RELATING TO FARMS.

HB1417

HOUSE OF REPRESENTATIVES

H.B. NO.

1417

THIRTY-THIRD LEGISLATURE, 2025

STATE OF HAWAII

A BILL FOR AN ACT

relating to farms.

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

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SECTION 1.
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The legislature finds that the State has
struggled to attract young people into the agricultural sector.
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Hawaii has the oldest farmers in the United
States, with twice as many farmers over the age of seventy-five as there are
under thirty-five.

The legislature further finds that as of
2022, most of the State's over seven thousand farms are small operations
bearing not much financial fruit, with nearly eighty per cent having annual
sales under $25,000.

As the State seeks to achieve
overlapping goals of reducing reliance on imports, diversifying our economy,
and increasing local food production, it is critical to incentivize the
rejuvenation of our State's agricultural sector, especially among younger
generations.

The legislature finds that a partial tax
exclusion for such businesses will not significantly affect existing tax
revenue collected but will strengthen the State's economy and improve the
long-term economic well-being of the State as a whole.

Accordingly, the purpose of this Act is
to create an exclusion from income tax for the first $50,000 of income earned
by farmers in order to encourage the growth of small, diversified farming
businesses.

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SECTION
2
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Section 235-7,
Hawaii Revised Statutes, is amended by amending subsection (a) to read as
follows:

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"(a)
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There shall be excluded from gross income,
adjusted gross income, and taxable income:

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

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(2)
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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;

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

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(4)
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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;

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(5)
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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;

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(6)
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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;

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(7)
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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:

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(A)
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E-1 pay grade
after eight years of service; provided that this subparagraph shall apply to
taxable years beginning after December 31, 2004;

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(B)
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E-2 pay grade
after eight years of service; provided that this subparagraph shall apply to
taxable years beginning after December 31, 2005;

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(C)
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E-3 pay grade
after eight years of service; provided that this subparagraph shall apply to
taxable years beginning after December 31, 2006;

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(D)
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E-4 pay grade
after eight years of service; provided that this subparagraph shall apply to
taxable years beginning after December 31, 2007; and

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(E)
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E-5 pay grade
after eight years of service; provided that this subparagraph shall apply to
taxable years beginning after December 31, 2008;

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(8)
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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;

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

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(10)
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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;

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(11)
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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;

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(12)
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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;

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(13)
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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

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(14)
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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.

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For purposes of this paragraph:

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"Fee simple owner"
shall have the same meaning as provided under section 516-1; provided that it
shall include legal and equitable owners;

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

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"Condominium project"
and "cooperative project" shall have the same meanings as provided
under section 514C‑1[
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]
; and

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(15)
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The first
$50,000 of income earned by a farmer.

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For purposes of this
paragraph:

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"Farm
products" means production from agricultural activities described in
section 205‑4.5(a)(1), (2), and (3); and

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"Farmer" means
an individual earning more than seventy-five per cent of the individual's gross
income from farm products.
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SECTION
3.
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Statutory material to be repealed is
bracketed and stricken.
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New statutory
material is underscored.

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SECTION 4.
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This Act, upon its approval, shall apply to
taxable years beginning after December 31, 2025.

INTRODUCED BY:

_____________________________

Report Title:

Economic
Diversification; Agriculture; Farmer; Tax Exclusion

Description:

Creates
an exclusion from income tax for the first $50,000 of income earned by farmers.

The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.