Of course, we in Hawaii need to be competitive nationally, so we need to pay some of our student athletes for their NIL.  Or so our University of Hawaii has been arguing.  And, as reported in the Star-Advertiser, our university has already committed to some $5 million in NIL payouts.

University officials began their journey navigating the twists and turns of the NILe environment by coming to our Legislature this past session with hat in hand, seeking $5 million.

A request for a budget line item to this effect made it into the House version of the budget, but it was swatted down in the Senate.  A separate House bill, HB 2384, made it all the way through the House but had a chilly reception, and no hearing, in the Senate.  And a compromise bill, SB 3263, tried to set up an endowment fund the income from which could be used for NIL payments.  It made it through a House-Senate conference committee, but university officials asked the House and Senate money chairs to scuttle the bill, contending that it would create more problems than it would solve.  A Senate floor vote then narrowly killed the bill, 11-12.

So, what is to become of NIL funding here in Hawaii?

According to UH’s athletic director Matt Elliott, “We’re in the budget process right now,” he said. “Our mindset is we’ve got to find those resources to cover those expenses. … We’ll find a way.”

Which means that although the Legislature tried to sink NIL funding, UH’s ship stubbornly refuses to go down.  “We can do this the easy way … or the hard way,” UH is saying.

During a hearing on another measure we were following, SB 2602, Senate Education Committee Chair Donna Kim pointed out multiple instances of UH pulling millions of dollars out from a block of money given for repairs and maintenance, and then repurposing them for other projects that UH was interested in — but were not repairs or maintenance.  One example is renovation of the Sinclair Library.

Is UH going to pull the same kind of stunt here?

We had previously written about UH’s Tuition and Fees Special Fund, which had an unencumbered balance of some $430 million.  SB 2602 was a bill to raid the fund and put excess moneys back into the General Fund (and thereby ease the pressure to raise additional money from taxpayers).  That bill died in this past legislative session when the House decided not to appoint conferees to work out the bill with the Senate.

At a hearing on that bill, UH President Wendy Hensel said, “I don’t want anybody to ask me for a dime when they have a dollar in their hand.  And I feel the same as we come to you and ask for funding.”

Fine.  UH, do what you promised.  Use that money.  No pulling from the repair and maintenance fund.  Use that fund to clear UH’s infamous backlog of repair and maintenance projects.  And, most of all, don’t use this as an excuse to ask lawmakers for taxing power (like the DOE did when they asked for and received the authority to impose school impact fees, which have been a disaster).

This year, the Governor isn’t wasting time.  Senate Bill 3125, Our Big Tax Bill (which is still a lot smaller than the federal One Big Beautiful Bill Act) was signed into law on May 21 and became Act 24, what I am calling the One Big Tax Bill Act or OBTBAA.  The bill changes individual tax rates, adds a new millionaires’ tax bracket, adds limits to the solar credit, and gets rid of several different business tax credits over time.

We had written earlier about the House and Senate contenders for the OBTBA.  The final version of the bill looks a bit more like the Senate version, although it incorporates elements from both the House and Senate positions.

Basically, the OBTBA preserves the scheduled tax cuts that were enacted in 2024 for folks with taxable income of less than $350,000 joint (for single filers, it’s half that amount, and for heads of households it’s 75% of it).  For higher income earners, the tax brackets that are in effect today remain in place, although those earners will see some tax reduction because the first $350,000 (joint) of their income will see the same benefit as is given to everyone else.  The new 13% tax bracket kicks in at $1 million joint and applies to all income over that threshold.

There are no changes to the scheduled increases in the standard deduction that were enacted in 2024.  The Administration’s version of the bill got rid of those, but neither the House nor the Senate went along with that part of the bill.

One significant part of the House position that made it to the OBTBA is a section providing for new limits on the renewable energy technologies credit.  We wrote about that credit last week.  For taxable years beginning on or after 2027, folks making adjusted gross income of at least $350,000 joint (which is not the same as the $350,000 taxable income threshold mentioned in the previous paragraph) will be ineligible for the credit.  As we read it, that means such people who have solar or wind installations scheduled or in progress need to be done by the end of this year or their credit will go poof.  It is not clear how, or if, corporations will be affected by this limitation because adjusted gross income only applies to individuals.  A statewide limit of $40 million in credits also kicks in beginning in 2027.

As for the business credits, the OBTBA scraps the capital goods excise tax credit for taxable years beginning after December 31, 2027.  The same will apply to the technology infrastructure renovation tax credit.

