Our Big Tax Bill Act

by Tom Yamachika, President, Tax Foundation Hawaii

Our legislative session has ended but the journey of legislative bills has not.  Bills that have passed the Legislature now trek to the Capitol’s fifth floor, where Gov. Green and his staff considers them.  The Governor has until June 30 to send the Legislature a list of those bills he might veto; anything not on the list will become law with or without his signature.  The deadline for the Governor to sign or veto any bill is July 15 this year.

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.