HB2623

SECTION 1. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Wealth proceeds surcharge. (a) Notwithstanding any other law to the contrary, in addition to any other tax imposed under this chapter, there is imposed a wealth proceeds surcharge on every taxpayer other than a corporation. The amount of the surcharge shall be equal to per cent of the lesser of:

(1) Wealth proceeds for the taxable year; or

(2) Federal modified adjusted gross income for the taxable year, less the threshold amount.

(b) For an individual who is not a resident for the entire taxable year, the tax under this subsection shall be calculated as if the individual is a resident for the entire year, and that amount shall be multiplied by a fraction in which:

(1) The numerator is wealth proceeds allocable to the State; and

(2) The denominator is the total amount of wealth proceeds for the taxable year.

(c) For an estate or trust, the surcharge under this section shall be calculated by multiplying the wealth proceeds surcharge by a fraction, the numerator of which is the amount of the estate or trust's wealth proceeds allocated to the State, and the denominator of which is the taxpayer's total wealth proceeds.

(d) All provisions of this chapter shall apply to the wealth proceeds surcharge. The director of taxation shall have all the rights and powers provided under this chapter to administer the surcharge.

(e) The penalties provided by section 231-39 shall apply.

(f) The department of taxation may adopt rules pursuant to chapter 91 to effectuate this section.

(g) For the purposes of this section:

"Federal modified adjusted gross income" shall be defined to have the same meaning given in section 1411(d) of the Internal Revenue Code, modified in accordance with the same adjustments identified under paragraphs (1) through (4) of the definition of "wealth proceeds".

"Threshold amount" shall be defined to have the same meaning given in section 1411(b) of the Internal Revenue Code.

"Wealth proceeds" shall be defined to have the same meaning as "net investment income" given in section 1411(c) of the Internal Revenue Code, subject to the following adjustments:

(1) Excluding interest on United States obligations that the State is prohibited from taxing under federal law;

(2) Including interest on obligations issued by state and local governments other than Hawaii and its subdivisions;

(3) Including net gain excluded under section 1202 of the Internal Revenue Code;

(4) Including net gain excluded under section 1400Z-2 of the Internal Revenue Code;

(5) Including net gain attributable to the disposition of property held in a trade or business not described under section 1411(c)(2) of the Internal Revenue Code;

(6) Including net gain described under the exception found in section 1411(c)(4) of the Internal Revenue Code;

(7) Including net gain excluded under section 1411(c)(5) of the Internal Revenue Code that is attributable to net unrealized appreciation within the meaning of section 402(e)(4) of the Internal Revenue Code; and

(8) Including, for a taxpayer who transferred property to an incomplete gift non-grantor trust, "wealth proceeds" of the trust as described under paragraphs (1) through (7), less any deductions of the trust, to the extent the wealth proceeds and deductions of the trust would be taken into account in computing the taxpayer's federal taxable income if the trust in its entirety were treated as a grantor trust for federal tax purposes.

For purposes of this paragraph, an "incomplete gift non-grantor trust" means a resident trust that meets the following conditions:

(A) The trust does not qualify as a grantor trust under sections 671 through 679 of the Internal Revenue Code; and

(B) The grantor's transfer of assets to the trust is treated as an incomplete gift under section 2511 of the Internal Revenue Code, and the regulations thereunder."

SECTION 2. New statutory material is underscored.

SECTION 3. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2026.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	2623
THIRTY-THIRD LEGISLATURE, 2026
STATE OF HAWAII