SB 2332: Department of Taxation; Environmental Response, Energy, Carbon Emissions, and Food Security Tax; Carbon Emissions; Tax Credit; Agricultural Development and Food Security Special Fund; Carbon Emissions Tax and Dividend Special Fund; Reports; Appropriation

THE SENATE	S.B. NO.	2332
THIRTY-THIRD LEGISLATURE, 2026
STATE OF HAWAII

A BILL FOR AN ACT

 

 

relating to taxation.

 

 

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

 

PART I

     SECTION 1.  The legislature finds that based on the carbon pricing study commissioned under Act 122, Session Laws of Hawaii 2019, and the findings and recommendations of the 2020-2022 tax review commission, establishing a carbon cashback program that increases taxes on fossil fuels and distributes most of the new tax revenues back to taxpayers would be a cost-effective and equitable way to reduce the State's greenhouse gas emissions, as well as to provide financial relief to most households in the State.  The legislature further finds that the needs addressed by the agricultural development and food security special fund, which was effectively repealed in 2021 due to budget concerns, are as important to the State now as ever.

     Accordingly, the purpose of this Act is to establish a carbon cashback program that:

     (1)  Gradually increases the environmental response, energy, carbon emissions, and food security tax to reduce fossil fuel imports and reduce greenhouse gas emissions and pollution in furtherance of the State's zero emissions clean economy target established in Act 15, Session Laws of Hawaii 2018;

     (2)  Distributes most of the new tax revenues as refundable income tax credits to mitigate the effect of the increased tax on income taxpayers and provide net financial benefits to most of them; and

     (3)  Reestablishes the agricultural development and food security special fund.

PART II

     SECTION 2.  Chapter 141, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§141-    Agricultural development and food security special fund; establishment.  (a)  There is established within the state treasury the agricultural development and food security special fund.

     (b)  The following moneys shall be deposited into the special fund:

     (1)  The portion of the environmental response, energy, carbon emissions, and food security tax specified under section 243-3.5;

     (2)  Appropriations from the legislature;

     (3)  Any grant or donation made to the special fund; and

     (4)  Any interest, dividend, or other income earned on the balance of the special fund.

     (c)  Moneys in the special fund may be expended for the following purposes:

     (1)  The awarding of grants to farmers for agricultural production or processing activity;

     (2)  The acquisition of real property for agricultural production or processing activity;

     (3)  The improvement of real property, irrigation systems, and transportation networks necessary to promote agricultural production or processing activity;

     (4)  The purchase of equipment necessary for agricultural production or processing activity;

     (5)  The conducting of research on and testing of agricultural products and markets;

     (6)  The funding of agricultural inspector positions within the department of agriculture and biosecurity;

     (7)  The promotion and marketing of agricultural products grown or raised in the State; and

     (8)  Any other activity that is intended to increase agricultural production or processing and that may lead to reduced importation of food, fodder, or feed from outside the State.

     (d)  No later than twenty days prior to the convening of each regular session, the department of agriculture and biosecurity shall submit a report to the legislature on the status and progress of existing programs and activities and the status of new programs and activities funded under the agricultural development and food security special fund.  The report shall also include:

     (1)  The spending plan of the agricultural development and food security special fund;

     (2)  All expenditures from the agricultural development and food security special fund;

     (3)  The targeted markets of the expenditures, including reasons for selecting those markets;

     (4)  The persons to be served using the expenditures; and

     (5)  The specific objectives of the expenditures, including measurable outcomes."

     SECTION 3.  Chapter 231, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§231-    Carbon emissions tax and dividend special fund.  (a)  There is established the carbon emissions tax and dividend special fund, into which shall be deposited the amount specified by section 243-3.5.

     (b)  Moneys in the carbon emissions tax and dividend special fund shall be administered by the department of taxation and shall be expended for salaries, contracted services, supplies, and other administrative expenses to:

     (1)  Administer the environmental response, energy, carbon emissions, and food security tax;

     (2)  Administer the carbon cashback tax credit established by section 235-  ; and

     (3)  Increase public awareness and interest in the carbon cashback tax credit established by section 235-   and the other refundable tax credits."

     SECTION 4.  Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to part III to be appropriately designated and to read as follows:

     "§235-    Carbon cashback tax credit.  (a)  For taxable years beginning after December 31, 2025, there shall be allowed to each qualifying taxpayer subject to the tax imposed under this chapter, a carbon cashback tax credit that shall be applied against the taxpayer's net income tax liability, if any, imposed by this chapter for the subject taxable year.

