REPORT TITLE:
Nonresident Income Tax


DESCRIPTION:
Repeals the authority of the department of taxation to exempt
nonresident employees from withholding. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           659
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 section 235-61,
 
 2 Hawaii Revised Statutes, requires employers to deduct and
 
 3 withhold from wages paid to an employee an amount of income tax,
 
 4 and pay that withheld amount over to the department of taxation
 
 5 on a periodic basis.  Subsection (e) allows the department, by
 
 6 rule, to exempt any employer from the requirement.
 
 7      The legislature also finds that nonresidents are generally
 
 8 not subject to the income tax law and the department of taxation
 
 9 has adopted section 18-235-61-04, Hawaii Administrative Rules,
 
10 that exempts wages paid to nonresident employees from the
 
11 withholding requirements.  Section 18-235-61-04 also qualifies
 
12 employees as nonresidents, for the purposes of withholding taxes,
 
13 as those employees who are temporarily performing services in the
 
14 State for not more than sixty days during the calendar year.
 
15      The legislature further finds that members of the
 
16 construction industry have testified in previous hearings on the
 
17 matter that this rule is being abused to avoid the withholding of
 
18 income tax that is legally due to the State.  According to
 
19 industry representatives, some employees attempt to qualify as
 

 
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                                     S.B. NO.           659
                                                        
                                                        

 
 1 nonresidents by leaving the State on the fifty-ninth day only to
 
 2 return a few days later to restart another sixty-day period.
 
 3      In addition to the resulting loss of revenues to the State,
 
 4 the legislature believes that this abuse unfairly penalizes
 
 5 residents of the State, and that treating residents and
 
 6 nonresidents similarly regarding withholding is fair and
 
 7 equitable.  If there is no income tax liability, nonresidents may
 
 8 file for a return claiming a refund, as residents do.
 
 9      The purpose of this Act is to repeal the ability of the
 
10 department of taxation to exempt nonresident employees from
 
11 withholding and to require all employees' wages to be subject to
 
12 withholding regardless of residency.
 
13      SECTION 2.  Section 235-61, Hawaii Revised Statutes, is
 
14 amended by amending subsection (e) to read as follows:
 
15      "(e)  The department, by rule, may require the deduction and
 
16 withholding of tax from any remuneration or compensation paid for
 
17 or attributable to services that are not subject to the general
 
18 excise tax imposed by chapter 237, whether or not such
 
19 withholding is provided for hereinabove.  Every person so
 
20 required to deduct and withhold tax, or from whom tax is required
 
21 to be deducted and withheld, shall be subject to sections 235-61
 
22 to 235-67, and every person so required to deduct and withhold
 
23 tax shall be deemed an employer for the purposes of this chapter.
 

 
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                                     S.B. NO.           659
                                                        
                                                        

 
 1      The department[, by rule,] may not exempt any employer from
 
 2 the requirement of deduction and withholding of taxes[, even
 
 3 though the requirement is imposed by this section, if and to the
 
 4 extent that the department finds the requirement unduly onerous
 
 5 or impracticable of enforcement]."
 
 6      SECTION 3.  Statutory material to be repealed is bracketed.
 
 7 New statutory material is underscored.
 
 8      SECTION 4.  This Act shall take effect on September 1, 1999.
 
 9 
 
10                           INTRODUCED BY:  _______________________