HB 1417: RELATING TO FARMS.

A BILL FOR AN ACT

RELATING TO FARMS.

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

     SECTION 1.  The legislature finds that the State has struggled to attract young people into the agricultural sector.  Hawaii has the oldest farmers in the United States, with twice as many farmers over the age of seventy-five as there are under thirty-five.

     The legislature further finds that as of 2022, most of the State's over seven thousand farms are small operations bearing little financial fruit, with nearly eighty per cent having annual sales under $25,000.

     As the State seeks to achieve overlapping goals of reducing reliance on imports, diversifying the economy, and increasing local food production, it is critical to incentivize the rejuvenation of the State's agricultural sector, especially among younger generations.

     The legislature further finds that a partial tax exclusion for such businesses will not significantly affect existing tax revenue collected but will strengthen the State's economy and improve the long-term economic well-being of the State as a whole.

     Accordingly, the purpose of this Act is to create an exclusion from income tax for the first $50,000 of income earned by farmers in order to encourage the growth of small, diversified farming businesses.

     SECTION 2.  Section 235-7, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  There shall be excluded from gross income, adjusted gross income, and taxable income:

     (1)  Income not subject to taxation by the State under the Constitution and laws of the United States;

     (2)  Rights, benefits, and other income exempted from taxation by section 88-91, having to do with the state retirement system, and the rights, benefits, and other income, comparable to the rights, benefits, and other income exempted by section 88-91, under any other public retirement system;

     (3)  Any compensation received in the form of a pension for past services;

     (4)  Compensation paid to a patient affected with Hansen's disease employed by the State or the United States in any hospital, settlement, or place for the treatment of Hansen's disease;

     (5)  Except as otherwise expressly provided, payments made by the United States or [this] the State, under an act of Congress or a law of [this] the State, which by express provision or administrative regulation or interpretation are exempt from both the normal and surtaxes of the United States, even though not so exempted by the Internal Revenue Code itself;

     (6)  Any income expressly exempted or excluded from the measure of the tax imposed by this chapter by any other law of the State, it being the intent of this chapter not to repeal or supersede any such express exemption or exclusion;

     (7)  Income received by each member of the reserve components of the Army, Navy, Air Force, Marine Corps, or Coast Guard of the United States of America, and the Hawaii National Guard as compensation for performance of duty, equivalent to pay received for forty-eight drills (equivalent of twelve weekends) and fifteen days of annual duty, at an:

          (A)  E-1 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2004;

          (B)  E-2 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2005;

          (C)  E-3 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2006;

          (D)  E-4 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2007; and

          (E)  E-5 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2008;

     (8)  Income derived from the operation of ships or aircraft if the income is exempt under the Internal Revenue Code pursuant to the provisions of an income tax treaty or agreement entered into by and between the United States and a foreign country[;] provided that the tax laws of the local governments of that country reciprocally exempt from the application of all of their net income taxes, the income derived from the operation of ships or aircraft that are documented or registered under the laws of the United States;

     (9)  The value of legal services provided by a legal service plan to a taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

    (10)  Amounts paid, directly or indirectly, by a legal service plan to a taxpayer as payment or reimbursement for the provision of legal services to the taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

    (11)  Contributions by an employer to a legal service plan for compensation (through insurance or otherwise) to the employer's employees for the costs of legal services incurred by the employer's employees, their spouses, and their dependents; [and]

    (12)  Amounts received in the form of a monthly surcharge by a utility acting on behalf of an affected utility under section 269-16.3; provided that amounts retained by the acting utility for collection or other costs shall not be included in this exemption[.]; and

    (13)  The first $50,000 of income earned by a farmer.

          For purposes of this paragraph:

              "Farm products" means production from cultivation of crops, including crops for bioenergy, flowers, vegetables, foliage, fruits, forage, and timber; game and fish propagation; and raising of livestock, including poultry, bees, fish, or other animal or aquatic life that are propagated for economic or personal use.

              "Farmer" means an individual earning more than seventy-five per cent of the individual's gross income from farm products."

     SECTION 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect on July 1, 3000; provided that section 2 shall apply to taxable years beginning after December 31, 2025.

Report Title:

Economic Diversification; Agriculture; Farmer; Tax Exclusion

Description:

Creates an exclusion from income tax for the first $50,000 of gross income earned by farmers.  Effective 7/1/3000.  (HD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

A BILL FOR AN ACT

relating to farms.

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

     SECTION 1.  The legislature finds that the State has struggled to attract young people into the agricultural sector.  Hawaii has the oldest farmers in the United States, with twice as many farmers over the age of seventy-five as there are under thirty-five.

The legislature further finds that as of 2022, most of the State's over seven thousand farms are small operations bearing not much financial fruit, with nearly eighty per cent having annual sales under $25,000.

As the State seeks to achieve overlapping goals of reducing reliance on imports, diversifying our economy, and increasing local food production, it is critical to incentivize the rejuvenation of our State's agricultural sector, especially among younger generations.

The legislature finds that a partial tax exclusion for such businesses will not significantly affect existing tax revenue collected but will strengthen the State's economy and improve the long-term economic well-being of the State as a whole.

Accordingly, the purpose of this Act is to create an exclusion from income tax for the first $50,000 of income earned by farmers in order to encourage the growth of small, diversified farming businesses.

