HB 1850: Capital Gains Tax; Corporations

A BILL FOR AN ACT

RELATING TO CAPITAL GAINS TAX.

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

     SECTION 1.  Section 231-8.5, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

     "(b)  If the requirements of subsection (c) are satisfied, the department may require electronic filing of any tax return, application, report, or other document required under the provisions of title 14 administered by the department for the following taxpayers:

     (1)  For withholding tax filings required under chapter 235, only employers whose total tax liability under sections 235-61 and 235-62 for the calendar or fiscal year exceeds $40,000;

     (2)  For income tax filings required under chapter 235, only taxpayers who are subject to tax under section 235-71[, 235-71.5,] or 235-72;

     (3)  For general excise tax filings required under chapter 237, only taxpayers whose total tax liability under chapter 237 for the calendar or fiscal year exceeds $4,000;

     (4)  For transient accommodations tax filings required under chapter 237D, only operators and plan managers whose total tax liability under chapter 237D for the calendar or fiscal year exceeds $4,000; and

     (5)  For filings required under the following chapters, all taxpayers subject to tax under those chapters:

          (A)  236E;

          (B)  239;

          (C)  241;

          (D)  243;

          (E)  244D;

          (F)  245; and

          (G)  251."

     SECTION 2.  Section 235-51, Hawaii Revised Statutes, is amended by amending subsection (f) to read as follows:

     "(f)  If a taxpayer has a net capital gain from the sale of real property that is used as a principal home and eligible for a county homeowner's exemption for any taxable year [to which this subsection applies], then the tax imposed on the net capital gain [by this section] shall [not exceed the sum of:

     (1)  The tax computed at the rates and in the same manner as if this subsection had not been enacted on the greater of:

          (A)  The taxable income reduced by the amount of net capital gain, or

          (B)  The amount of taxable income taxed at a rate below 7.25 per cent, plus

     (2)  A tax of] be at a rate of 7.25 per cent [of the amount of taxable income in excess of the amount determined under paragraph (1)].

     This subsection shall apply to individuals, estates, and trusts for taxable years beginning after December 31, 1986."

     SECTION 3.  Section 235-71.5, Hawaii Revised Statutes, is repealed.

     ["§235-71.5  Alternative tax for corporations.  Section 1201 (with respect to alternative tax for corporations) of the Internal Revenue Code of 1986, as amended as of December 31, 1996, shall be operative for the purposes of this chapter and shall be applied as set forth in this section.  If for any taxable year a corporation, regulated investment company, or real estate investment trust has a net capital gain, then, in lieu of the tax imposed by section 235-71, there is hereby imposed a tax (if such tax is less than the tax imposed under section 235-71) which shall consist of the sum of:

     (1)  A tax computed on the taxable income reduced by the amount of the net capital gain, at the rates and in the manner as if this section had not been enacted, plus

     (2)  The sum of:

          (A)  3.08 per cent of the lesser of:

              (i)  The net capital gain determined by including only the gain or loss which is properly taken into account for the portion of the taxable year before April 1, 1987 (i.e., the amount in paragraph (1)), or

             (ii)  The net capital gain for the taxable year, plus

          (B)  4 per cent of the excess (if any) of:

              (i)  The net capital gain for the taxable year, over

             (ii)  The amount of the net capital gain taken into account under subparagraph (A)."]

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect on July 1, 3000, and shall apply to taxable years beginning after December 31, 2026.

Report Title:

Capital Gains Tax; Corporations

Description:

Taxes capital gains tax for individuals, estates, and trusts as ordinary income, except for capital gains that are eligible for a county homeowner's exemption.  Repeals the alternative capital gains tax for corporations.  Applies to taxable years beginning after 12/31/2026.  Effective 7/1/3000.  (HD2)

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 CAPITAL GAINS TAX.

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

     SECTION 1.  Section 235-51, Hawaii Revised Statutes, is amended by amending subsection (f) to read as follows:

     "(f)  If a taxpayer has a net capital gain for any taxable year to which this subsection applies, then the tax imposed by this section shall not exceed the sum of:

     (1)  The tax computed at the rates and in the same manner as if this subsection had not been enacted on the greater of:

          (A)  The taxable income reduced by the amount of net capital gain, or

          (B)  The amount of taxable income taxed at a rate below [7.25] nine per cent, plus

     (2)  A tax of [7.25] nine per cent of the amount of taxable income in excess of the amount determined under paragraph (1).

     This subsection shall apply to individuals, estates, and trusts for taxable years beginning after December 31, 1986."

