§235-7  Other provisions as to gross income,
adjusted gross income, and taxable income.  (a)  [Repeal and reenactment
on January 1, 2013.  L 2007, c 166, §3.]  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 prepaid
legal service plan to a taxpayer, the taxpayer's spouse, and the taxpayer's dependents;



(10)  Amounts paid, directly or indirectly, by a prepaid
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 prepaid 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 shall
not be gross income, adjusted gross income, or taxable income for the acting utility
under this chapter.  Any amounts retained by the acting utility for collection or
other costs shall not be included in this exemption; and



(13)  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.



(b)  There shall be included in gross income,
adjusted gross income, and taxable income:  (1) unless excluded by this chapter
relating to the uniformed services of the United States, cost-of-living
allowances and other payments exempted by section 912 of the Internal Revenue
Code, but section 119 of the Internal Revenue Code nevertheless shall apply;
(2) unless expressly exempted or excluded as provided by subsection (a)(6),
interest on the obligations of a State or a political subdivision thereof.



(c)  The deductions of or based on dividends
paid or received, allowed to a corporation under chapter 1, subchapter B, Part
VIII of the Internal Revenue Code, shall not be allowed.  In lieu thereof there
shall be allowed as a deduction the entire amount of dividends received by any
corporation upon the shares of stock of a national banking association,
qualifying dividends, as defined in section 243(b) of the Internal Revenue
Code, received by members of an affiliated group, or dividends received by a
small business investment company operating under the Small Business Investment
Act of 1958 (Public Law 85-699) upon shares of stock qualifying under paragraph
(3), seventy per cent of the amount received by any corporation as dividends:



(1)  Upon the shares of stock of another corporation,
if at the date of payment of the dividend at least ninety- five per cent of the
other corporation's capital stock is owned by one or more corporations doing
business in this State and if the other corporation is subjected to an income
tax in another jurisdiction (but subjection to federal tax does not constitute
subjection to income tax in another jurisdiction);



(2)  Upon the shares of stock of a bank or insurance
company organized and doing business under the laws of the State;



(3)  Upon the shares of stock of another corporation,
if at least fifteen per cent of the latter corporation's business, for the
taxable year of the latter corporation preceding the payment of the dividend,
has been attributed to this State.



However, except for national bank dividends, the
deductions under this subsection are not allowed when they would not have been
allowed under section 243 of the Internal Revenue Code, as amended by Public
Law 85-866, by reason of subsections (b) and (c) of section 246 of the Internal
Revenue Code.  For the purposes of this subsection fifteen per cent of a
corporation's business shall be deemed to have been attributed to this State if
fifteen per cent or more of the entire gross income of the corporation as
defined in this chapter (which for the purposes of this subsection shall be
computed without regard to source in the State and shall include income not
taxable by reason of the fact that it is from property not owned in the State
or from a trade or business not carried on in the State in whole or in part),
under section 235-5 and the other provisions of this chapter, shall have been
attributed to the State and subjected to assessment of the taxable income
therefrom (including the determination of the resulting net loss, if any).



(d)  (1)  For taxable years ending before January 1,
1967, the net operating loss deductions allowed as carrybacks and carryovers by
the Internal Revenue Code shall not be allowed.  In lieu thereof the net
operating loss deduction shall consist of the excess of the deductions allowed
by this chapter over the gross income, computed with the modifications
specified in paragraphs (1) to (4) of section 172(d) of the Internal Revenue
Code, and with the further modification stated in paragraph (3) hereof; and
shall be allowed as a deduction in computing the taxable income of the taxpayer
for the succeeding taxable year;



(2)  (A)  With respect to net operating loss
deductions resulting from net operating losses for taxable years ending after
December 31, 1966, the net operating loss deduction provisions of the Internal
Revenue Code shall apply; provided that there shall be no net operating loss
deduction carried back to any taxable year ending prior to January 1, 1967;



(B)  In the case of a taxable year beginning in
1966 and ending in 1967, the entire amount of all net operating loss deductions
carried back to the taxable year shall be limited to that portion of taxable
income for such taxable year which the number of days in 1967 bears to the
total days in the taxable year ending in 1967; and



(C)  The computation of any net operating loss
deduction for a taxable year covered by this subsection shall require the
further modifications stated in paragraphs (3), (4), and (5) of this
subsection;