Tax years beginning after December 31, 2028, will see the demise of the high technology business investment tax credit, the renewable fuels production tax credit, and the tax credit for research activities.

Some of these business credits have been around for decades.  The capital goods credit has been around since 1987.  The three high technology related credits came into being at the turn of the millennium.  The renewable fuels production credit was originally enacted in 2016 with a five-year life.  It expired in 2021 and was revived in 2022.  Some of these credits have been a fixture of business for a while now, which is probably a good reason to write their obituaries.  Credits are supposed to be temporary enhancements to incentivize certain behavior.  After a while, they stop having that effect and take on the flavor of entitlements.  Credits are usually complex, which makes us wonder:  Were businesses for which the credits were enacted properly rewarded?  Or did they miss the credits due to lack of awareness or the inability to employ a suitable professional?

In any event, the signing of OBTBA removes the uncertainty.  The bill is law and we now need to plan for it.

In this week’s column, we will try to explain what changes are being made to the credit and when.  The column is based on the bill as it now exists.  We understand that the solar industry is extremely unhappy with the bill and is trying to have the Governor veto it (which we think is a tall order because the bill contains tons of material other than changes to the solar credit, and a veto would apply to the whole bill).

The first thing to understand is when the credit is earned.  The solar credit isn’t earned when the contract is signed, when the money is paid, or when construction starts.  It’s when the equipment is “installed and placed in service.”  The Department of Taxation’s Administrative Rules section 18-235-12.5-01 defines that event as when all costs have been incurred, the installation is completed, and requests for inspection have been sent to the appropriate government agencies.  If the system fails an inspection and corrective work is required, however, the system is not considered installed and placed in service until the system passes the inspection.  In other words, the credit is earned when the system owner can turn it on and operate it legally.

Now, let’s go to the three significant changes to the solar credit in SB 3125.

First, there is a new income cap.  If the taxpayer’s adjusted gross income is at least $175,000 for a single taxpayer or $350,000 for a married couple, then the credit is disallowed in full.  It’s unclear what happens if a corporation owns the system because Internal Revenue Code section 62 defines adjusted gross income only for individuals, meaning that corporations don’t have adjusted gross income.  That change goes into effect for taxable years beginning after December 31, 2026.

Second, there is an aggregate cap of $40 million statewide for each year from 2027 to 2030, and the credit is dead for taxable years beginning after December 31, 2029.  This relates to the third change, which is that there is a new certification procedure required, effective for taxable years beginning after December 31, 2025.  Taxpayers who have completed an alternative energy installation need to file some forms with the Hawaii State Energy Office before March 1st of the following year.  The HSEO will then notify each qualifying taxpayer of the amount of credit awarded, which may be somewhat less than what the taxpayer applied for if total statewide claims exceed the $40 million statewide cap.

This means that calendar year taxpayers who have 2026 installations will need to apply for HSEO certification.  Presumably, if the installation was finished and all inspections were passed in 2026, there would not be much for HSEO to review because neither the income limit nor the statewide cap kicks in until 2027.  For 2026 systems that get done toward the end of the year, there may be particular scrutiny of the inspections to see if the systems indeed passed in 2026 as opposed to 2027, when the statewide cap and the income limits become effective.

Taxpayers making plans to install alternative energy in the 2029-30 time frame also need to watch out.  Although there is a $40 million aggregate limit in 2030, calendar year taxpayers finishing installations in 2030 won’t be able to get any credits at all because of the sunset date.  The $40 million limit in 2030 can only be used by fiscal year taxpayers whose year starts in 2029 and ends in 2030.

Yes, this is complicated.  Look for more guidance to come out of the State if the bill is enacted.

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).

Senate Bill 3125 started off as an Administration bill to repeal the tax cuts that were promised in the 2024 tax cut bill but that haven’t gone into effect yet.  We have written about the House and Senate positions on this before.  The conference version of the bill looks mostly like the Senate version.  The 2024 changes to the standard deduction are left intact.  The tax bracket changes from the 2024 law are left in place for taxpayers making $350,000 or less (for joint filers, $175,000 single).  For those making more, the tax brackets that apply this year will remain in effect.  And, while the House’s proposed 10%, 11%, and 12% brackets did not make the final cut, there is a new 13% tax bracket for taxpayers making $1 million or more (for joint filers, $500,000 single).  The Capital Goods Excise Tax Credit, the High Technology Business Investment Tax Credit, the Renewable Fuels Production Tax Credit, the Technology Infrastructure Renovation Tax Credit, and the Tax Credit for Research Activities were all given sunset dates in either 2028 or 2029.  The Renewable Energy Technologies Credit (for photovoltaic installations, for example) is going to be available with an income limit ($350,000 joint, $175,000 single) and a statewide cap of $40 million until it sunsets on Jan. 1, 2031.

