HRS § 235-7 — Other provisions as to gross income, adjusted gross income, and taxable income


§235-7 Other provisions as to gross income,
adjusted gross income, and taxable income. (a) There shall be excluded
from gross income, adjusted gross income, and taxable income:
(1) Income not subject to taxation by the State under
the Constitution and laws of the United States;
(2) Rights, benefits, and other income exempted from
taxation by section 88-91, having to do with the state retirement system, and
the rights, benefits, and other income, comparable to the rights, benefits, and
other income exempted by section 88-91, under any other public retirement
system;
(3) Any compensation received in the form of a
pension for past services;
(4) Compensation paid to a patient affected with
Hansen's disease employed by the State or the United States in any hospital,
settlement, or place for the treatment of Hansen's disease;
(5) Except as otherwise expressly provided, payments
made by the United States or this State, under an act of Congress or a law of
this State, which by express provision or administrative regulation or
interpretation are exempt from both the normal and surtaxes of the United
States, even though not so exempted by the Internal Revenue Code itself;
(6) Any income expressly exempted or excluded from
the measure of the tax imposed by this chapter by any other law of the State,
it being the intent of this chapter not to repeal or supersede any such express
exemption or exclusion;
(7) Income received by each member of the reserve
components of the Army, Navy, Air Force, Marine Corps, or Coast Guard of the
United States of America, and the Hawaii National Guard as compensation for
performance of duty, equivalent to pay received for forty-eight drills
(equivalent of twelve weekends) and fifteen days of annual duty, at an:
(A) E-1 pay grade after eight years of
service; provided that this subparagraph shall apply to taxable years beginning
after December 31, 2004;
(B) E-2 pay grade after eight years of
service; provided that this subparagraph shall apply to taxable years beginning
after December 31, 2005;
(C) E-3 pay grade after eight years of
service; provided that this subparagraph shall apply to taxable years beginning
after December 31, 2006;
(D) E-4 pay grade after eight years of
service; provided that this subparagraph shall apply to taxable years beginning
after December 31, 2007; and
(E) E-5 pay grade after eight years of
service; provided that this subparagraph shall apply to taxable years beginning
after December 31, 2008;
(8) Income derived from the operation of ships or
aircraft if the income is exempt under the Internal Revenue Code pursuant to
the provisions of an income tax treaty or agreement entered into by and between
the United States and a foreign country[;] provided that the tax laws of the
local governments of that country reciprocally exempt from the application of
all of their net income taxes, the income derived from the operation of ships
or aircraft that are documented or registered under the laws of the United States;
(9) The value of legal services provided by a legal
service plan to a taxpayer, the taxpayer's spouse, and the taxpayer's
dependents;
(10) Amounts paid, directly or indirectly, by a legal
service plan to a taxpayer as payment or reimbursement for the provision of
legal services to the taxpayer, the taxpayer's spouse, and the taxpayer's
dependents;
(11) Contributions by an employer to a legal service
plan for compensation (through insurance or otherwise) to the employer's
employees for the costs of legal services incurred by the employer's employees,
their spouses, and their dependents; and
(12) Amounts received in the form of a monthly
surcharge by a utility acting on behalf of an affected utility under section
269-16.3; provided that amounts retained by the acting utility for collection
or other costs shall not be included in this exemption.
(b) There shall be included in gross income,
adjusted gross income, and taxable income:
(1) Unless excluded by this chapter relating to the
uniformed services of the United States, cost-of-living allowances and other
payments exempted by section 912 of the Internal Revenue Code, but section 119
of the Internal Revenue Code nevertheless shall apply; and
(2) Unless expressly exempted or excluded as provided
by subsection (a)(6), interest on the obligations of a State or a political
subdivision thereof.
(c) The deductions of or based on dividends
paid or received, allowed to a corporation under chapter 1, subchapter B, part
VIII of the Internal Revenue Code, shall not be allowed. In lieu thereof there
shall be allowed as a deduction the entire amount of:
(1) Dividends received by any corporation upon the
shares of stock of a national banking association;
(2) Qualifying dividends, as defined in section
243(b) of the Internal Revenue Code, received by members of an affiliated
group; provided that "includible corporation" as used therein shall
include domestic and foreign corporations;
(3) Dividends received by a small business investment
company operating under the Small Business Investment Act of 1958 (Public Law
85-699);
(4) Seventy per cent of the amount received by any
corporation as dividends upon the shares of stock of another corporation, if
otherwise allowed under section 243 of the Internal Revenue Code.
(d) With respect to net operating loss
deductions resulting from net operating losses for taxable years ending after
December 31, 1966, the net operating loss deduction provisions of the Internal
Revenue Code shall apply; provided that:
(1) In computing the net operating loss deduction
allowed by this subsection, there shall be included in gross income the amount
of interest which is excluded from gross income by subsection (a), decreased by
the amount of interest paid or accrued which is disallowed as a deduction by
subsection (e). In determining the amount of the net operating loss deduction
under this subsection of any corporation, there shall be disregarded the net
operating loss of such corporation for any taxable year for which the corporation
is an electing small business corporation;
(2) No net operating loss carryback or carryover
shall be allowed by this chapter if not allowed under section 172 of the
Internal Revenue Code; and
(3) The election to relinquish the entire carryback period
with respect to a net operating loss allowed under section 172(b)(3)(C) of the
Internal Revenue Code shall be operative for the purposes of this chapter;
provided that no taxpayer shall make such an election as to a net operating
loss of a business where such net operating loss occurred in the taxpayer's
business prior to the taxpayer entering business in this State.
(e) There shall be disallowed as a deduction
the amount of interest paid or accrued within the taxable year on indebtedness
incurred or continued to purchase or carry:
(1) Bonds the interest upon which is excluded from
gross income by subsection (a); or
(2) Property owned without the State, or to carry on
trade or business without the State, if the taxpayer is a person taxable only
upon income from sources in the State.
(f) Losses of property as the result of tidal
wave, hurricane, earthquake, or volcanic eruption, or as a result of flood
waters overflowing the banks or walls of a river or stream, or from any other
natural disaster, to the extent of the amount deductible, under this chapter,
not compensated for by insurance or otherwise, may be deducted in the taxable
year in which sustained, or at the option of the taxpayer may be deducted in
equal installments over a period of five years, the first such year to be the calendar
year or fiscal year of the taxpayer in which such loss occurred.