REPORT TITLE:
Higher Education


DESCRIPTION:
Creates a college savings program.  (HB307 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO HIGHER EDUCATION. 


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

 1      SECTION 1.  The Hawaii Revised Statutes is amended by adding
 
 2 a new chapter to be appropriately designated and to read as
 
 3 follows:
 
 4                             "CHAPTER
 
 5                      COLLEGE SAVINGS PROGRAM
 
 6      §  -1  Definitions.  As used in this chapter, unless the
 
 7 context otherwise requires:
 
 8      "Account" or "college account" means an individual savings
 
 9 account established in accordance with this chapter.
 
10      "Account owner" means the individual who enters into a
 
11 tuition savings agreement pursuant to the provisions of this
 
12 chapter.  The account owner may also be the designated
 
13 beneficiary of the account.
 
14      "Designated beneficiary" means the individual designated as
 
15 the one whose higher education expenses are expected to be paid
 
16 from the account or accounts.
 
17      "Financial organization" means an organization authorized to
 
18 do business in the State of Hawaii that is:
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (1)  Certified as an insurer by the insurance commissioner;
 
 2      (2)  Licensed or chartered as a financial institution by the
 
 3           commissioner of financial institutions;
 
 4      (3)  Chartered by an agency of the federal government;
 
 5      (4)  Subject to the jurisdiction and regulation of the
 
 6           securities and exchange commission of the federal
 
 7           government; or
 
 8      (5)  Any other entity otherwise authorized to act in this
 
 9           state as a trustee pursuant to the provisions of the
 
10           Employee Retirement Income Security Act of 1974, as may
 
11           be amended from time to time.
 
12      "Institution of higher education" means any institution that
 
13 provides a course of study leading to the granting of a post-
 
14 secondary degree, certificate, or diploma and is accredited by a
 
15 regional accrediting agency recognized by the United States
 
16 Secretary of Education.
 
17      "Management contract" means the contract executed by the
 
18 comptroller and a financial organization selected to act as a
 
19 depository and manager of the program.
 
20      "Member of the family" means a family member as defined in
 
21 section 529 of the Internal Revenue Code of 1986, as amended.
 
22      "Nonqualified withdrawal" means a withdrawal from an account
 
23 that is not:
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (1)  A qualified withdrawal;
 
 2      (2)  A withdrawal made as the result of the death or
 
 3           disability of the designated beneficiary of an account;
 
 4           or
 
 5      (3)  A withdrawal made on the account of a scholarship.
 
 6      "Program" means the college savings program.
 
 7      "Program manager" means a financial organization selected by
 
 8 the comptroller to act as a depository and manager of the
 
 9 program.
 
10      "Qualified higher education expenses" means any qualified
 
11 higher education expense included in section 529 of the Internal
 
12 Revenue Code of 1986, as amended.
 
13      "Qualified withdrawal" means withdrawal from an account to
 
14 pay the qualified higher education expenses of the designated
 
15 beneficiary of the account.
 
16      "Tuition savings agreement" means an agreement between the
 
17 comptroller or a financial organization and the account owner.
 
18      §  -2  College savings program established.  There is
 
19 established the college savings program.  The purpose of this
 
20 program is to enable families to save for college tuition and
 
21 other expenses through college accounts.  The program shall
 
22 provide college accounts to:
 

 
 
 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (1)  Enable residents of this State and other states to
 
 2           benefit from the tax incentive provided for qualified
 
 3           state tuition programs under the Internal Revenue Code
 
 4           of 1986, as amended; and
 
 5      (2)  Attract students to public and private colleges and
 
 6           universities within the state.
 
 7      §  -3  Functions and powers of the comptroller.(a)  The
 
 8 comptroller shall implement the program under the terms and
 
 9 conditions established by this chapter.  The comptroller may make
 
10 changes to the program as required for participants to obtain the
 
11 federal income tax benefits or treatment provided by section 529
 
12 of the Internal Revenue Code of 1986, as amended, or any similar
 
13 successor legislation.
 
14      (b)  The comptroller may implement the program through the
 
15 use of financial organizations as account depositories and
 
16 managers.  Under the program, individuals may establish accounts
 
17 directly with an account depository.
 
18      (c)  The comptroller may solicit proposals from financial
 
19 organizations to act as depositories and managers of the program.
 