Senate Bill 3028, which was giving us the jitters about a possible massive increase in the conveyance tax, as we wrote about a few weeks ago, died in conference so we won’t have to worry about it for the time being.  It, or something like it, might be introduced next year.

House Bill 2329, which conforms our state tax law to provisions of the One Big Beautiful Bill Act, is on its way to final passage.  Little in the bill has changed since its introduction, and we will give you more specifics in next week’s column.

House Bill 1713 started off as a bill to add an exemption to school impact fees for small developments.  We had written that there was something wrong with the school impact fee system because our Department of Education was collecting the fees but couldn’t use them, allowing tens of millions of dollars to pile up unused.  Earlier committee drafts of the bill would have scrapped the impact fees entirely.  But the final version kept the fee, added a few more exemptions including one for smaller developments, and made the 2025 temporary partial repeal of the fee a permanent partial repeal.  It seems like the Department of Education came in behind the scenes with a big watering can and succeeded in dousing the repeal bill.

And then there is Senate Bill 2921, the raid bill that was introduced to scoop excess balances from hundreds of special and revolving funds.  The Conference Draft of the bill is the first one in which there are actual numbers.  The bill targets 18 funds for a total haul of $47 million, with the two largest victims being the tax administration special fund ($23 million) and the beverage container deposit special fund ($12 million).  This raid bill is somewhat underwhelming, especially given lawmakers’ focus earlier in the session on a $430 million unencumbered balance in the University of Hawaii tuition and fees special fund, which was targeted in Senate Bill 2602 and which we wrote about here.  Senate Bill 2602 quietly died in conference.

Stay tuned for further news next week on the bills advancing toward the Land of Oz.

Tuesday, May 12, 2026
7:30am to 8:30am
The Pacific Club
1451 Queen Emma Street
Honolulu, Hawaii 96813

Continental Breakfast will be served.

Cost for TFH Members: $40
Cost for non-TFH Members: $55

Zoom only option: $25

Click HERE to register and pay via Paypal (Paypal account isn’t needed) or scam the QR code below.

Contact Colleen at colleen@tfhawaii.org by or before May 11 if you would like to register and pay by check.

Here is one of the budget bill entries:

This one is for a program in the Department of Agriculture and Biosecurity, abbreviated AGR.  Each department has a three-letter abbreviation, and a list of all of them is at the beginning of the bill.  The specific program is Animal Disease Control, which is coded AGR132.

The two columns of numbers are for the two years in the fiscal biennium, namely fiscal years 2025 and 2026.  In an even-numbered year like this one, changes, denoted by text that is bracketed and stricken through for deletions and underscored text for added material, are usually in the second column only.  The changes are made to last year’s appropriations bill, so text and numbers that are neither underlined nor bracketed are from the 2025 appropriations act.

The numbers with decimals, such as 25.68*, are position ceilings.  This program is allowed 25.68 full-time equivalent positions, with the asterisk (*) denoting that they are permanent positions.  A pound sign (#) is used for temporary positions.

The line following the position count is the monetary appropriation, in this case $3,119,582 with the “A” following the number meaning that it is a general fund appropriation.  The 25.68 full-time equivalent position count is being funded by this general fund appropriation.

The next line is an appropriation for the same program but with a different means of financing, this time “B” funds or special funds.  (A table with the different codes for means of financing appears at the beginning of the bill.)

The next couple of lines show an appropriation of “P” funds, other federal funds, which fund temporary position(s) of one full-time equivalent.

Finally, we see a $7 million appropriation for “C” funds, general obligation bond funds, but only for fiscal year 2025.  But this appropriation is listed under AGS, the Department of Accounting and General Services, instead.  That’s because DAGS usually handles construction projects; further down in the bill you will see that it is for construction for improvements to the animal industry facility in Halawa.

If you think all of this is confusing, you’re absolutely right.  Fortunately, the Appleseed Center for Law and Economic Justice has put together a tool to make sense of it all.  The Appleseed Center also publishes the Hawaii Budget Primer which further explains the budgeting processes and the different kinds of appropriations that appear in the budget.

Understanding the budget is your right as a taxpayer.  It’s (mostly) your money, after all.

