Follow the Yellow Brick Road, Part 2
by Tom Yamachika, President, Tax Foundation Hawaii
This week, we continue our coverage of significant Hawaii tax bills that have cleared our Hawaii legislative session and are on their way to Gov. Green’s desk.
House Bill 2329, which conforms our state tax law to provisions of the One Big Beautiful Bill Act, is our first topic this week. Our legislature normally adopts many of the changes made to the federal tax code in the Hawaii income tax law every year to make it easier for taxpayers to comply with the law. This year’s federal tax law changes are extensive, however.
To start with, the federal code includes new provisions based on some of President Trump’s campaign promises. Our bill does pick up “No Tax on Tips,” which we previously reported on. It does not pick up “No Tax on Overtime,” which we discussed here, nor does it allow the federal deduction for car loan interest. Enhanced standard deduction for senior citizens? We don’t pick that up either, probably because we already allow an enhanced personal exemption for our kupuna.
The federal code previously had a provision called the “Pease Limitation” that started eating away at itemized deductions once a taxpayer reached a certain income level, disallowing more and more itemized deductions if the taxpayer’s income was higher, until the taxpayer could use only 20% of the itemized deductions otherwise available. The federal Tax Cuts and Jobs Act scrapped the Pease Limitation, but we kept it. And now, the One Big Beautiful Bill Act enacted a more taxpayer-friendly version of the limitation that disallows at most 2/37 of itemized deductions allowable, but for Hawaii tax purposes we are keeping the older, nastier version of the law, with the federal income thresholds that existed in — get this — 2009.
For charitable giving, our state tax bill conforms to the federal provisions allowing up to a $1,000 ($2,000 for joint filers) charitable deduction to be taken by folks who don’t itemize their deductions, and it also incorporates the federal deduction floors. Thus, individuals can only take itemized charitable contribution deductions only to the extent that their contributions exceed 0.5% of adjusted gross income, and corporations are allowed charitable contribution deductions only to the extent that their contributions exceed 1% of taxable income.
For those interested in the state GET, income tax, and unemployment tax benefits for enterprise zones, Senate Bill 2360 adds new qualifying activities, including biotechnology products, whether or not genetically engineered; medical and health care services, including home health care, specialized care practices, and health coaching; research and development activities in aerospace technology; and information technology design and production. In addition, the qualification period is extended from the current 7 years to 9 years. Those who are working in newly qualified fields should check to see if they are in an enterprise zone or wouldn’t mind moving to one.
And, for those interested in the motion picture and TV production credit, Senate Bill 2580 makes several important changes. An additional 5% is allowed to productions that have at least 80% local hires. The per-production cap is raised from $17 million to $20 million, where unused production cap is allowed to carry over to the following year. Productions with $60 million or more in production spending are exempt from the cap altogether. Productions for a streaming platform qualify. And the bill legislatively nullifies a troublesome interpretation of the General Excise Tax, stated in Tax Information Release 2024-04, that had dramatically increased production payroll costs.
Next week: More tax news that’s fit to print (and maybe some that isn’t).
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May 10, 2026: Follow the Yellow Brick Road Part 1