Feds gave you a break? Now we, the state, can turn the screws!

West Hawaii Today - - Business -

the pre­de­ceased spouse’s es­tate tax re­turn.

Es­tates val­ued at less than these amounts are ex­empt from pay­ing fed­eral es­tate taxes. The re­cently en­acted Pub­lic Law No. 115-97, orig­i­nally in­tro­duced in Congress as the Tax Cuts and Jobs Act, dou­bles the thresh­old to ap­prox­i­mately $11.1 mil­lion and $22.3 mil­lion re­spec­tively, and will re­sult in a re­duc­tion in fed­eral es­tate tax rev­enues. Ac­cord­ing to In­ter­nal Rev­enue Ser­vice data, 21 es­tates in Hawaii paid a to­tal of $23.4 mil­lion in fed­eral es­tate taxes in 2015.

The Leg­is­la­ture fur­ther finds that these changes to the fed­eral es­tate tax pro­vide the state with an op­por­tu­nity to ben­e­fit Hawaii res­i­dents. By amend­ing Hawaii’s es­tate tax thresh­olds and rates, the state can cap­ture some of the money that cer­tain res­i­dents will no longer be re­quired to pay to the fed­eral govern­ment and re­di­rect that money to the state.

This, by the way, is from HB 207, Se­nate Draft 1.

As it now ex­ists, the bill would jack up the Hawaii es­tate tax by adding a new top tax rate of 20 per­cent to be ap­plied to tax­able es­tates over $10 mil­lion. It would also hike the Hawaii con­veyance tax on pur­chases or sales of con­do­mini­ums or sin­gle-fam­ily res­i­dences val­ued at $2 mil­lion or more, and there the tax would in­crease be­tween 66 per­cent and 220 per­cent de­pend­ing on the value of the unit be­ing sold.

The bill as the House passed it in 2017 looks noth­ing like the cur­rent bill. Sur­prise, sur­prise, this bill is another vic­tim of the much-hyped “gut and re­place” tech­nique. What does that mean?

The only thing about a bill that can’t be changed dur­ing its jour­ney through the Leg­is­la­ture is its ti­tle, and un­der the Hawaii Con­sti­tu­tion, the con­tents of a bill must re­late to its ti­tle. There­fore, if a leg­isla­tive com­mit­tee has be­fore it a bill with a broad ti­tle like “Re­lat­ing to Tax­a­tion,” it can amend the bill by gut­ting it and re­plac­ing its en­tire con­tents with some­thing very dif­fer­ent. This bill as the House passed it, for ex­am­ple, was an in­come tax bill re­lat­ing to the low-in­come house­holder ren­ters’ credit. But be­cause its ti­tle is “Re­lat­ing to Tax­a­tion,” the in­come tax con­tents can be deleted and re­placed with hikes in the es­tate and con­veyance taxes.

Now, the Se­nate adopted some rules that sound like they wanted to curb the “gut and re­place” tech­nique. Se­nate Rule 54(2) says, “The fun­da­men­tal purpose of any amend­ment to a bill shall be ger­mane to the fun­da­men­tal purpose of the bill.”

In prac­tice, how­ever, gutand-re­place is still alive and well, and a tech­nique in the play­book of many of the House and Se­nate com­mit­tee chairs. So, as our leg­isla­tive ses­sion fi­nally winds down, there will be lots of sur­prises such as bills pre­vi­ously thought dead be­ing res­ur­rected by in­cor­po­rat­ing their con­tents into other bills.

It ain’t over till it’s over, folks!

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