     SECTION 2.  Section 235-7, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  There shall be excluded from gross income, adjusted gross income, and taxable income:

     (1)  Income not subject to taxation by the State under the Constitution and laws of the United States;

     (2)  Rights, benefits, and other income exempted from taxation by section 88-91, having to do with the state retirement system, and the rights, benefits, and other income, comparable to the rights, benefits, and other income exempted by section 88-91, under any other public retirement system;

     (3)  Any compensation received in the form of a pension for past services;

     (4)  Compensation paid to a patient affected with Hansen's disease employed by the State or the United States in any hospital, settlement, or place for the treatment of Hansen's disease;

     (5)  Except as otherwise expressly provided, payments made by the United States or this State, under an act of Congress or a law of this State, which by express provision or administrative regulation or interpretation are exempt from both the normal and surtaxes of the United States, even though not so exempted by the Internal Revenue Code itself;

     (6)  Any income expressly exempted or excluded from the measure of the tax imposed by this chapter by any other law of the State, it being the intent of this chapter not to repeal or supersede any express exemption or exclusion;

     (7)  Income received by each member of the reserve components of the Army, Navy, Air Force, Marine Corps, or Coast Guard of the United States of America, and the Hawaii National Guard as compensation for performance of duty, equivalent to pay received for forty-eight drills (equivalent of twelve weekends) and fifteen days of annual duty, at an:

          (A)  E-1 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2004;

          (B)  E-2 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2005;

          (C)  E-3 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2006;

          (D)  E-4 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2007; and

          (E)  E-5 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2008;

     (8)  Income derived from the operation of ships or aircraft if the income is exempt under the Internal Revenue Code pursuant to the provisions of an income tax treaty or agreement entered into by and between the United States and a foreign country; provided that the tax laws of the local governments of that country reciprocally exempt from the application of all of their net income taxes, the income derived from the operation of ships or aircraft that are documented or registered under the laws of the United States;

     (9)  The value of legal services provided by a legal service plan to a taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

    (10)  Amounts paid, directly or indirectly, by a legal service plan to a taxpayer as payment or reimbursement for the provision of legal services to the taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

    (11)  Contributions by an employer to a legal service plan for compensation (through insurance or otherwise) to the employer's employees for the costs of legal services incurred by the employer's employees, their spouses, and their dependents;

    (12)  Amounts received in the form of a monthly surcharge by a utility acting on behalf of an affected utility under section 269-16.3; provided that amounts retained by the acting utility for collection or other costs shall not be included in this exemption;

    (13)  Amounts received in the form of a cable surcharge by an electric utility company acting on behalf of a certified cable company under section 269‑134; provided that any amounts retained by that electric utility company for collection or other costs shall not be included in this exemption; and

    (14)  One hundred per cent of the gain realized by a fee simple owner from the sale of a leased fee interest in units within a condominium project, cooperative project, or planned unit development to the association of owners under chapter 514A or 514B, or the residential cooperative corporation of the leasehold units.

          For purposes of this paragraph:

              "Fee simple owner" shall have the same meaning as provided under section 516-1; provided that it shall include legal and equitable owners;

              "Legal and equitable owner", and "leased fee interest" shall have the same meanings as provided under section 516-1; and

              "Condominium project" and "cooperative project" shall have the same meanings as provided under section 514C‑1[.]; and

    (15)  The first $50,000 of income earned by a farmer.

          For purposes of this paragraph:

              "Farm products" means production from agricultural activities described in section 205‑4.5(a)(1), (2), and (3); and

              "Farmer" means an individual earning more than seventy-five per cent of the individual's gross income from farm products."

     SECTION 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 4.  This Act, upon its approval, shall apply to taxable years beginning after December 31, 2025.

Report Title:

Economic Diversification; Agriculture; Farmer; Tax Exclusion

Description:

Creates an exclusion from income tax for the first $50,000 of income earned by farmers.

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

STAND. COM. REP. NO.  635

Honolulu, Hawaii

                , 2025

RE:   H.B. No. 1417

      H.D. 1

Honorable Nadine K. Nakamura

Speaker, House of Representatives

Thirty-Third State Legislature

Regular Session of 2025

State of Hawaii

Madame:

     Your Committee on Agriculture & Food Systems, to which was referred H.B. No. 1417 entitled:

"A BILL FOR AN ACT RELATING TO FARMS,"

begs leave to report as follows:

     The purpose of this measure is to create an exclusion from income tax for the first $50,000 of gross income earned by farmers.

     Your Committee received testimony in support of this measure from the Department of Agriculture; Hawai‘i Farm Bureau; Kanalani Ohana Farm; Hawaiʻi Food+ Policy; and nine individuals.  Your Committee received comments on this measure from the Department of Taxation; Department of the Attorney General; and Tax Foundation of Hawaii.

     Your Committee finds that Hawaii's farming population is aging, with twice as many farmers over seventy-five as under thirty-five, and nearly eighty percent of farms generating less than $25,000 annually.  High operational costs make it difficult for new farmers to sustain viable businesses.  This measure provides a state income tax exclusion on the first $50,000 of gross income earned from farming, allowing farmers to reinvest in operations, expand production, and adopt sustainable practices.

     Your Committee has amended this measure by:

     (1)  Clarifying the definition of "farm products";

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

     (3)  Making technical, nonsubstantive amendments for the purposes of clarity, consistency, and style.

     As affirmed by the record of votes of the members of your Committee on Agriculture & Food Systems that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1417, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 1417, H.D. 1, and be referred to your Committee on Finance.

Respectfully submitted on behalf of the members of the Committee on Agriculture & Food Systems,