20 Financial organizations submitting proposals shall describe the
 
21 investment instrument that will be held in accounts.  The
 
22 comptroller shall select as program depositories and managers the
 
23 financial organization, from among the bidding financial
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 organizations that demonstrate the most advantageous combination,
 
 2 both to potential program participants and this State, based on
 
 3 the following factors:
 
 4      (1)  The financial stability and integrity of the financial
 
 5           organization;
 
 6      (2)  The safety of the investment instrument being offered;
 
 7      (3)  The ability of the investment instrument to track the
 
 8           expected increasing costs of higher education;
 
 9      (4)  The ability of the financial organization to satisfy
 
10           recordkeeping and reporting requirements;
 
11      (5)  The financial organization's plan for promoting the
 
12           program and the resources it is willing to allocate to
 
13           promote the program;
 
14      (6)  The fees, if any, proposed to be charged to persons for
 
15           opening accounts;
 
16      (7)  The minimum initial deposit and minimum contributions
 
17           that the financial organization will require;
 
18      (8)  The ability of banking organizations to accept
 
19           electronic withdrawals, including payroll deduction
 
20           plans; and
 
21      (9)  Other benefits to the State or its residents included
 
22           in the proposal, including fees payable to the State to
 
23           cover expenses to operate the program.
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (d)  The comptroller may enter into a contract with a
 
 2 financial organization.  The financial organization shall provide
 
 3 only one type of investment instrument.  The management contract
 
 4 shall include, at a minimum, terms requiring the financial
 
 5 organization to:
 
 6      (1)  Take any action required to keep the program in
 
 7           compliance with requirements of section   -4 and to
 
 8           manage the program to qualify it as a qualified state
 
 9           tuition plan under section 529 of the Internal Revenue
 
10           Code of 1986, as amended;
 
11      (2)  Keep adequate records of each account, keep each
 
12           account segregated from each other account, and provide
 
13           the comptroller with the information necessary to
 
14           prepare the statements required by section   -4;
 
15      (3)  Compile information contained in statements required to
 
16           be prepared under section   -4 and provide the
 
17           compilations to the comptroller;
 
18      (4)  If there is more than one program manager, provide the
 
19           comptroller with the information necessary to determine
 
20           compliance with section   -4;
 
21      (5)  Provide the comptroller or designee access to the books
 
22           and records of the program manager to the extent needed
 
23           to determine compliance with the contract;
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (6)  Hold all accounts for the benefit of the account owner;
 
 2      (7)  Be audited at least annually by a firm of certified
 
 3           public accountants selected by the program manager, and
 
 4           provide the results of the audit to the comptroller;
 
 5           and
 
 6      (8)  Provide the comptroller with copies of all regulatory
 
 7           filings and reports made by it during the term of the
 
 8           management contract or while it is holding any
 
 9           accounts, other than confidential filings or reports
 
10           that will not become part of the program.  The program
 
11           manager shall make available for review by the
 
12           comptroller, the results of any periodic examination of
 
13           the manager by any state or federal banking, insurance,
 
14           or securities commission, except to the extent that the
 
15           report or reports may not be disclosed under applicable
 
16           law or the rules of the commission.
 
17      (e)  The comptroller may select more than one financial
 
18 organization and investment instrument for the program when the
 
19 Internal Revenue Service has provided guidance that giving a
 
20 contributor the choice of two or more investment instruments
 
21 under a state program will not cause the program to fail to
 
22 qualify for favorable tax treatment under section 529 of the
 
23 Internal Revenue Code of 1986, as amended.
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (f)  The comptroller may require an audit to be conducted of
 
 2 the operations and financial position of the program depository
 
 3 and manager at any time if the comptroller has any reason to be
 
 4 concerned about the financial position, the recordkeeping
 
 5 practices, or the status of accounts of the program depository or
 
 6 manager.
 
 7      (g)  During the term of any contract with a program manager,
 
 8 the comptroller shall conduct an examination of the manager and
 
 9 its handling of accounts.  The examination shall be conducted at
 
10 least biennially if the manager is not otherwise subject to
 
11 periodic examination by the commissioner of financial
 
12 institutions, the Federal Deposit Insurance Corporation, or other
 
13 similar entity.
 
