One of the significant alterations proposed by HB 2307 is the introduction of a definition for 'qualified member,' which will replace the previous terms 'direct member' and 'indirect member.' This redefinition is intended to streamline the taxation process and permit qualified members to carry forward tax credits related to their distributive shares and guaranteed payments of Hawaii taxable income to subsequent tax years. The bill posits that this flexibility will allow more taxpayers to benefit from available tax credits, thereby supporting the financial health of pass-through entities and their members.
Summary
House Bill 2307 addresses taxation related to pass-through entities in Hawaii, which include S corporations, partnerships, and limited liability companies. Recognizing the essential role these entities play in the state's economy, particularly in job creation and supporting small businesses, the bill seeks to modify existing tax provisions to enhance the benefits offered under previous legislation, namely Act 50 from 2023. This act allowed certain pass-through entities to elect to be taxed at the entity level, a change aimed at helping local businesses regain some federal tax benefits lost due to changes in the federal tax code in 2017.
Contention
A point of contention surrounding HB 2307 is the implications of the tax credit changes and the potential impact on state revenue. While proponents argue that enabling credits to be carried forward will boost the local economy and promote growth among small businesses, some critics express concern that this could lead to a significant reduction in tax revenue for the state. Furthermore, the criteria for what constitutes a 'qualified member' could lead to debates about fairness and equity in taxation, particularly for individuals and entities that do not fit neatly into the defined categories outlined in the bill. As discussions proceed, balancing the needs of local businesses with the state's revenue requirements may emerge as a focal debate.
Conforms state partnership reporting adjustments to federal taxable income to current federal partnership audit adjustments. (gov sig) (EN NO IMPACT GF RV See Note)
Revises pass-through business alternative income tax to include more forms of S corporation income in calculation of pass-through business alternative income tax liability; modifies election and revocation dates for pass-through business alternative income tax.