     SECTION 2.  Section 235-71.5, Hawaii Revised Statutes, is amended to read as follows:

     "§235-71.5  Alternative tax for corporations.  Section 1201 (with respect to alternative tax for corporations) of the Internal Revenue Code of 1986, as amended as of December 31, 1996, shall be operative for the purposes of this chapter and shall be applied as set forth in this section.  If for any taxable year a corporation, regulated investment company, or real estate investment trust has a net capital gain, then, in lieu of the tax imposed by section 235-71, there is hereby imposed a tax (if such tax is less than the tax imposed under section 235-71) which shall consist of the sum of:

     (1)  A tax computed on the taxable income reduced by the amount of the net capital gain, at the rates and in the manner as if this section had not been enacted, plus

     (2)  The sum of:

          (A)  3.08 per cent of the lesser of:

              (i)  The net capital gain determined by including only the gain or loss which is properly taken into account for the portion of the taxable year before April 1, 1987 (i.e., the amount in paragraph (1)), or

             (ii)  The net capital gain for the taxable year, plus

          (B)  [4] Five per cent of the excess (if any) of:

              (i)  The net capital gain for the taxable year, over

             (ii)  The amount of the net capital gain taken into account under subparagraph (A)."

     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, and shall apply to taxable years beginning after December 31, 2026.

Report Title:

Capital Gains Tax; Increase

Description:

Increases the capital gains tax rate for individuals, estates, and trusts to nine per cent.  Increases the alternative capital gains tax for corporations to five per cent.  Applies to taxable years beginning after 12/31/2026.  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 capital gains tax.

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

     SECTION 1.  Section 235-51, Hawaii Revised Statutes, is amended by amending subsection (f) to read as follows:

     "(f)  If a taxpayer has a net capital gain for any taxable year to which this subsection applies, then the tax imposed by this section shall not exceed the sum of:

     (1)  The tax computed at the rates and in the same manner as if this subsection had not been enacted on the greater of:

          (A)  The taxable income reduced by the amount of net capital gain, or

          (B)  The amount of taxable income taxed at a rate below [7.25] nine per cent, plus

     (2)  A tax of [7.25] nine per cent of the amount of taxable income in excess of the amount determined under paragraph (1).

     This subsection shall apply to individuals, estates, and trusts for taxable years beginning after December 31, 1986."

     SECTION 2.  Section 235-71.5, Hawaii Revised Statutes, is amended to read as follows:

     "§235-71.5  Alternative tax for corporations.  Section 1201 (with respect to alternative tax for corporations) of the Internal Revenue Code of 1986, as amended as of December 31, 1996, shall be operative for the purposes of this chapter and shall be applied as set forth in this section.  If for any taxable year a corporation, regulated investment company, or real estate investment trust has a net capital gain, then, in lieu of the tax imposed by section 235-71, there is hereby imposed a tax (if such tax is less than the tax imposed under section 235-71) which shall consist of the sum of:

     (1)  A tax computed on the taxable income reduced by the amount of the net capital gain, at the rates and in the manner as if this section had not been enacted, plus

     (2)  The sum of:

          (A)  3.08 per cent of the lesser of:

              (i)  The net capital gain determined by including only the gain or loss which is properly taken into account for the portion of the taxable year before April 1, 1987 (i.e., the amount in paragraph (1)), or

             (ii)  The net capital gain for the taxable year, plus

          (B)  [4] Five per cent of the excess (if any) of:

              (i)  The net capital gain for the taxable year, over

             (ii)  The amount of the net capital gain taken into account under subparagraph (A)."

     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, 2026.

Report Title:

Capital Gains Tax; Increase

Description:

Increases the capital gains tax rate for individuals, estates, and trusts to nine per cent.  Increases the alternative capital gains tax for corporations to five per cent.

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.  1117-26

Honolulu, Hawaii

                , 2026

RE:   H.B. No. 1850

      H.D. 2

Honorable Nadine K. Nakamura

Speaker, House of Representatives

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Madame:

     Your Committee on Finance, to which was referred H.B. No. 1850, H.D. 1, 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 the Hawaiʻi Public Health Institute; Hawaiʻi Children's Action Network Speaks!; Hawaiʻi Tax Fairness Coalition; Indivisible Hawaiʻi; Hawaiʻi Appleseed Center for Law and Economic Justice; Kauaʻi Women's Caucus; and numerous individuals.  Your Committee received testimony in opposition to this measure from the Chamber of Commerce Hawaiʻi; Hawaiʻi Association of REALTORS; Hawaiʻi Food Industry Association; Grassroot Institute of Hawaiʻi; and five individuals.  Your Committee received comments on this measure from the Department of Taxation and Tax Foundation of Hawaii.

     Your Committee has amended this measure by:

     (1)  Specifying that capital gains shall be taxed as ordinary income and the capital gains tax rate of 7.25 percent shall only apply to capital gains from the sale of real property that is used as a principal home and eligible for a county homeowner's exemption; and

     (2)  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 Finance that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1850, H.D. 1, as amended herein, and recommends that it pass Third Reading in the form attached hereto as H.B. No. 1850, H.D. 2.

Respectfully submitted on behalf of the members of the Committee on Finance,

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,