RELATING TO TAX EXPENDITURE EVALUATION.

HB2429

HOUSE OF REPRESENTATIVES

H.B. NO.

2429

THIRTY-THIRD LEGISLATURE, 2026

STATE OF HAWAII

A BILL FOR AN ACT

RELATING
TO TAX EXPENDITURE EVALUATION
.

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 certain tax
expenditures should be evaluated annually to determine whether they are efficiently
fulfilling their intended purpose.

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Once enacted, these provisions often remain
in place for years with limited reassessment.
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Periodic review and evaluation of tax
expenditures is essential to ensure they remain effective, fair, and aligned
with evolving public priorities.
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Regular
evaluation strengthens accountability, supports sound budget decisions, ensures
equitable competition, and ultimately maximizes benefits for taxpayers.

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Income tax credits and general excise and
use tax exemptions represent a form of public spending, even though they appear
as reduced revenue rather than direct expenditures.
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Without systematic evaluation, policymakers
and the public may lack clear insight, or even hard data, that can show how
public resources are being used and whether anticipated outcomes are being
achieved.

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Especially in this uncertain economic
climate, there is constant pressure to allocate limited resources among
competing needs, such as education, healthcare, infrastructure, and public
safety.
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Tax expenditures that were
justified under past economic or social conditions may no longer reflect
current priorities.
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Reviewing these
provisions allows lawmakers to determine whether funds tied up in tax
incentives could be better directed elsewhere or whether successful programs
merit continued or expanded support.
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Periodic
evaluation helps to align tax incentives with current budget priorities.

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The legislature believes that effective tax
policy should be guided by data, rather than assumptions.
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Periodic reviews allow for the measurement of
outcomes, such as job creation, economic growth, investment levels, or targeted
social benefits, relative to the cost of the incentive.
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When returns are clearly defined and measured,
policymakers can distinguish between programs that deliver strong value and
those that fall short.

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The legislature recognizes that regular
review can determine if initial objectives have been achieved.
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Some tax expenditures are enacted with
specific goals, such as encouraging renewable energy development, revitalizing distressed
communities, or supporting research and development.
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Over time, circumstances may change or goals
may be met.
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Periodic review can provide
the data that can point to whether a credit or exemption should be continued,
modified, phased out, or replaced with a more effective approach.
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A tax expenditure that made sense decades ago
may no longer be relevant or efficient today.
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Periodic evaluation makes sense to ensure that
tax policy adapts to changing realities and that necessary adjustments are made
to maintain effectiveness and fairness.

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Most importantly, regular review provides
better data for long-term oversight.
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Collecting
and analyzing consistent information on tax expenditures improves legislative
oversight and policy design.
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High-quality
data enables evidence-based decision-making, reduces reliance on anecdotal
claims, and strengthens the overall integrity of the tax system.

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The legislature also recognizes that one
possible benefit of regular review is ensuring equitable competition among key
industry sectors.
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Long-standing tax
expenditures can unintentionally favor certain industries or firms, creating
market distortions and competitive imbalances.
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Periodic review helps determine whether
incentives continue to serve a legitimate public purpose or whether they
provide unfair advantages that hinder innovation and competition.
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A level playing field encourages efficiency
and economic resilience across sectors.

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Additionally, from the taxpayer's
perspective, periodic evaluation helps identify tangible benefits.
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Taxpayers deserve assurance that foregone
revenue translates into public value, such as economic opportunity, improved
services, or long-term fiscal stability.

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The legislature notes that the periodic
review and evaluation of tax expenditures is not merely a best practice, but a
necessity for responsible fiscal management.
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By promoting accountability, aligning
incentives with budget priorities, measuring returns, ensuring fair
competition, and adapting to change, government can ensure that tax policies
serve their intended purpose and deliver meaningful value to taxpayers.
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Regular evaluation strengthens public trust
and helps build a more effective, equitable, and sustainable tax system.
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Periodic evaluations can clarify whether tax
incentives truly benefit the broader public or primarily serve narrow
interests.

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Accordingly, the purpose of this Act
is to facilitate tax reviews and the State's evaluation of tax policies by
requiring certain taxpayers to make disclosures in return for their income tax
credits or general excise and use tax exemptions.

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SECTION 2.
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Chapter 201, Hawaii Revised Statutes, is
amended by adding a new section to part I to be appropriately designated and to
read as follows:

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�201-
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Evaluation
of tax expenditures.
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(a)
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As a condition to claiming the credit, each taxpayer claiming an income
tax credit under chapter 235, other than a tax credit claimed under section
235-15 or under part III of chapter 235, for a period of five tax years
following the initial claiming of the credit, shall provide to the department
annually on the due date, including extensions, of the taxpayer's income tax
return the taxpayer's name and the total cost of the tax credit to the State
during the taxable year.

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(b)
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As
a condition to claiming the exemption, each taxpayer claiming a general excise
tax exemption under chapter 237 and any related use tax exemption under
chapter 238, shall provide to the department annually on the due date,
including extensions, of the taxpayer's general excise and use tax return the
taxpayer's name, general excise tax license number, the amount exempted, and
the total cost of the exemption to the State for the taxable year.

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(c)
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The department, in collaboration with the department of taxation, shall
use the information collected to study the effectiveness of the tax
expenditures under this section and to prepare summary descriptive
statistics.
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The department shall report
the information required under this subsection to the legislature by September
1 of each year.

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(d)
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Notwithstanding any other law to the contrary, the information collected
and compiled by the department under this section shall be available for public
inspection and dissemination, subject to chapter 92F.

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(e)
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The director of business, economic development, and tourism and the
director of taxation shall adopt rules pursuant to chapter 91 and prepare any
forms necessary to carry out this section.
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SECTION
3.
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Chapter 231, Hawaii Revised Statutes,
is amended by adding a new section to be appropriately designated and to read
as follows:

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�231-
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Department of business, economic
development, and tourism; access to tax records or other information for the
evaluation of tax expenditures.
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Notwithstanding any other law to the
contrary, the department shall provide to the department of business, economic
development, and tourism any tax records and other information maintained by
the department that are requested by the department of business, economic
development, and tourism pursuant to section 201- .
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The information provided by the department to
the department of business, economic development, and tourism under this
section shall be available for public inspection and dissemination, subject to
chapter 92F.
"

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SECTION 4.
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New statutory material is underscored.

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SECTION 5.
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This Act shall take effect on July 1, 2026,
and shall apply to taxable years beginning after December 31, 2026.

INTRODUCED BY:

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Report Title:

DBEDT;
DOTAX; Taxation; Tax Expenditure Disclosure and Evaluation; Income Tax Credits;
General Excise and Related Use Tax Exemptions

Description:

Requires
tax expenditure disclosure to, and evaluation by, the Department of Business,
Economic Development, and Tourism for certain income tax credits and general
excise and use tax exemptions.

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