(3)  In computing the net operating loss deduction
allowed by this subsection, there shall be included in gross income the amount
of interest which is excluded from gross income by subsection (a), decreased by
the amount of interest paid or accrued which is disallowed as a deduction by
subsection (e).  In determining the amount of the net operating loss deduction
under this subsection of any corporation, there shall be disregarded the net
operating loss of such corporation for any taxable year for which the
corporation is an electing small business corporation;



(4)  No net operating loss carryback or carryover
shall be allowed by this chapter if not allowed under section 172 of the
Internal Revenue Code;



(5)  The election to relinquish the entire carryback
period with respect to a net operating loss allowed under section 172(b)(3)(C)
of the Internal Revenue Code shall be operative for the purposes of this
chapter; provided that no taxpayer shall make such an election as to a net
operating loss of a business where such net operating loss occurred in the
taxpayer's business prior to the taxpayer entering business in this State; and



(6)  The five-year carryback period for net operating
losses for any taxable year ending during 2001 and 2002 in section 172(b)(1)(H)
of the Internal Revenue Code shall not be operative for purposes of this chapter.



(e)  There shall be disallowed as a deduction
the amount of interest paid or accrued within the taxable year on indebtedness
incurred or continued, (1) to purchase or carry bonds the interest upon which
is excluded from gross income by subsection (a); or (2) to purchase or carry
property owned without the State, or to carry on trade or business without the
State, if the taxpayer is a person taxable only upon income from sources in the
State.



(f)  Losses of property as the result of tidal
wave, hurricane, earthquake, or volcanic eruption, or as a result of flood
waters overflowing the banks or walls of a river or stream, or from any other
natural disaster, to the extent of the amount deductible, under this chapter,
not compensated for by insurance or otherwise, may be deducted in the taxable
year in which sustained, or at the option of the taxpayer may be deducted in
equal installments over a period of five years, the first such year to be the
calendar year or fiscal year of the taxpayer in which such loss occurred.



(g)  In computing taxable income there shall be
allowed as a deduction:



(1)  Political contributions by any taxpayer not in
excess of $250 in any year; provided that such contributions are made to a
central or county committee of a political party whose candidates shall have
qualified by law to be voted for at the immediately previous general election;
or



(2)  Political contributions by any individual
taxpayer in an aggregate amount not to exceed $1,000 in any year; provided that
such contributions are made to candidates as defined in section 11-191, who
have agreed to abide by the campaign expenditure limits as set forth in section
11-209; and provided further that not more than $250 of an individual's total
contribution to any single candidate shall be deductible for purposes of this
section. [L Sp 1957, c 1, pt of §2; am L 1959, c 276, §2 and c 277, §8(a); am L
Sp 1959 1st, c 29, §8; am L 1963, c 26, §1, c 47, §1, c 91, §2, and c 146, §4;
am L 1965, c 155, §31(a) and c 201, §5; Supp, §121-5; am L 1967, c 32, §1; HRS
§235-7; am L 1968, c 18, §2; am L 1969, c 152, §1; am L 1970, c 180, §1; am L
1971, c 95, §1; am L 1976, c 156, §6; am L 1978, c 173, §2(7); am L 1979, c 62,
§2(6), (7), c 105, §21, and c 224, §3; am L 1981, c 185, §1 and c 209, §2; am L
1982, c 25, §2; am L 1983, c 124, §16; gen ch 1985; am L 1987, c 39, §3 and c
239, §1(7), (8); am L 1990, c 340, §2; am L 1992, c 103, §1; am L 1993, c 337,
§5; am L Sp 1995, c 10, §3; am L 2003, c 172, §4; am L 2004, c 197, §2; am L
2007, c 166, §1; am L 2008, c 28, §21]



 



Note



 



  The 2007 amendment applies to taxable years beginning after
December 31, 2007 and ending prior to January 1, 2013.  L 2007, c 166, §3.



  The 2008 amendment is retroactive to July 1, 2006.  L 2008, c
28, §43.



 



Attorney General Opinions



 



  Federal home loan banks, not being national banks, dividends
received therefrom are taxable.  Att. Gen. Op. 65-8.



 



Case Notes



 



  Depreciation not actually sustained during year, not
deductible.  18 H. 15.



  No federal or territorial inhibition against imposition of
tax upon income accruing prior to enactment.  33 H. 766.



  Insurance premiums on life of president not an actual
business expense.  36 H. 11.



  Cited:  18 H. 530; 18 H. 596; 34 H. 515, 583.