SB 721: RELATING TO THE ESTATE TAX.

A BILL FOR AN ACT

RELATING TO THE ESTATE TAX.

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

     SECTION 1.  The legislature finds that the estate tax is a fair way to reduce income inequality and invest in the needs of Hawai`i's working families.  The tax applies to only the wealthiest individuals in the State, such that the vast majority of working families never pay a penny in estate taxes.  For example, although the estate tax applied to only forty-nine estates in 2022, it raised $57,400,000 in tax revenue for the State by simply requiring the ultra-rich, who can best afford the burden of an estate tax, to pay their fair share.  This taxation regime promotes meritocracy by ensuring that upward mobility for the working and middle classes remains a reality, while also preventing the development of an idle aristocratic class formed solely through the inheritance of accumulated wealth.  As the nonpartisan Brookings Institution puts it, "[t]he estate tax helps provide equal opportunity by reducing the size of massive inheritances.  It is hard to see why children of the rich should be allowed to inherit scads of money tax-free when other forms of income are taxed."

     The legislature further finds that substantial wealth still evades the current estate tax due to exemptions in existing law.  In certain circumstances, nonresidents are not required to pay estate tax on property that is exempt from taxation under the laws of the state where the nonresident is domiciled.  These provisions threaten the uniform fairness of the estate taxation regime and exempt a potentially massive amount of wealth from the estate tax.

     The legislature also finds that in 1910, President Theodore Roosevelt stated, "The absence of effective state...restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power ... Therefore, I believe in a...graduated inheritance tax on big fortunes, properly safeguarded against evasion[.]"  These words are as salient today as they were over a century ago.  It remains necessary to safeguard the efficacy of the estate tax against evasion by ensuring that massive accumulations of wealth do not escape taxation due to the peculiarities of the laws of another state.

     Accordingly, the purpose of this Act is to remove exemptions from the estate tax granted to a nonresident whose taxable estate is exempt under the law of the state where the nonresident is domiciled.

     SECTION 2.  Section 236D-4, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§236D-4[]]  Nonresidents; tax imposed[; exemption].  (a)  A tax in an amount computed as provided in this section is imposed on the transfer of the taxable estate located in Hawaii of every nonresident.

     (b)  The tax shall be computed by multiplying the federal credit by a fraction, the numerator of which is the value of the property located in Hawaii, and the denominator of which is the value of the decedent's gross estate.

     [(c)  The transfer of the property of a nonresident is exempt from the tax imposed by this section to the extent that the property of residents is exempt from taxation under the laws of the state in which the nonresident is domiciled, except that:

     (1)  Real property having an actual situs in this State, whether or not held in a trust the corpus of which is included in a decedent's gross estate for federal estate tax purposes;

     (2)  A beneficial interest in a land trust which owns real property located in the State; and

     (3)  Tangible personal property having an actual situs in this State;

shall be subject to tax under this section.]"

     SECTION 3.  Section 236D-4.5, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§236D-4.5[]]  Nonresidents not citizens; tax imposed[; exemption].  (a)  A tax in an amount computed as provided in this section is imposed on the noncitizen transfer of the taxable estate located in Hawaii of every nonresident decedent who was not a citizen at the time of their death.

     (b)  The tax shall be computed by multiplying the federal credit by a fraction, the numerator of which is the value of the property with a situs in Hawaii, and the denominator of which is the value of the decedent's gross estate.

     [(c)  The noncitizen transfer of the property of a nonresident not a citizen is exempt from the tax imposed by this section to the extent that the property of residents is exempt from taxation under the laws of the state in which the nonresident not a citizen is domiciled; except that the following shall be subject to tax under this section:

     (1)  Real property having an actual situs in this State, whether or not held in a trust the corpus of which is included in a decedent's gross estate for federal estate tax purposes;

     (2)  A beneficial interest in a land trust that owns real property located in the State; and

     (3)  Tangible and intangible personal property having a situs in this State.

