RELATING TO TAX HAVEN ABUSE.

HB759

HOUSE OF REPRESENTATIVES

H.B. NO.

759

THIRTY-THIRD LEGISLATURE, 2025

STATE OF HAWAII

A BILL FOR AN ACT

relating
to tax haven abuse
.

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

PART I

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SECTION 1.
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The legislature finds that the State's tax
revenue showed robust growth, starting in the last quarter of fiscal year 2020,
as Hawaii's economy recovered from the effects of the COVID-19 pandemic.
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Although tax collections totaled
$10,440,000,000 in fiscal year 2023, a relatively marginal decrease from
$10,460,000 in fiscal year 2022, the legislature finds that additional sources
of state revenue should be considered.

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The legislature further finds that
corporations use complicated schemes to shift domestic earnings to subsidiaries
incorporated in offshore tax havens, countries with minimal or no taxes, in
order to reduce their state and federal income tax liability by billions of
dollars in certain cases.
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A January 2019
report by the Institute on Taxation and Economic Policy and the United States
Public Interest Research Group estimated that the State is losing $38,000,000
annually by not updating tax laws to mandate worldwide combined reporting of
corporate income.
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Worldwide combined
reporting is considered the gold standard for closing tax loopholes, and the
report found it would raise nearly three times more revenue than other options
to address revenue currently lost to tax avoidance.

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The purpose of this part is to ensure
transparency in the manner in which corporations conduct business in the State
by:

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(1)
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Changing the
manner in which corporate tax is determined in the State to a more fair and
effective form of calculating corporate tax liability through:

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(A)
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Requiring
corporations to include in their income the income of all foreign subsidiaries
to the State, as is already required by the Internal Revenue Service; and

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(B)
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Applying the
State's apportionment formula to determine the share of reported profits
subject to the appropriate tax, to be deposited into the state general fund;
and

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(2)
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Requiring
corporations to report all profits, losses, revenues, and inter-company
transactions made and all taxes paid in other states.

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SECTION 2.
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Chapter 235, Hawaii Revised Statutes, is
amended by adding two new sections to be appropriately designated and to read
as follows:

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"
�235-A
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Corporation income reporting; foreign
subsidiaries.
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(a)
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Every corporation subject to the tax imposed
under this chapter shall report all income from foreign subsidiaries by filing
a copy of federal Internal Revenue form 5471 with the department of taxation at
the same time as such forms must be filed with the Internal Revenue Service.

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(b)
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All income from a corporation's foreign subsidiaries
shall be apportioned as business income pursuant to section 235-29.

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(c)
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The revenues generated from the tax imposed
on the business income apportioned pursuant to subsection (b) shall be
deposited into the general fund for the purposes of funding critical public
services.

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�235-B
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Corporation income; state-by-state reporting
.
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(a)
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Every corporation subject to the tax imposed under
this chapter shall submit to the department of taxation a
report on all profits, losses, revenues, and inter-company
transactions made and all taxes paid in other states
at the same time as the
forms required pursuant to section 235-A must be filed with the Internal
Revenue Service.
"

PART II

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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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Corporate
tax law task force.
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(a)
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There is established within the department of taxation for
administrative purposes a corporate tax law task force to annually review the
State's corporate tax laws and recommend updates to close corporate tax
loopholes.

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(b)
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The task force shall include the following:

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(1)
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The director of
taxation or the director's designee, who shall serve as chairperson of the
working group; and

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(2)
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The chairperson
of the council on revenues or the chairperson's designee.

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(c)
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In addition to the members designated by
subsection (b), the task force may invite any other appropriate person to join
the working group.

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(d)
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Members of the task force shall serve without
compensation.

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(e)
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In reviewing the State's corporate tax laws,
the task force shall:

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(1)
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Determine what
income generated by a corporation, regardless of the corporation's physical
presence in the State, may be taxed in accordance with state corporate tax
laws; and

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(2)
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Review new or
amended federal corporate tax laws and make recommendations to amend state
corporate tax laws to align with federal laws.

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(f)
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The task force shall submit a report of its
findings and recommendations, including any proposed legislation, to the
legislature no later than twenty days prior to the convening of each regular
session beginning with the regular session of 2026.
"

PART III

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SECTION 4.
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In codifying the new sections added by
section 2 of this Act, the revisor of statutes shall substitute appropriate
section numbers for the letters used in designating the new sections in this
Act.

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SECTION 5.
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New statutory material is underscored.

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SECTION 6.
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This Act shall take effect upon its approval;
provided that section 2 shall take effect on January 1, 2026.

INTRODUCED BY:

_____________________________

Report Title:

Taxation;
Corporations; Combined Reporting; State-by-state Reporting; Department of
Taxation; Corporate Tax Law Task Force

Description:

Part I:
Effective 1/1/2026, requires corporations to include in their income the income
of all foreign subsidiaries to the State; applies the State's apportionment
formula to determine the share of reported profits subject to the appropriate
tax, which shall be deposited into the state general fund; and r
equires
corporations to report all profits, losses, revenues, and inter-company
transactions made and all taxes paid in other states.
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Part II: Establishes within DOTAX a Corporate
Tax Law Task Force to annually review the State's corporate tax laws and
recommend updates to close tax loopholes.

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