§235-7  Other provisions as to gross income,

adjusted gross income, and taxable income.  (a)  [Repeal and reenactment

on January 1, 2018.  L 2012, c 220, §5.]  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 legal

service plan to a taxpayer, the taxpayer's spouse, and the taxpayer's

dependents;

    (10)  Amounts paid, directly or indirectly, by a 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 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; provided that amounts retained by the acting utility for collection

or other costs shall not be included in this exemption;

    (13)  Amounts received in the form of a cable surcharge

by an electric utility company acting on behalf of a certified cable company

under section 269‑134; provided that any amounts retained by that

electric utility company for collection or other costs shall not be included in

this exemption; and

    (14)  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; and

     (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); and

     (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 as it read on December 31, 2008, shall not be

operative for purposes of this chapter; and

     (7)  The election for the carryback for 2008 or 2009

net operating losses of small businesses as provided in section 172(b)(1)(H) of

the Internal Revenue Code as it read on December 31, 2009, 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. [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,

3; am L 2008, c 28, §21; am L 2010, c 59, §1 superseding c 211, §5, and c 112,

§8; am L 2012, c 34, §19 and c 165, §5; am L 2013, c , §]

 

Note

 

  The following acts exempted their amendments from the January

1, 2018 repeal and reenactment condition of L 2007, c 166, §3 as amended by L

2012, c 220, §5:

  L 2010, c 59; L 2012, c 34 and c 165.

 

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.