§235-7  Other provisions as to gross income,adjusted gross income, and taxable income.  (a)  [Repeal and reenactmenton January 1, 2013.  L 2007, c 166, §3.]  There shall be excluded from grossincome, adjusted gross income, and taxable income:

(1)  Income not subject to taxation by the State underthe Constitution and laws of the United States;

(2)  Rights, benefits, and other income exempted from taxationby 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 incomeexempted by section 88-91, under any other public retirement system;

(3)  Any compensation received in the form of a pensionfor past services;

(4)  Compensation paid to a patient affected with Hansen'sdisease 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 madeby 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 exemptfrom both the normal and surtaxes of the United States, even though not so exemptedby the Internal Revenue Code itself;

(6)  Any income expressly exempted or excluded from themeasure of the tax imposed by this chapter by any other law of the State, it beingthe intent of this chapter not to repeal or supersede any express exemption or exclusion;

(7)  Income received by each member of the reserve componentsof the Army, Navy, Air Force, Marine Corps, or Coast Guard of the United Statesof 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 December31, 2004;

(B)  E-2 pay grade after eight years of service;provided that this subparagraph shall apply to taxable years beginning after December31, 2005;

(C)  E-3 pay grade after eight years of service;provided that this subparagraph shall apply to taxable years beginning after December31, 2006;

(D)  E-4 pay grade after eight years of service;provided that this subparagraph shall apply to taxable years beginning after December31, 2007; and

(E)  E-5 pay grade after eight years of service;provided that this subparagraph shall apply to taxable years beginning after December31, 2008;

(8)  Income derived from the operation of ships or aircraftif the income is exempt under the Internal Revenue Code pursuant to the provisionsof an income tax treaty or agreement entered into by and between the United Statesand a foreign country; provided that the tax laws of the local governments of thatcountry 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 orregistered under the laws of the United States;

(9)  The value of legal services provided by a prepaidlegal service plan to a taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

(10)  Amounts paid, directly or indirectly, by a prepaidlegal service plan to a taxpayer as payment or reimbursement for the provision oflegal services to the taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

(11)  Contributions by an employer to a prepaid legal serviceplan for compensation (through insurance or otherwise) to the employer's employeesfor the costs of legal services incurred by the employer's employees, theirspouses, and their dependents;

(12)  Amounts received in the form of a monthly surchargeby a utility acting on behalf of an affected utility under section 269-16.3 shallnot be gross income, adjusted gross income, or taxable income for the acting utilityunder this chapter.  Any amounts retained by the acting utility for collection orother costs shall not be included in this exemption; and

(13)  One hundred per cent of the gain realized by a feesimple owner from the sale of a leased fee interest in units within a condominiumproject, cooperative project, or planned unit development to the association ofowners under chapter 514A or 514B, or the residential cooperative corporationof the leasehold units.

For purposes of this paragraph:

"Fee simple owner" shall have the samemeaning as provided under section 516-1; provided that it shall include legal andequitable owners;

"Legal and equitable owner", and "leasedfee interest" shall have the same meanings as provided under section 516-1;and

"Condominium project" and "cooperativeproject" 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 chapterrelating to the uniformed services of the United States, cost-of-livingallowances and other payments exempted by section 912 of the Internal RevenueCode, 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 dividendspaid or received, allowed to a corporation under chapter 1, subchapter B, PartVIII of the Internal Revenue Code, shall not be allowed.  In lieu thereof thereshall be allowed as a deduction the entire amount of dividends received by anycorporation upon the shares of stock of a national banking association,qualifying dividends, as defined in section 243(b) of the Internal RevenueCode, received by members of an affiliated group, or dividends received by asmall business investment company operating under the Small Business InvestmentAct 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 theother corporation's capital stock is owned by one or more corporations doingbusiness in this State and if the other corporation is subjected to an incometax in another jurisdiction (but subjection to federal tax does not constitutesubjection to income tax in another jurisdiction);

(2)  Upon the shares of stock of a bank or insurancecompany 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 thetaxable year of the latter corporation preceding the payment of the dividend,has been attributed to this State.

However, except for national bank dividends, thedeductions under this subsection are not allowed when they would not have beenallowed under section 243 of the Internal Revenue Code, as amended by PublicLaw 85-866, by reason of subsections (b) and (c) of section 246 of the InternalRevenue Code.  For the purposes of this subsection fifteen per cent of acorporation's business shall be deemed to have been attributed to this State iffifteen per cent or more of the entire gross income of the corporation asdefined in this chapter (which for the purposes of this subsection shall becomputed without regard to source in the State and shall include income nottaxable by reason of the fact that it is from property not owned in the Stateor 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 beenattributed to the State and subjected to assessment of the taxable incometherefrom (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 bythe Internal Revenue Code shall not be allowed.  In lieu thereof the netoperating loss deduction shall consist of the excess of the deductions allowedby this chapter over the gross income, computed with the modificationsspecified in paragraphs (1) to (4) of section 172(d) of the Internal RevenueCode, and with the further modification stated in paragraph (3) hereof; andshall be allowed as a deduction in computing the taxable income of the taxpayerfor the succeeding taxable year;

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

(B)  In the case of a taxable year beginning in1966 and ending in 1967, the entire amount of all net operating loss deductionscarried back to the taxable year shall be limited to that portion of taxableincome for such taxable year which the number of days in 1967 bears to thetotal days in the taxable year ending in 1967; and

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

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

(4)  No net operating loss carryback or carryovershall be allowed by this chapter if not allowed under section 172 of theInternal Revenue Code;

(5)  The election to relinquish the entire carrybackperiod 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 thischapter; provided that no taxpayer shall make such an election as to a netoperating loss of a business where such net operating loss occurred in thetaxpayer's business prior to the taxpayer entering business in this State; and

(6)  The five-year carryback period for net operatinglosses 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 deductionthe amount of interest paid or accrued within the taxable year on indebtednessincurred or continued, (1) to purchase or carry bonds the interest upon whichis excluded from gross income by subsection (a); or (2) to purchase or carryproperty owned without the State, or to carry on trade or business without theState, if the taxpayer is a person taxable only upon income from sources in theState.

(f)  Losses of property as the result of tidalwave, hurricane, earthquake, or volcanic eruption, or as a result of floodwaters overflowing the banks or walls of a river or stream, or from any othernatural disaster, to the extent of the amount deductible, under this chapter,not compensated for by insurance or otherwise, may be deducted in the taxableyear in which sustained, or at the option of the taxpayer may be deducted inequal installments over a period of five years, the first such year to be thecalendar year or fiscal year of the taxpayer in which such loss occurred.

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

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

(2)  Political contributions by any individualtaxpayer in an aggregate amount not to exceed $1,000 in any year; provided thatsuch contributions are made to candidates as defined in section 11-191, whohave agreed to abide by the campaign expenditure limits as set forth in section11-209; and provided further that not more than $250 of an individual's totalcontribution to any single candidate shall be deductible for purposes of thissection. [L Sp 1957, c 1, pt of §2; am L 1959, c 276, §2 and c 277, §8(a); am LSp 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 L1971, 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 L1982, c 25, §2; am L 1983, c 124, §16; gen ch 1985; am L 1987, c 39, §3 and c239, §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 L2007, c 166, §1; am L 2008, c 28, §21]

 

Note

 

  The 2007 amendment applies to taxable years beginning afterDecember 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, c28, §43.

 

Attorney General Opinions

 

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

 

Case Notes

 

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

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

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

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