The introduction of this bill is expected to have a positive impact on Hawaii's small business landscape. By allowing pass-through entities to pay tax at the entity level, it could potentially provide a tax relief mechanism for many small businesses that often pass profits through to individual owners. This change is likely to promote business growth and encourage economic development within the state, as it brings Hawaii into compliance with the tax structures prevalent across the majority of other states.
Summary
House Bill 1362 aims to allow certain entities, specifically partnerships and S corporations, to elect to pay Hawaii income tax at the entity level. The bill is designed to assist small businesses in Hawaii by restoring the ability for taxpayers to deduct state income taxes paid on their federal income tax returns, a benefit that was lost due to changes in the federal tax code in 2017. This legislation seeks to align Hawaii's tax treatment with that of many other states that already permit similar tax elections for pass-through entities.
Contention
One notable point of discussion surrounding HB 1362 may involve the complexities of how the new election process will be implemented and the administrative burdens it could impose on the Department of Taxation. Opponents might also raise concerns regarding the fairness and equity of allowing these pass-through entities to elect such tax treatment while other business structures do not have similar provisions. Ensuring that the proposed tax credits and deductions effectively benefit small businesses without leading to unintended consequences will be a critical aspect of deliberations.