SB1465 amends Hawaii’s pass-through entity tax rules, specifically the credit available to qualified members of an electing pass-through entity such as an S corporation or partnership. Under current law, a member who receives a credit for the entity-level tax may use any excess credit against future net income tax liability. This bill keeps that credit structure in place, but requires a further income adjustment: a qualified member claiming the credit must add back to taxable income the member’s share of taxes paid by the electing pass-through entity.
The measure applies to taxable years beginning after December 31, 2024. Although the bill text states an effective date of July 1, 3000, the substantive tax change is described as applying to post-2024 taxable years. The bill is framed as a technical tax conformity/adjustment measure affecting how pass-through entity taxes are reflected in a member’s Hawaii taxable income.
Impact
The bill would amend section 235-51.5, Hawaii Revised Statutes, governing Hawaii’s pass-through entity tax election and related member credits. It would require qualified members who claim the pass-through entity tax credit to include their share of entity-paid taxes in taxable income and would preserve the rule that excess credits may be carried forward to offset future net income tax liability. The change affects owners of electing pass-through entities, including partners and S corporation shareholders, and alters the computation of Hawaii state taxable income for those taxpayers.
Sentiment
The available voting history suggests the bill was not controversial in committee: the Senate Ways and Means Committee passed it with amendments by a 13-0 vote on February 12, 2025. No committee transcript is available, but the unanimous vote indicates broad support or at least no recorded opposition at that stage. The amended version appears to have been treated as a technical tax measure rather than a major policy dispute.
Contention
No specific points of contention are documented in the provided materials. Based on the text, any debate would likely center on the tax treatment of pass-through entity credits, whether requiring an income add-back is appropriate, and how the change affects owners of partnerships and S corporations. The unusual effective date of July 1, 3000 may be a drafting anomaly, but no discussion in the record explains or disputes it.