14      (h) If selection of a financial organization as a program
 
15 manager or depository is not renewed, after the end of the term:
 
16      (1)  Accounts previously established and held in investment
 
17           instruments at the financial organization may be
 
18           terminated;
 
19      (2)  Additional contributions may be made to the accounts;
 
20      (3)  No new accounts may be placed with the financial
 
21           organization; and
 
22      (4)  Existing accounts held by the depository shall remain
 
23           subject to all oversight and reporting requirements
 
24           established by the comptroller.
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 If the comptroller terminates a financial organization as a
 
 2 program manager or depository, the comptroller shall take custody
 
 3 of accounts held by the financial organization and shall seek to
 
 4 promptly transfer the accounts to another financial organization
 
 5 that is selected as a program manager or depository and into
 
 6 investment instruments as similar to the original instruments as
 
 7 possible.
 
 8      (i)  The comptroller may establish a nominal fee for an
 
 9 application for a college account.
 
10      (j)  The comptroller may enter into contracts for the
 
11 services of consultants for rendering professional and technical
 
12 assistance and advice and any other contracts that are necessary
 
13 and proper for the implementation of the program.
 
14      (k)  The comptroller may adopt rules to implement the
 
15 program pursuant to chapter 91.
 
16      §  -4  Program requirements; college account.(a) A
 
17 college account may be opened by any person who desires to save
 
18 money for the payment of the qualified higher education expenses
 
19 of a designated beneficiary.  The person shall be considered the
 
20 account owner as defined in section   -1.  An application for an
 
21 account shall be in the form prescribed by the program and shall
 
22 contain the following:
 

 
 
 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (1)  The name, address, and social security number or
 
 2           employer identification number of the account owner;
 
 3      (2)  The designation of a beneficiary;
 
 4      (3)  The name, address, and social security number of the
 
 5           designated beneficiary;
 
 6      (4)  A certification relating to no excess contributions;
 
 7           and
 
 8      (5)  Other information as the program may require.
 
 9      (b)  Only the account owner may make contributions to the
 
10 account after the account is opened.
 
11      (c)  Contributions to accounts may be made only in cash.
 
12      (d)  An account owner may withdraw all or part of the
 
13 balance from an account on sixty days notice or a shorter period
 
14 as may be authorized under rules governing the program.  The
 
15 rules shall include provisions to generally enable the
 
16 determination of whether a withdrawal is a nonqualified
 
17 withdrawal or a qualified withdrawal.  The rules may require one
 
18 or more of the following:
 
19      (1)  An account owner seeking to make a qualified withdrawal
 
20           shall provide certifications of qualified higher
 
21           education expenses;
 
22      (2)  Withdrawals not meeting the requirements of this
 
23           section shall be treated as nonqualified withdrawals by
 

 
Page 11                                                    307
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           the program manager, and if the withdrawals are
 
 2           subsequently deemed qualified withdrawals, the account
 
 3           owner shall seek any refund of penalties directly from
 
 4           the program.
 
 5      (e)  An account owner may change the designated beneficiary
 
 6 of an account to an individual who is a member of the family of
 
 7 the prior designated beneficiary.  An account owner may transfer
 
 8 all or a portion of an account to another college account, the
 
 9 designated beneficiary of whom is a member of the family as
 
10 defined in section 529 of the Internal Revenue code of 1986, as
 
11 amended, of the initial account.  Changes in designated
 
12 beneficiaries and transfers under this section shall not be
 
13 permitted if they constitute excess contributions.
 
14      (f)  In the case of any nonqualified withdrawal from an
 
15 account, an amount equal to five per cent of the portion of the
 
16 withdrawal constituting income as determined in accordance with
 
17 the principles of section 529 of the Internal Revenue Code of
 
18 1986, as amended, shall be withheld as a penalty and paid to the
 
19 college savings program trust fund.
 
20      (g)  The percentage of the penalty described in subsection
 
21 (f) may be increased if the comptroller determines that the
 
22 amount of the penalty must be increased to constitute a greater
 
23 than de minimis penalty for purposes of qualifying the program as
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 a qualified state tuition program under section 529 of the
 
 2 Internal Revenue Code of 1986, as amended.
 
 3      (h)  The percentage of the penalty described in subsection
 
 4 (f) may be decreased by rule if it is determined that:
 
 5      (1)  The penalty is greater than the amount required to
 
 6           constitute a greater than de minimis penalty for
 
 7           purposes of qualifying the program as a qualified state
 
 8           tuition program under section 529 of the Internal
 
 9           Revenue Code of 1986, as amended; and
 
10      (2)  The penalty, when combined with other revenue generated
 
11           under this chapter, is producing more revenue than is
 
12           required to cover the costs of operating the program
 
13           and recover any prior costs not previously recovered.
 