This week we are looking at some of the bills that fell by the wayside – although it is still possible for conference committees to resurrect them by adding them to other bills that are still alive.  We are concentrating on bills that had enough support to pass from one chamber to the other; the fact that most of these are House bills simply means that the Senate, this year, was less inclined to move ideas forward for further discussion.

There were bills that proposed new taxes.  The proposed new taxes on concert tickets to support culture and the arts (HB 2604) and on gasoline-powered vehicle sales to support rebates for certain people who buy zero-emission cars (HB 2030) are dead, as is the proposed constitutional amendment to allow the State to add a surcharge to real property taxes, supposedly to support education (HB 2147).  A proposed unrealized gains surcharge in the estate tax (HB 2148) did not receive a hearing in the Senate.

Some bills proposed to hoist tax rates.  A bill proposing to end the lower tax rates on capital gains (HB 1850) kicked the bucket, as did a proposal to increase the barrel tax on fossil fuel products to fund electric vehicle charging systems (HB 1620).  We wrote earlier about several bills that would force rental car companies to pay significantly more in Hawaii Use Tax when they bring in new cars for rental.  There were six of these bills, all based on the premise (a faulty premise, as we argued in the prior article) that rental car companies were benefiting from a tax loophole.  All six variants now sit on the cutting room floor.  And, last but not least, a bill proposed replacing the current liquor tax rates with different rates based on alcohol by volume (HB 1991), although it’s hard to say whether or to what extent rate hikes were proposed because the rates in the bill were blanked out.

Many bills proposed tax credits.  A bill proposing a credit for diaper purchases (HB 2214) was shelved, as was one suggesting a credit for automated external defibrillators in the workplace (HB 1535) and for a qualifying apprenticeship program (HB 1851).  A Senate bill proposed a credit for qualified insurers that offer one or more federally qualified health savings account eligible high deductible health plans (SB 2431).

Owner-occupants, after buying a home, might be stuck with the real property tax classification of the property seller because the sale occurs after the deadline to claim a home exemption from property tax.  A bill to force the counties to adjust the classification immediately (SB 3333) was killed in the House.  That bill may not be a solution anyway, because under our state constitution counties and not the State have exclusive jurisdiction over the real property tax.  (Tell your county council that this issue needs some attention!)

Of course, there is still a lot going on in the session.  Many tax bills are still in play, and we have been reporting about many of them.  We will share more information about the remaining bills in this space.

The last committee to consider the bill with public input was the Senate Ways and Means Committee.  In accord with that committee’s normal practice, the committee did not hold a hearing on the bill because a previous Senate committee had already heard it.  Instead, WAM held a decision-making meeting where written testimony could be submitted but oral testimony was not taken.

We submitted testimony on this bill.  We made the same arguments we made in this space before, and even attached a copy of our previous Weekly Commentary that ended with:  “Someone needs to rewrite this bill or put it out of its misery.”

We also did something unusual.  We rewrote the bill.  We wrote a draft that got rid of the parts of the bill requiring second tax returns and public disclosure.  We replaced them with provisions that would allow DBEDT to conduct a study of tax expenditures with the information that is already on tax returns, like how the federal government allows the Department of Commerce to access IRS tax return data.  We put the redraft in our testimony.

WAM adopted our redraft.

The committee report doesn’t say much about our contribution.  The committee report states simply, “Accordingly, your Committee has amended this measure by:  (1)  Deleting language requiring:  (A)  Taxpayers to file tax expenditure disclosure forms as a condition for claiming certain income tax credits and general excise tax and use tax exemptions; and (B)  The Department of Business, Economic Development, and Tourism to use information from the tax expenditure disclosure forms in their evaluation of the effectiveness of tax expenditures; and (2)  Instead, authorizing Department of Business, Economic Development, and Tourism staff who are conducting an evaluation of tax expenditures to examine income tax, general excise tax, and use tax returns.”

In the decision-making meeting, however, Chair Dela Cruz said:  “Recommendation is to pass with amendments, to take the Tax Foundation’s amendments in testimony.”

No discussion.  Vote taken.  Done.  It all happened in about 10 seconds.

We gave them an off-ramp.  They took it. We, for one, are very grateful that a potential train wreck for Hawaii taxpayers has been avoided.

We are also thankful for those of you who made their opinions known to our lawmakers and supported our efforts at the Foundation.

The job is not over, however.  Conference Committee meetings now begin.  We are hopeful that any conference draft will be similar to WAM’s.