STAND. COM. REP. NO. 294-26

Honolulu, Hawaii

, 2026

RE: H.B. No. 1850

H.D. 1

Honorable Nadine K. Nakamura

Speaker, House of Representatives

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Madame:

Your Committee on Economic Development & Technology, to which was referred H.B. No. 1850 entitled:

"A BILL FOR AN ACT RELATING TO CAPITAL GAINS TAX,"

begs leave to report as follows:

The purpose of this measure is to increase the:

(1) Capital gains tax rate for individuals, estates, and trusts to nine percent; and

(2) Alternative capital gains tax for corporations to five percent.

Your Committee received testimony in support of this measure from Indivisible Hawaiʻi; Kaʻū Voices, Indivisible Chapter on the Island of Hawaiʻi; Chamber of Sustainable Commerce; Hawaiʻi Children's Action Network Speaks!; Kauai Climate Action Coalition; Hawaiʻi Tax Fairness Coalition; Hawaii Appleseed Center for Law & Economic Justice; Hawaiʻi Public Health Institute; Oʻahu Youth Action Board; Kauai Women's Caucus; Indivisible Kona; and numerous individuals. Your Committee received testimony in opposition to this measure from the Chamber of Commerce Hawaii; Grassroot Institute of Hawaii; and four individuals. Your Committee received comments on this measure from the Department of Taxation; Tax Foundation of Hawaii; and Hawaiʻi Association of REALTORS.

Your Committee finds that existing state capital gains tax rates are significantly lower than the state tax rates on earned income, which can create inequities in the tax structure and reduce revenue needed for essential public services. Your Committee further finds that increasing the capital gains tax rates will help promote fairness and equity in public resources across taxpayers and generate additional revenue to support the State's fiscal needs.

Your Committee has amended this measure by:

(1) Making it apply to taxable years beginning after December 31, 2026, to provide the Department of Taxation with sufficient time to implement system changes; and

(2) Changing the effective date to July 1, 3000, to encourage further discussion.

As affirmed by the record of votes of the members of your Committee on Economic Development & Technology that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1850, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 1850, H.D. 1, and be referred to your Committee on Finance.

Respectfully submitted on behalf of the members of the Committee on Economic Development & Technology,

____________________________

GREGGOR ILAGAN, Chair