14      (i)  If an account owner makes a nonqualified withdrawal and
 
15 no penalty amount is withheld pursuant to subsection (f), or the
 
16 amount withheld was less than the amount required to be withheld
 
17 under subsection (f) for nonqualified withdrawals, the account
 
18 owner shall pay the unpaid portion of the penalty to the program.
 
19 The unpaid portion shall be paid on the date that the account
 
20 owner files the account owner's state or federal income tax
 
21 return, whichever is filed earlier, for the taxable year of the
 
22 withdrawal.  If the account owner does not file a return, the
 
23 unpaid portion shall be paid on the date that the earlier return
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 is due.  Authorized extensions to filing returns may be taken
 
 2 into account in determining the date for paying the unpaid
 
 3 portion.
 
 4      (j)  The program shall provide separate accounting for each
 
 5 designated beneficiary.
 
 6      (k)  No account owner or designated beneficiary of any
 
 7 account shall be permitted to direct the investment of any
 
 8 contributions to an account or the earnings on it.
 
 9      (l)  Neither an account owner nor a designated beneficiary
 
10 may use an interest in an account as security for a loan.  Any
 
11 pledge of an interest in an account shall be of no force and
 
12 effect.
 
13      (m)  Contributions on behalf of a designated beneficiary may
 
14 not exceed $100,000.
 
15      (n) If there is any distribution from an account to any
 
16 individual or for the benefit of any individual during a calendar
 
17 year, the distribution shall be reported to the Internal Revenue
 
18 Service and the account owner, the designated beneficiary, or the
 
19 distributee, to the extent required by federal law or regulation.  
 
20      Statements shall be provided to each account owner at least
 
21 once each year within sixty days after the end of the
 
22 twelve-month period to which they relate.  The statement shall
 
23 identify the contributions made during a preceding twelve-month
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 period, the total contributions made to the account through the
 
 2 end of the period, the value of the account at the end of the
 
 3 period, distributions made during the period, and any other
 
 4 information that the comptroller requires to be reported to the
 
 5 account owner.
 
 6      Statements and information relating to accounts shall be
 
 7 prepared and filed to the extent required by federal and state
 
 8 tax law.
 
 9      (o)  A local government or organization described in section
 
10 501(c)(3) of the Internal Revenue Code of 1986, as amended, may
 
11 open and become the account owner of an account to fund
 
12 scholarships for persons whose identify shall be determined upon
 
13 disbursement.  Any account opened pursuant to this subsection is
 
14 not required to comply with the condition set forth in subsection
 
15 (a) that a beneficiary be designated when an account is opened,
 
16 and each individual who receives an interest in the account as a
 
17 scholarship shall be treated as a designated beneficiary.
 
18      (p)  An annual fee may be imposed upon the account owner for
 
19 the maintenance of the account.
 
20      (q)  A qualified withdrawal may be made only after at least
 
21 three calendar years have elapsed from the time an account is
 
22 opened.
 

 
 
 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (r)  The program shall disclose in writing the following
 
 2 information to each account owner and prospective account owner
 
 3 of a college account:
 
 4      (1)  The terms and conditions for purchasing a college
 
 5           account;
 
 6      (2)  Any restrictions on the substitution of beneficiaries;
 
 7      (3)  The person or entity entitled to terminate the tuition
 
 8           savings agreement;
 
 9      (4)  The period of time during which a beneficiary may
 
10           receive benefits under the tuition savings agreement;
 
11      (5)  The terms and conditions under which money may be
 
12           wholly or partially withdrawn from the program,
 
13           including any reasonable charges and fees that may be
 
14           imposed for withdrawal; and
 
15      (6)  The probable tax consequences associated with
 
16           contributions to and distributions from accounts.
 
