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June 18, 2003
RE: Act 136, Session Laws of Hawaii 2003, Relating to Tax Administration (Act 136)

Act 136 became effective on June 4, 2003 (the date on which Governor Linda Lingle signed S.B. No. 1400, S.D. 1, H.D. 1 into law). In general, this new Act changes tax administration by:

  1. Authorizing the Department of Taxation (Department) to remit (i.e., waive) penalties and interest on tax liabilities that have been delinquent for more than ninety (90) days;
  2. Streamlining the offers in compromise process by authorizing the tax director, instead of the Governor, to accept offers in compromise for tax liabilities that are $50,000 or less (exclusive of penalties and interest); and
  3. Allowing the tax director to hire tax criminal investigators.

Remissions (Waivers) of Penalties and Interest

Prior to Act 136, 231-3(12), Hawaii Revised Statues (HRS), allowed the Department to waive penalties and interest added to any tax that is delinquent for not more than ninety (90) days. Because Act 136 repeals this ninety (90) day restriction, the Department may now consider waiving penalties and interest on older accounts in which:

  1. The taxpayer's failure to file a return is "excusable";
  2. The taxpayer's failure to pay the tax within the time required by law is "excusable"; or
  3. There is doubt as to the collectibility of the whole amount of tax due.

As under prior law, waivers of penalties and interest are not available in cases involving:

  1. Fraud;
  2. Willful violation of the laws; or
  3. Willful refusal to make a return.

In administering this new law, the Department will continue to consider waivers of penalties and interest only when it is in the best interest of the State and the Department.

Offers In Compromise

This Act also streamlines the offer in compromise process by allowing the director, rather than the Governor, to approve offers in compromise where the tax, exclusive of interest and penalties, is $50,000 or less. The director may seek the Governor's approval where the director believes it is appropriate (e.g., cases that involve a high profile taxpayer or broadly impact on the community or an industry segment). As a new feature, the Act requires the Department to post each proposed offer in compromise on the Department's Internet website 5 days before the director accepts the offer.

Offers in compromise that involve delinquencies of over $50,000 (exclusive of penalties and interest) are still subject to approval by the Governor. The requirement to post the offers in compromise on the Department's Internet website does not apply to delinquencies of over $50,000. However, as under the law prior to Act 136, certain information regarding these offers in compromise remains open to public inspection under 231-3(10), HRS.

Tax Criminal Investigators

The Department's criminal section (instituted in fiscal year 1995) is responsible for the enforcement of the criminal tax laws specified in 231-34, HRS, attempt to evade or defeat tax; 231-35, HRS, willful failure to file return, supply information, or secure a license; and 231-36, HRS, false and fraudulent statements; aiding and abetting. Information upon which an investigation is based may come from external and internal sources. Act 136 strengthens the enforcement capabilities of the Department's criminal section by authorizing the director to appoint investigators to aid the Department in discharging its duties under Title 14, HRS. The new tax criminal investigators will have and may exercise all of the powers and authority and the benefits and privileges of a police officer or of a deputy sheriff, including the power to arrest.

Forms and other tax information may be downloaded from the Department's website at On Oahu, forms may be ordered by calling the Department's Forms by Fax/Mail Line at 587-7572. Persons calling from the neighbor islands or continental U.S. may call toll-free at 1-800-222-7572.

Kurt Kawafuchi
Director of Taxation

HRS Section Explained: HRS Sections 231-3__, 231-3(10), and 231-3(12).
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