     (b)  The amount of the tax credit for the first taxable year beginning after December 31, 2025, shall be equal to the sum of the following:

     (1)  For a taxpayer filing as single or married filing separately, the amount of $52;

     (2)  For a taxpayer filing as a head of household, the amount of $52;

     (3)  For a taxpayer filing a joint return or as a surviving spouse, the amount of $104; and

     (4)  The amount of $26 per dependent claimed.

     (c)  For taxable years beginning after December 31, 2026, the amount of the tax credit for a given taxable year shall be as specified in subsection (d), where the value of one share shall be the amount of revenue collected through the environmental response, energy, carbon emissions, and food security tax specified under section 243—3.5 and deposited into the general fund in that given taxable year, divided by the number of whole shares, where the number of whole shares is 1,440,000.

     (d)  For taxable years beginning after December 31, 2026, the amount of the credit shall be equal to the sum of the following:

     (1)  For a taxpayer filing as single or married filing separately, the amount shall be one share;

     (2)  For a taxpayer filing as a head of household, the amount shall be one share;

     (3)  For a taxpayer filing a joint return or as a surviving spouse, the amount shall be two shares; and

     (4)  The amount of one-half shares per dependent claimed.

     (e)  If the tax credit allowed to the taxpayer under this section exceeds the amount of the income tax payments due from the taxpayer, the excess of credit over payments due shall be refunded to the taxpayer; provided that the tax credit properly allowed to a taxpayer who has no income tax liability shall be paid to the taxpayer; provided further that no refunds or payments on account of the tax credit allowed by this section shall be made for amounts less than $1.  To be allowed a tax credit under this section, the individual income tax return, including amended returns, shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit is allowed.  Failure to comply with the foregoing provision shall constitute a waiver of the right to be issued the credit.

     (f)  Any carbon cashback tax credits not issued pursuant to this section for the most recent taxable year for which the return filing deadline has passed shall be allocated to the department of human services' Med-QUEST division.  To determine the amount of credits not issued, the department of taxation shall calculate the product of the number of whole shares and the value of one share for the relevant taxable year, less the total amount of eligible allowances for carbon cashback tax credits issued for the relevant taxable year.  The department of taxation may use a substantively similar calculation to determine the amount.

     (g)  The director of taxation:

     (1)  Shall revise any forms as may be necessary to allow issuance of a tax credit under this section in a manner that does not require an explicit claim by the taxpayer;

     (2)  Shall alert eligible taxpayers of the tax credit using appropriate means; and

     (3)  May adopt rules under chapter 91 necessary to effectuate the purposes of this section.

     (h)  All of the provisions relating to assessments and refunds under this chapter and under section 231-23(c)(1) shall apply to the tax credit under this section.

     (i)  As used in this section, "qualifying taxpayer" means an individual subject to the taxes imposed by this chapter.  "Qualifying taxpayer" does not include any person who is claimed or is otherwise eligible to be claimed as a dependent by another taxpayer for federal or Hawaii state individual income tax purposes."

     SECTION 5.  Section 128D-2, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  There is created within the state treasury an environmental response revolving fund, which shall consist of moneys appropriated to the fund by the legislature, moneys paid to the fund as a result of departmental compliance proceedings, moneys paid to the fund pursuant to court-ordered awards or judgments, moneys paid to the fund in court-approved or out‑of‑court settlements, all interest attributable to investment of money deposited in the fund, moneys deposited in the fund from the environmental response, energy, carbon emissions, and food security tax pursuant to section 243-3.5, and moneys allotted to the fund from other sources."

     SECTION 6.  Section 201-12.8, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  There is created within the state treasury an energy security special fund, which shall consist of:

     (1)  The portion of the environmental response, energy, carbon emissions, and food security tax specified under section 243-3.5;

     (2)  Moneys appropriated to the fund by the legislature;

     (3)  All interest attributable to investment of money deposited in the fund; and

     (4)  Moneys allotted to the fund from other sources, including under section 196-6.5."