17      §  -5  Program limitations; college account.(a) Nothing
 
18 in this chapter shall be construed to:
 
19      (1)  Give any designated beneficiary any rights or legal
 
20           interest with respect to an account unless the
 
21           designated beneficiary is the account owner;
 
22      (2)  Guarantee that a designated beneficiary:
 

 
 
 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           (A)  Will be admitted to an institution of higher
 
 2                education; or
 
 3           (B)  Upon admission to an institution of higher
 
 4                education, will be permitted to continue to attend
 
 5                or will receive a degree from the institution;
 
 6      (3)  Create state residency for an individual merely because
 
 7           the individual is a designated beneficiary; or
 
 8      (4)  Guarantee that amounts saved pursuant to the program
 
 9           will be sufficient to cover the qualified higher
 
10           education expenses of a designated beneficiary.
 
11      (b)  Nothing in this chapter shall create or be construed to
 
12 create any obligation of the comptroller, the State, or any
 
13 agency or instrumentality of the State to guarantee for the
 
14 benefit of any account owner or designated beneficiary with
 
15 respect to:
 
16      (1)  The rate of interest or other return on any account; or
 
17      (2)  The payment of interest or other return on any account.
 
18 The comptroller shall provide by rule that every contract,
 
19 application, deposit slip, or other similar document that may be
 
20 used in connection with a contribution to an account clearly
 
21 indicate that the account is not insured by the State and neither
 
22 the principal deposited nor the investment return is guaranteed
 
23 by the State.
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      §  -6  College savings program trust fund.(a)  There is
 
 2 established the college savings program trust fund.  The
 
 3 comptroller shall have custody of the fund.  All payments from
 
 4 the fund shall be made in accordance with this chapter.
 
 5      (b)  The fund shall consist of a trust account and an
 
 6 operating account.  The trust account shall include amounts
 
 7 received by the college savings program pursuant to tuition
 
 8 savings agreements, administrative charges, fees, and all other
 
 9 amounts received by the program from other sources, and interest
 
10 and investment income earned by the fund.  The comptroller shall,
 
11 from time to time, make transfers from the trust account to the
 
12 operating account for the immediate payment of obligations under
 
13 tuition savings agreements, operating expenses, and
 
14 administrative costs of the college savings program.
 
15 Administrative costs shall be paid out of the operating account.
 
16      (c)  The comptroller, as trustee, shall invest the assets of
 
17 the fund in securities that constitute legal investments under
 
18 State laws relating to the investment of trust fund assets by
 
19 trust companies, including those authorized by article 8 of
 
20 chapter 412.  Fund assets shall be kept separate and shall not be
 
21 commingled with other assets, except as provided in this chapter.
 
22 The comptroller may enter into contracts to provide for
 
23 investment advice and management, custodial services, and other
 

 
Page 18                                                    307
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 professional services for the administration and investment of
 
 2 the program.  Administrative fees, costs, and expenses, including
 
 3 investment fees and expenses, shall be paid from the assets of
 
 4 the fund.
 
 5      (d)  The comptroller shall provide for the administration of
 
 6 the fund, including maintaining participant records and accounts,
 
 7 and providing annual audited reports.  The comptroller may enter
 
 8 into contracts for administrative services, including reports.
 
 9      §  -7  Tax reporting.  The director of taxation may require
 
10 the comptroller or the program manager of the college savings
 
11 program, or a designee, to file a report annually, setting forth
 
12 the names and identification numbers of account owners,
 
13 designated beneficiaries, and  distributees of college accounts,
 
14 the amounts contributed to the accounts, the amounts distributed
 
15 from the accounts, and the nature of the distributions as
 
16 qualified withdrawals or as withdrawals other than qualified
 
17 withdrawals, and any other information as the director of
 
18 taxation may require regarding the taxation under this chapter of
 
19 amounts contributed to or withdrawn from the accounts.  The
 
20 director of taxation may also require the report to be made to
 
21 the account owner, designated beneficiary, or distributee of any
 
22 account."
 

 
 
 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      SECTION 2.  Chapter 654, Hawaii Revised Statutes, is amended
 
 2 by adding a new section to be appropriately designated and to
 
 3 read as follows:
 
 4      "§654-    College savings program.  (a) Moneys in an account
 
 5 created pursuant to chapter     are exempt from application to
 
 6 the satisfaction of a money judgment as follows:
 
 7      (1)  One hundred per cent of moneys in an account
 
 8           established in connection with a scholarship program;
 
 9      (2)  One hundred per cent of moneys in an account where the
 
10           judgment debtor is the account owner and the designated
 
11           beneficiary of the account is a minor; and
 
12      (3)  An amount not exceeding $10,000 in an account, or in
 
13           the aggregate for more than one account, where the
 
14           judgment debtor is the account owner of the account or
 
15           accounts.
 