     (d)] (c)  "Situs" as used in this section means the location of a decedent's property within the meaning of section 2104 of the Internal Revenue Code, including regulations and other guidance issued thereunder, substituting "Hawaii" for "the United States"."

     SECTION 4.  Section 236E-6, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  An exclusion from a Hawaii taxable estate shall be allowed to the estate of every decedent against the tax imposed by section 236E-8.  For the purpose of this section, the applicable exclusion amount is [equal to:

     (1)  The federal applicable exclusion amount;

     (2)  The exemption equivalent of the unified credit reduced by the amount of taxable gifts made by the decedent that reduces the amount of the federal applicable exclusion amount; or

     (3)  The exemption equivalent of the unified credit on the decedent's federal estate tax return,

as set forth for the decedent in chapter 11 of the Internal Revenue Code as amended as of December 21, 2017, as if the decedent died on December 31, 2017,] $          , and as further adjusted pursuant to subsection (b)."

     SECTION 5.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 6.  This Act shall take effect on July 1, 2050, and shall apply to decedents dying or taxable transfers occurring after December 31, 2024.

Report Title:

Department of Taxation; Taxation; Estate Tax; Exclusion; Exemption; Nonresidents; Nonresidents Not Citizens

Description:

Amends the exclusion amount of Hawaii's estate tax.  Repeals exemption for tax imposed on transfer of taxable estate located in Hawaii for nonresidents and nonresidents who are not citizens.  Applicable to decedents dying or taxable transfers occurring after 12/31/2024.  Effective 7/1/2050.  (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 the estate tax.

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

     SECTION 1.  The legislature finds that the estate tax is a fair way to reduce income inequality and invest in the needs of Hawaiʻi's working families.  The tax applies to only the wealthiest individuals in the State, such that the vast majority of working families never pay a penny in estate taxes.  For example, although the estate tax applied to only forty-nine estates in 2022, it raised $57,400,000 in tax revenue for the State by simply requiring the ultra-rich, who can best afford the burden of an estate tax, to pay their fair share.  This taxation regime promotes meritocracy by ensuring that upward mobility for the working and middle classes remains a reality, while also preventing the development of an idle aristocratic class formed solely through the inheritance of accumulated wealth.  As the nonpartisan Brookings Institution puts it, "[t]he estate tax helps provide equal opportunity by reducing the size of massive inheritances.  It is hard to see why children of the rich should be allowed to inherit scads of money tax-free when other forms of income are taxed."

     The legislature further finds that substantial wealth still evades the current estate tax due to exemptions in existing law.  In certain circumstances, nonresidents are not required to pay estate tax on property that is exempt from taxation under the laws of the state where the nonresident is domiciled.  These provisions threaten the uniform fairness of the estate taxation regime and exempt a potentially massive amount of wealth from the estate tax.

     The legislature also finds that in 1910, President Theodore Roosevelt stated, "The absence of effective state...restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power ... Therefore, I believe in a...graduated inheritance tax on big fortunes, properly safeguarded against evasion[.]"  These words are as salient today as they were over a century ago.  It remains necessary to safeguard the efficacy of the estate tax against evasion by ensuring that massive accumulations of wealth do not escape taxation due to the peculiarities of the laws of another state.

     Accordingly, the purpose of this Act is to remove exemptions from the estate tax granted to a nonresident whose taxable estate is exempt under the law of the state where the nonresident is domiciled.

     SECTION 2.  Section 236D-4, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§236D-4[]]  Nonresidents; tax imposed[; exemption].  (a)  A tax in an amount computed as provided in this section is imposed on the transfer of the taxable estate located in Hawaii of every nonresident.

     (b)  The tax shall be computed by multiplying the federal credit by a fraction, the numerator of which is the value of the property located in Hawaii, and the denominator of which is the value of the decedent's gross estate.

     [(c)  The transfer of the property of a nonresident is exempt from the tax imposed by this section to the extent that the property of residents is exempt from taxation under the laws of the state in which the nonresident is domiciled, except that:

     (1)  Real property having an actual situs in this State, whether or not held in a trust the corpus of which is included in a decedent's gross estate for federal estate tax purposes;

     (2)  A beneficial interest in a land trust which owns real property located in the State; and

     (3)  Tangible personal property having an actual situs in this State;

shall be subject to tax under this section.]"