     SECTION 7.  Section 243-3.5, Hawaii Revised Statutes, is amended to read as follows:

     "§243-3.5  Environmental response, energy, carbon emissions, and food security tax; uses.  (a)  In addition to any other taxes provided by law, subject to the exemptions set forth in section 243-7, there is hereby imposed a state environmental response, energy, carbon emissions, and food security tax on each barrel or fractional part of a barrel of petroleum product sold by a distributor to any retail dealer or end user of petroleum product, other than a refiner.  The tax [shall be $1.05] on each barrel or fractional part of a barrel of petroleum product [that is not aviation fuel; provided that of the tax collected pursuant to this subsection:] shall be as follows for each calendar year:

     $5.25 for 2026;

     $9.45 for 2027;

     $13.65 for 2028;

     $17.85 for 2029;

     $22.05 for 2030;

     $26.25 for 2031;

     $30.45 for 2032;

     $34.65 for 2033;

     $38.85 for 2034; and

     $43.05 for 2035;

provided that the tax shall be increased by $1.00 on each barrel or fractional part of a barrel of petroleum product each taxable year thereafter.

     The tax imposed by this subsection shall be paid by the distributor of the petroleum product.  The tax imposed for each year referenced above shall take effect on January 1 of that year and shall continue until the effective date of the next increment.

     (b)  Tax revenues collected pursuant to subsection (a) shall be distributed in the following priority each fiscal year, with the excess revenues to be deposited into the general fund:

     (1)  5 cents of the tax on each barrel shall be deposited into the environmental response revolving fund established under section 128D-2;

     (2)  4 cents of the tax on each barrel shall be deposited into the energy security special fund established under section 201-12.8;

     (3)  5 cents of the tax on each barrel shall be deposited into the energy systems development special fund established under section 304A-2169.1;

     (4)  3 cents of the tax on each barrel shall be deposited into the electric vehicle charging system subaccount established pursuant to section 269-33(e); [and]

     (5)  3 cents of the tax on each barrel shall be deposited into the hydrogen fueling system subaccount established pursuant to section 269-33(f)[.];

     (6)  15 cents of the tax on each barrel shall be deposited into the agricultural development and food security special fund established under section 141-  ;

     (7)  $1,000,000 shall be deposited into the carbon emissions tax and dividend special fund established under section 231-  ;

     (8)  All of the tax collected on aviation fuel shall be deposited in the airport revenue fund established under section 248—8; and

     (9)  $1.05 of the tax on each barrel of liquid fuel sold for use in or used for small boats shall be deposited in the boating special fund established under section 248-8, in accordance with the meaning of "small boats" as defined in section 248-8, and the method of determining the amount of tax derived from the sale of liquid fuel for use in or used for small boats as specified in section 248-8.

     [The tax imposed by this subsection shall be paid by the distributor of the petroleum product.

     (b)] (c)  In addition to subsection (a), the environmental response, energy, carbon emissions, and food security tax shall also be imposed on each one million British thermal units of fossil fuel sold by a distributor to any retail dealer or end user, other than a refiner, of fossil fuel.  The tax [shall be 19 cents] on each one million British thermal units of fossil fuel[; provided that of the tax collected pursuant to this subsection:] shall be as follows for each calendar year:

     $0.79 for 2026;

     $1.39 for 2027;

     $1.99 for 2028;

     $2.59 for 2029;

     $3.19 for 2030;

     $3.79 for 2031;

     $4.39 for 2032;

     $4.99 for 2033;

     $5.59 for 2034; and

     $6.09 for 2035;

provided that the tax shall be increased by $0.15 on each one million British thermal units of fossil fuel each year thereafter.

     The tax imposed by this subsection shall be paid by the distributor of the fossil fuel.  The tax imposed for each year referenced above shall take effect on January 1 of that year and shall continue until the effective date of the next increment.

     (d)  Tax revenues collected pursuant to subsection (c) shall be distributed in the following priority each fiscal year, with the excess revenues to be deposited into the general fund:

     (1)  4.8 per cent of the tax on each one million British thermal units shall be deposited into the environmental response revolving fund established under section 128D-2;

     (2)  14.3 per cent of the tax on each one million British thermal units shall be deposited into the energy security special fund established under section 201‑12.8; [and]

     (3)  9.5 per cent of the tax on each one million British thermal units shall be deposited into the energy systems development special fund established under section 304A-2169.1[.]; and

     (4)  14.3 per cent of the tax on each one million British thermal units shall be deposited into the agricultural development and food security special fund established under section 141-   .

     [The tax imposed by this subsection shall be paid by the distributor of the fossil fuel.

