused investment credits);
 
11     (11)  Sections 241 to 247 (with respect to special deductions
 
12           for corporations).  For treatment, see section
 
13           235-7(c);
 
14     (12)  Section 280C (with respect to certain expenses for
 
15           which credits are allowable);
 
16     (13)  Section 291 (with respect to special rules relating to
 
17           corporate preference items);
 
18     (14)  Section 367 (with respect to foreign corporations);
 
19     (15)  Section 501(c)(12), (15), (16) (with respect to exempt
 
20           organizations);
 
21     (16)  Section 515 (with respect to taxes of foreign countries
 
22           and possessions of the United States);
 

 
 
 
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                                     H.B. NO.1428       
                                                        
                                                        

 
 1     (17)  Subchapter G (sections 531 to 565) (with respect to
 
 2           corporations used to avoid income tax on shareholders);
 
 3     (18)  Subchapter H (sections 581 to 597) (with respect to
 
 4           banking institutions), except section 584 (with respect
 
 5           to common trust funds).  For treatment, see chapter
 
 6           241;
 
 7     (19)  Section 642(a) and (b) (with respect to special rules
 
 8           for credits and deductions applicable to trusts).  For
 
 9           treatment, see sections 235-54(b) and 235-55;
 
10     (20)  Section 668 (with respect to interest charge on
 
11           accumulation distributions from foreign trusts);
 
12     (21)  Subchapter L (sections 801 to 848) (with respect to
 
13           insurance companies).  For treatment, see sections
 
14           431:7-202 and 431:7-204;
 
15     (22)  Section 853 (with respect to foreign tax credit allowed
 
16           to shareholders).  For treatment, see section 235-55;
 
17     (23)  Subchapter N (sections 861 to 999) (with respect to tax
 
18           based on income from sources within or without the
 
19           United States), except sections 911 and 912 (with
 
20           respect to earned income of citizens or residents of
 
21           the United States living abroad) and sections 985 to
 
22           989 (with respect to foreign currency transactions).
 
23           For treatment, see sections 235-4, 235-5, and 235-7(b),
 
24           and 235-55;
 

 
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                                     H.B. NO.1428       
                                                        
                                                        

 
 1     (24)  Section 1042(g) (with respect to sales of stock in
 
 2           agricultural refiners and processors to eligible farm
 
 3           cooperatives);
 
 4     (25)  Section 1055 (with respect to redeemable ground rents);
 
 5     (26)  Section 1057 (with respect to election to treat
 
 6           transfer to foreign trust, etc., as taxable exchange);
 
 7     (27)  Sections 1291 to 1298 (with respect to treatment of
 
 8           passive foreign investment companies);
 
 9     (28)  Subchapter Q (sections 1311 to 1351) (with respect to
 
10           readjustment of tax between years and special
 
11           limitations); and
 
12     (29)  Subchapter U (sections 1391 to 1397F) (with respect to
 
13           designation and treatment of empowerment zones,
 
14           enterprise communities, and rural development
 
15           investment areas).  For treatment, see chapter 209E."
 
16      SECTION 3.  The department of taxation shall adopt rules to
 
17 effectuate the purposes of this Act in accordance with chapter
 
18 91.
 
19      SECTION 4.  Statutory material to be repealed is bracketed.
 
20 New statutory material is underscored.
 
21      SECTION 5.  This Act, upon its approval, shall apply to
 
22 taxable years beginning after December 31, 1998.
 
23 
 
24                           INTRODUCED BY:_________________________