December 30, 1997


RE: Penalties for Electronic Funds Transfer Payments That are Dishonored and For Failure to Remit by an EFT Method Approved by the Department of Taxation
Act 177, Session Laws of Hawaii (SLH) 1997, approved on June 16, 1997, provides penalties for taxpayers whose electronic funds transfer (EFT) payments are dishonored and for taxpayers who fail to remit taxes using an EFT method approved by the Department of Taxation (Department). Section 40-35.5, Hawaii Revised Statutes (HRS), relating to assessment and collection of service charges for dishonored items, is amended by establishing a $15 service charge which shall be a nonwaivable penalty for EFT payments that are dishonored. Section 231-9.9, HRS, is amended to provide a penalty of two per cent of the amount of tax due on taxpayers who fail to remit taxes using an EFT method approved by the Department. Act 177 specifies that this penalty applies to both taxpayers that are required to file by an EFT method approved by the Department and those who elect to file by EFT. The penalty is in addition to any penalty for delinquent filing and payment under section 231-39, HRS. The penalty under Act 177, however, may be waived if the failure to remit is due to reasonable cause and not to neglect.

Passage of Act 177 was necessary to enforce Act 121, SLH 1995, which authorized the Department to require taxpayers whose tax liability exceeds $100,000 for any one taxable year to remit taxes by EFT and allowed other taxpayers to elect to pay their taxes by EFT. Act 121 was passed to reduce the "float" between the time a tax return payment is remitted and the time the payment is deposited in the State treasury. Because there was no penalty provision in Act 177, certain taxpayers did not comply with the requirement to remit their taxes by EFT.

Director of Taxation