16      (b) For the purposes of this section, the terms "account
 
17 owner" and "designated beneficiary" shall have the meanings
 
18 ascribed to them in section  -1."
 
19      SECTION 3.  Section 235-7, Hawaii Revised Statutes, is
 
20 amended by amending subsection (a) to read as follows:
 
21      "(a)  There shall be excluded from gross income, adjusted
 
22 gross income, and taxable income:
 

 
 
 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (1)  Income not subject to taxation by the State under the
 
 2           Constitution and laws of the United States;
 
 3      (2)  Rights, benefits, and other income exempted from
 
 4           taxation by section 88-91, having to do with the state
 
 5           retirement system, and the rights, benefits, and other
 
 6           income, comparable to the rights, benefits, and other
 
 7           income exempted by section 88-91, under any other
 
 8           public retirement system;
 
 9      (3)  Any compensation received in the form of a pension for
 
10           past services;
 
11      (4)  Compensation paid to a patient affected with Hansen's
 
12           disease employed by the State or the United States in
 
13           any hospital, settlement, or place for the treatment of
 
14           Hansen's disease;
 
15      (5)  Except as otherwise expressly provided, payments made
 
16           by the United States or this State, under an act of
 
17           Congress or a law of this State, which by express
 
18           provision or administrative regulation or
 
19           interpretation are exempt from both the normal and
 
20           surtaxes of the United States, even though not so
 
21           exempted by the Internal Revenue Code itself;
 
22      (6)  Any income expressly exempted or excluded from the
 
23           measure of the tax imposed by this chapter by any other
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           law of the State, it being the intent of this chapter
 
 2           not to repeal or supersede any such express exemption
 
 3           or exclusion;
 
 4      (7)  The first $1,750 received by each member of the reserve
 
 5           components of the Army, Navy, Air Force, Marine Corps,
 
 6           or Coast Guard of the United States of America, and the
 
 7           Hawaii national guard as compensation for performance
 
 8           of duty;
 
 9      (8)  Income derived from the operation of ships or aircraft
 
10           if the income is exempt under the Internal Revenue Code
 
11           pursuant to the provisions of an income tax treaty or
 
12           agreement entered into by and between the United States
 
13           and a foreign country[,]; provided that the tax laws of
 
14           the local governments of that country reciprocally
 
15           exempt from the application of all of their net income
 
16           taxes, the income derived from the operation of ships
 
17           or aircraft [which] that are documented or registered
 
18           under the laws of the United States;
 
19      (9)  The value of legal services provided by a prepaid legal
 
20           service plan to a taxpayer, the taxpayer's spouse, and
 
21           the taxpayer's dependents;
 
22     (10)  Amounts paid, directly or indirectly, by a prepaid
 
23           legal service plan to a taxpayer as payment or
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           reimbursement for the provision of legal services to
 
 2           the taxpayer, the taxpayer's spouse, and the taxpayer's
 
 3           dependents;
 
 4     (11)  Contributions by an employer to a prepaid legal service
 
 5           plan for compensation (through insurance or otherwise)
 
 6           to the employer's employees for the costs of legal
 
 7           services incurred by the employer's employees, their
 
 8           spouses, and their dependents; [and]
 
 9     (12)  Amounts received in the form of a monthly surcharge by
 
10           a utility acting on behalf of an affected utility under
 
11           section 269-16.3 shall not be gross income, adjusted
 
12           gross income, or taxable income for the acting utility
 
13           under this chapter.  Any amounts retained by the acting
 
14           utility for collection or other costs shall not be
 
15           included in this exemption[.];
 
16     (13)  Contributions made by an account owner to one or more
 
17           college accounts established under the college savings
 
18           program provided for under chapter    ; provided that
 
19           the contributions by the owner of an account or
 
20           accounts for the taxable year shall not exceed $5000;
 
21           and
 
22     (4)   Distributions from a college account established under
 
23           the college savings program provided for under 
 
24           chapter   ."
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      SECTION 4.  Statutory material to be repealed is bracketed.
 
 2 New statutory material is underscored.
 
 3      SECTION 5.  This Act, upon its approval, shall apply to
 
 4 taxable years beginning after December 31, 1999.