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June 24, 2002
RE: Act 153, Session Laws of Hawaii 2002 (Act 153), Relating to the Collection of Taxes

Under prior law, the Department’s authority to ascertain the fair market value of a sale between affiliated companies or persons when the consideration paid is not indicative of the fair market value applied to sales of products and transactions subject to the general excise tax. Act 153 expands the Department’s authority to (1) any sale by a business; and (2) all taxes administered under Title 14. A new section is added to chapter 231, Hawaii Revised Statutes (HRS), which incorporates and expands the language in section 237-19, HRS. Section 237-19, HRS, is repealed.

Under prior law, a levy on the salary or wages of a delinquent taxpayer was not continuous. The Department had to expend time and resources levying each paycheck of the delinquent taxpayer and the levy required the employer to remit the taxpayer’s entire paycheck to the Department. By contrast the Internal Revenue Service (IRS) levy on salary or wages is continuous until the levy is released. Act 153 provides for a continuous levy on 25% of the salary or wages of all delinquent taxpayers.

Under prior law, a third party who honors a state tax levy against a delinquent taxpayer was only indemnified against the delinquent taxpayer. The third party was not protected against other parties claiming an interest in the funds (or levied property). In certain circumstances, that third party holding the funds may have been personally liable for failing to pay a lien such as an attorney's lien. By contrast, the federal law indemnifies a third party who honors an IRS tax levy against the delinquent taxpayer and any other person. Act 153 indemnifies the third party as provided in the federal law.

Employers are responsible for withholding a portion of their employees’ wages as income tax and paying the amounts withheld to the Department on the employees’ behalf. Under prior law, if employers fail, neglect, or refuse to withhold the required amount of tax from their employees' wages, any responsible persons of a corporation may be held personally liable for payment of this tax. Act 153 amends the law to allow the Department to pursue responsible persons of any employer, including managers of a limited liability company. This promotes compliance by managers of business entities to the state withholding tax law.

Act 153 is effective upon approval; provided that Act 153 is applicable to a levy made on or after July 1, 2002, and is applicable to withholding requirements for payroll periods beginning on or after July 1, 2002.

Current forms and other tax information are available at the Department's website at: On Oahu, forms may be ordered by calling the Department's Forms Request Line at: 587-7572. Persons who are not calling from Oahu, may call: 1-800-222-7572 (toll-free) to receive forms by mail or by fax.

Director of Taxation
HRS Section Explained: HRS Sections 231-___; 231-25; 235-64