     SECTION 3.  Section 236D-4.5, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§236D-4.5[]]  Nonresidents not citizens; tax imposed[; exemption].  (a)  A tax in an amount computed as provided in this section is imposed on the noncitizen transfer of the taxable estate located in Hawaii of every nonresident decedent who was not a citizen at the time of their death.

     (b)  The tax shall be computed by multiplying the federal credit by a fraction, the numerator of which is the value of the property with a situs in Hawaii, and the denominator of which is the value of the decedent's gross estate.

     [(c)  The noncitizen transfer of the property of a nonresident not a citizen is exempt from the tax imposed by this section to the extent that the property of residents is exempt from taxation under the laws of the state in which the nonresident not a citizen is domiciled; except that the following shall be subject to tax under this section:

     (1)  Real property having an actual situs in this State, whether or not held in a trust the corpus of which is included in a decedent's gross estate for federal estate tax purposes;

     (2)  A beneficial interest in a land trust that owns real property located in the State; and

     (3)  Tangible and intangible personal property having a situs in this State.

     (d)] (c)  "Situs" as used in this section means the location of a decedent's property within the meaning of section 2104 of the Internal Revenue Code, including regulations and other guidance issued thereunder, substituting "Hawaii" for "the United States"."

     SECTION 4.  Section 236E-6, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  An exclusion from a Hawaii taxable estate shall be allowed to the estate of every decedent against the tax imposed by section 236E-8.  For the purpose of this section, the applicable exclusion amount is [equal to:

     (1)  The federal applicable exclusion amount;

     (2)  The exemption equivalent of the unified credit reduced by the amount of taxable gifts made by the decedent that reduces the amount of the federal applicable exclusion amount; or

     (3)  The exemption equivalent of the unified credit on the decedent's federal estate tax return,

as set forth for the decedent in chapter 11 of the Internal Revenue Code as amended as of December 21, 2017, as if the decedent died on December 31, 2017,] $          , and as further adjusted pursuant to subsection (b)."

     SECTION 5.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 6.  This Act shall take effect on January 1, 2026, and shall apply to decedents dying or taxable transfers occurring after December 31, 2024.

Report Title:

Department of Taxation; Taxation; Estate Tax; Exclusion; Exemption; Nonresidents; Nonresidents Not Citizens

Description:

Amends the exclusion amount of Hawaii's estate tax.  Repeals exemption for tax imposed on transfer of taxable estate located in Hawaii for nonresidents and nonresidents who are not citizens.  Applicable to decedents dying or taxable transfers occurring after 12/31/2024.  Effective 1/1/2026.

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. 693

Honolulu, Hawaii

RE:     S.B. No. 721

        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. 721 entitled:

"A BILL FOR AN ACT RELATING TO THE ESTATE TAX,"

begs leave to report as follows:

     The purpose and intent of this measure is to amend the state estate tax.

     More specifically, this measure repeals exemptions granted to a nonresident whose taxable estate is exempt under the law of the state where the nonresident is domiciled.

     Your Committee received testimony in support of this measure from Hawai`i Children's Action Network Speaks!

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

     Your Committee finds that the estate tax is intended to reduce income inequality and invest in the needs of Hawaii's working families.  The tax applies only to the wealthiest individuals in the State, rather than the vast majority of working families.  As a result, significant revenue is generated by simply requiring the wealthy, who can best afford the burden of an estate tax, to pay their fair share.  Your Committee also finds that substantial revenues are lost due to exemptions in current state law.  In certain circumstances, nonresidents are not required to pay estate tax on property that is exempt from taxation under the laws of the state where the nonresident is domiciled.  Your Committee further finds that these provisions threaten the uniform fairness of the estate taxation regime and exempt a potentially massive amount of wealth from the estate tax.

     Your Committee has amended this measure by 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. 721, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 721, 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,