SB 430: RELATING TO TAXATION.

A BILL FOR AN ACT

RELATING TO TAXATION.

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

     SECTION 1.  Section 231-23, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:

     "(d)  This subsection shall apply to a refund for an overpayment of a tax:

     (1)  If the tax return as filed by a taxpayer shows the amount already paid exceeds the amount determined to be the correct amount of the tax due, whether or not the tax was paid by installments, and the taxpayer requests a refund of the overpayment, the amount of the overpayment shall be refunded in the manner provided in subsection (c) within ninety days of the due date of the tax return or the date the tax return is filed, whichever is later; provided that interest on the overpayment shall be paid:

          (A)  To the taxpayer if the amount overpaid is not refunded within ninety days; and

          (B)  At the rate [of one-third of one per cent] set by title 26 United States Code section 6621(a)(1) applicable to the first day of January for each year of the refund amount [for each month or fraction thereof] compounded daily after the ninety-day period, until the refund and any applicable interest is paid to the taxpayer;

     (2)  If any overpayment of taxes results or arises from:

          (A)  The taxpayer filing an amended return; or

          (B)  A determination made by the director; and

          the overpayment is not shown on the original return as filed by the taxpayer, the amount overpaid shall be refunded to the taxpayer within ninety days from the due date of the original return or the date the overpayment is discovered under subparagraphs (A) or (B), whichever occurred later; provided that interest shall be paid to the taxpayer if the amount overpaid is not refunded within ninety days and at the rate [of one-third of one per cent] set by title 26 United States Code section 6621(a)(1) applicable to the first day of January for each year of the refund amount [for each month or fraction thereof] compounded daily after the ninety-day period, until the refund and any applicable interest is paid to the taxpayer;

     (3)  For purposes of a net income tax return, if any overpayment of any taxes results from a carryback of a net operating loss, the overpayment shall be deemed to have been made at the close of the taxable year in which the net operating loss arises.  To the extent that the carryback of net operating loss results in reducing the amount of underpayment of taxes for prior taxable year or years, interest that would be chargeable because of the underpayment shall not be applicable with respect to that amount or amounts that are carried back; and

     (4)  In the case of credit, interest shall be paid in the same manner as paragraph (1)."

     SECTION 2.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 3.  This Act shall take effect on July 1, 2050, and shall apply to taxable years beginning after December 31, 2024.

Report Title:

Income Tax; Refund

Description:

Requires the Department of Taxation to provide refunds to taxpayers at the same interest rate as the federal government.  Effective 7/1/2025.  (SD1)

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 taxation.

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

     SECTION 1.  Section 231-23, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:

     "(d)  This subsection shall apply to a refund for an overpayment of a tax:

     (1)  If the tax return as filed by a taxpayer shows the amount already paid exceeds the amount determined to be the correct amount of the tax due, whether or not the tax was paid by installments, and the taxpayer requests a refund of the overpayment, the amount of the overpayment shall be refunded in the manner provided in subsection (c) within ninety days of the due date of the tax return or the date the tax return is filed, whichever is later; provided that interest on the overpayment shall be paid:

          (A)  To the taxpayer if the amount overpaid is not refunded within ninety days; and

          (B)  At the rate [of one-third of one per cent] set by title 26 United States Code section 6621(a)(1) of the refund amount [for each month or fraction thereof] compounded daily after the ninety-day period, until the refund and any applicable interest is paid to the taxpayer;

     (2)  If any overpayment of taxes results or arises from:

          (A)  The taxpayer filing an amended return; or

          (B)  A determination made by the director; and

          the overpayment is not shown on the original return as filed by the taxpayer, the amount overpaid shall be refunded to the taxpayer within ninety days from the due date of the original return or the date the overpayment is discovered under subparagraphs (A) or (B), whichever occurred later; provided that interest shall be paid to the taxpayer if the amount overpaid is not refunded within ninety days and at the rate [of one-third of one per cent] set by title 26 United States Code section 6621(a)(1) of the refund amount [for each month or fraction thereof] compounded daily after the ninety-day period, until the refund and any applicable interest is paid to the taxpayer;

     (3)  For purposes of a net income tax return, if any overpayment of any taxes results from a carryback of a net operating loss, the overpayment shall be deemed to have been made at the close of the taxable year in which the net operating loss arises.  To the extent that the carryback of net operating loss results in reducing the amount of underpayment of taxes for prior taxable year or years, interest that would be chargeable because of the underpayment shall not be applicable with respect to that amount or amounts that are carried back; and

     (4)  In the case of credit, interest shall be paid in the same manner as paragraph (1)."

     SECTION 2.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 3.  This Act, upon its approval, shall apply to taxable years beginning after December 31, 2024.

Report Title:

Income Tax; Refund

Description:

Requires the Department of Taxation to provide refunds to taxpayers at the same interest rate as the federal government.  Applies to taxable years beginning after 12/31/2024.

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. 677

Honolulu, Hawaii

RE:    S.B. No. 430

       S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2025

State of Hawaii

Sir:

     Your Committee on Ways and Means, to which was referred S.B. No. 430 entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

     The purpose and intent of this measure is to require the Department of Taxation to provide refunds to taxpayers for state tax overpayments at the same interest rate as those provided by the federal government.

     Your Committee received testimony in support of this measure from the Grassroot Institute of Hawaii.

     Your Committee received comments on this measure from the Department of Taxation and Tax Foundation of Hawaii.

     Your Committee finds that, under current state law, interest on refunds for tax overpayments is paid at a rate of one-third of one per cent per month, which equates to four per cent per year.  Your Committee also finds that the Internal Revenue Service pays interest on refunds at a rate that is compounded daily and based on the federal short-term interest rate.

     Your Committee has amended this measure by:

     (1)  Clarifying that the applicable interest rate shall be set on an annual basis; and

     (2)  Changing the effective date to July 1, 2050, to facilitate further discussion on the measure.

     As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 430, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 430, S.D. 1, and be placed on the calendar for Third Reading.

Respectfully submitted on behalf of the members of the Committee on Ways and Means,