     (c)] (e)  The tax imposed under subsection [(b)] (c) shall not apply to coal used to fulfill [a signed] an existing power purchase agreement between an independent power producer and an electric utility that is in effect as of June 30, 2015[.]; provided that this exemption from taxation shall not apply to any extension of an existing power purchase agreement or to any subsequent power purchase agreement.  An independent power producer shall be permitted to pass the tax imposed under subsection [(b)] (c) on to an electric utility.  In [which case,] any case in which the tax is passed on, the electric utility may recover the cost of the tax through an appropriate surcharge to the end user that is approved by the public utilities commission.

     [(d)] (f)  A gas utility shall be allowed to recover the cost of the tax imposed under subsection [(b)] (c) as part of its fuel cost in its fuel adjustment charge without further approval by the public utilities commission.

     [(e)] (g)  Each distributor subject to the tax imposed by subsection (a) or [(b),] (c), on or before the last day of each calendar month, shall file, in the form and manner prescribed by the department, a return statement of the tax under this section for which the distributor is liable for the preceding month.  The form and payment of the tax shall be transmitted to the department in the form and manner prescribed by the department.

     [(f)] (h)  Notwithstanding section 248-8 to the contrary, the environmental response, energy, carbon emissions, and food security tax collected under this section shall be paid over to the director of finance for deposit as provided in subsection [(a)] (b) or [(b),] (d), as the case may be.

     [(g)] (i)  Every distributor shall keep in the State and preserve for five years a record in a form as the department of taxation shall prescribe showing the total number of barrels, and the fractional part of barrels, of petroleum product or the total number of one million British thermal units of fossil fuel, as the case may be, sold by the distributor during any calendar month.  The record shall show any other data and figures relevant to the enforcement and administration of this chapter as the department may require.

     [(h)] (j)  For the purposes of this section:

     "Barrel" may be converted to million British thermal units, using the United States Department of Energy, Energy Information Administration annual energy review or annual energy outlook.

     "Fossil fuel" means a [hydrocarbon deposit,] fuel, such as coal, natural gas, or liquefied natural gas, derived from a hydrocarbon deposit resulting from the accumulated remains of ancient plants or animals and used for fuel; provided that the term specifically does not include petroleum product."

     SECTION 8.  Section 304A-2169.1, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

     "(b)  Deposits into the special fund may be from the following:

     (1)  Appropriations from the legislature;

     (2)  A portion of the environmental response, energy, carbon emissions, and food security tax pursuant to section 243-3.5; and

     (3)  Investment earnings, gifts, donations, or other income received by the Hawaii natural energy institute."

PART III

     SECTION 9.  There is appropriated out of the general revenues of the State of Hawaii the sum of $1,000,000 or so much thereof as may be necessary for fiscal year 2026-2027 to administer the carbon cashback program established by this Act.

     The sum appropriated shall be expended by the department of taxation for the purposes of this Act.

PART IV

     SECTION 10.  (a)  The department of taxation shall submit an interim report to the legislature no later than forty days prior to the convening of the regular session of 2027 on preparations for the implementation of the carbon cashback program.

     (b)  The department of taxation shall submit annual reports to the legislature no later than forty days prior to the convening of each regular session from 2028 through and including 2036, with information about the carbon cashback program.  The reports shall include revenues from the environmental response, energy, carbon emissions, and food security tax and the amounts distributed through the refundable tax credits under section 235-  , Hawaii Revised Statutes.  The reports shall include any information necessary for the legislature to assess the need to adjust the amounts of the refundable tax credits in future years and any recommendations to improve the carbon cashback program.

PART V

     SECTION 11.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 12.  This Act shall take effect on July 1, 2026; provided that:

     (1)  Section 4 shall apply to taxable years beginning after December 31, 2025; and

     (2)  Section 7 shall apply to taxable years beginning after December 31, 2026.

 

INTRODUCED BY:	_____________________________

 

 

 

Report Title:

Department of Taxation; Environmental Response, Energy, Carbon Emissions, and Food Security Tax; Carbon Emissions; Tax Credit; Agricultural Development and Food Security Special Fund; Carbon Emissions Tax and Dividend Special Fund; Reports; Appropriation

 

Description:

Reestablishes the Agricultural Development and Food Security Special Fund.  Establishes the Carbon Emissions Tax and Dividend Special Fund.  Gradually increases the Environmental Response, Energy, Carbon Emissions, and Food Security tax rates and establishes a refundable carbon cashback tax credit to offset increases for most taxpayers.  Requires reports to the Legislature.  Appropriates funds.

 

 

 

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