Follow the Yellow Brick Road
by Tom Yamachika, President, Tax Foundation Hawaii
In our Hawaii legislative session, conference committee work is now done and bills are being readied for final floor votes and trips to the Governor’s office. Some bills look pretty much the same as they did when they began the conference negotiations. Others look radically different. Here are some of the more significant ones.
Senate Bill 3125 started off as an Administration bill to repeal the tax cuts that were promised in the 2024 tax cut bill but that haven’t gone into effect yet. We have written about the House and Senate positions on this before. The conference version of the bill looks mostly like the Senate version. The 2024 changes to the standard deduction are left intact. The tax bracket changes from the 2024 law are left in place for taxpayers making $350,000 or less (for joint filers, $175,000 single). For those making more, the tax brackets that apply this year will remain in effect. And, while the House’s proposed 10%, 11%, and 12% brackets did not make the final cut, there is a new 13% tax bracket for taxpayers making $1 million or more (for joint filers, $500,000 single). The Capital Goods Excise Tax Credit, the High Technology Business Investment Tax Credit, the Renewable Fuels Production Tax Credit, the Technology Infrastructure Renovation Tax Credit, and the Tax Credit for Research Activities were all given sunset dates in either 2028 or 2029. The Renewable Energy Technologies Credit (for photovoltaic installations, for example) is going to be available with an income limit ($350,000 joint, $175,000 single) and a statewide cap of $40 million until it sunsets on Jan. 1, 2031.
Senate Bill 3028, which was giving us the jitters about a possible massive increase in the conveyance tax, as we wrote about a few weeks ago, died in conference so we won’t have to worry about it for the time being. It, or something like it, might be introduced next year.
House Bill 2329, which conforms our state tax law to provisions of the One Big Beautiful Bill Act, is on its way to final passage. Little in the bill has changed since its introduction, and we will give you more specifics in next week’s column.
House Bill 1713 started off as a bill to add an exemption to school impact fees for small developments. We had written that there was something wrong with the school impact fee system because our Department of Education was collecting the fees but couldn’t use them, allowing tens of millions of dollars to pile up unused. Earlier committee drafts of the bill would have scrapped the impact fees entirely. But the final version kept the fee, added a few more exemptions including one for smaller developments, and made the 2025 temporary partial repeal of the fee a permanent partial repeal. It seems like the Department of Education came in behind the scenes with a big watering can and succeeded in dousing the repeal bill.
And then there is Senate Bill 2921, the raid bill that was introduced to scoop excess balances from hundreds of special and revolving funds. The Conference Draft of the bill is the first one in which there are actual numbers. The bill targets 18 funds for a total haul of $47 million, with the two largest victims being the tax administration special fund ($23 million) and the beverage container deposit special fund ($12 million). This raid bill is somewhat underwhelming, especially given lawmakers’ focus earlier in the session on a $430 million unencumbered balance in the University of Hawaii tuition and fees special fund, which was targeted in Senate Bill 2602 and which we wrote about here. Senate Bill 2602 quietly died in conference.
Stay tuned for further news next week on the bills advancing toward the Land of Oz.