Post-Assessment Collection of Delinquent State Taxes in Hawaii
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In 2009, Hawaii enacted a prospective fifteen-year civil statute of limitations for collection for most assessed tax obligations (Net Income Tax, General Excise Tax, Transient Accommodations Tax, Use Tax, Fuel Tax, Conveyance Tax, Rental Motor Vehicle and Tour Vehicle Surcharge, Nursing Facility Tax, and Insurance Premium Tax) via Act 166, Sections 6 through 14.
People with unpaid State of Hawaii Income Tax and General Excise Tax frequently ask whether Hawai’i has a statute of limitations on collection of unpaid, delinquent, or “back” taxes. Until July 1, 2009, the short answer was “no.”
In 2009, Hawaii enacted a prospective fifteen-year civil statute of limitations for collection for most assessed tax obligations (Net Income Tax, General Excise Tax, Transient Accommodations Tax, Use Tax, Fuel Tax, Conveyance Tax, Rental Motor Vehicle and Tour Vehicle Surcharge, Nursing Facility Tax, and Insurance Premium Tax) via Act 166, Sections 6 through 14.
“Collection.” Collection refers to active actions by the Department of Taxation Collection Division including the filing and enforcement of liens, financial account and wage garnishments, levy and offset of tax refunds, potential seizures of personal property, and formal legal proceedings to foreclose a tax lien against interests in real property.
“Assessment.” The limitations period for collection of unpaid or “back” taxes is fifteen years after assessment. Assessment can occur in a number of ways, but the most common method is by filing the required tax return. For purposes of the statute of limitations on collection, if an annual return is required, only the filing of the annual return will constitute assessment. Periodic returns, such as monthly or quarterly returns, are not sufficient for this purpose. See, for example, Hawaii Revised Statutes 237-40(a) [assessment starts upon the later of the filing of the annual return or the due date therefore] & HRS 237-40(b) [excepting “a failure to file the annual return.”]
Not Retroactive. Act 166 was not made retroactive. The earliest expiration date for any tax assessed prior to July 1, 2009, is June 30, 2024. The earliest date that liabilities assessed prior to July 1, 2009, will expire, barring tolling events, is June 30, 2024. Taxes assessed after July 1, 2009, barring tolling events, will expire fifteen years from the date of assessment.
Tax Fraud/Tax Evasion. Please keep in mind with respect to assessment, the State of Hawai’i Department of Taxation is permitted to challenge a return as false and fraudulent or with intent to evade tax at any time, but the burden of proof to prove such falsity or intention is placed upon the State.
Tolling Periods. There are a number of actions or occurrences that can extend or “toll” the fifteen year limitations period, summarized below:
1. For the period that the taxpayer agrees to suspend the period;
2. For the period that the taxpayer’s assets are in control or custody of a court in any proceeding before any court of the United States or any State, plus six months thereafter;
3. For the period that an “offer in compromise” pursuant to HRS section 231-3(10) is pending;
4. For the period that the taxpayer is outside the State for a continuous period of six months, with at least six months to run from the taxpayer’s return should the final return to the state be less than six months from the end of the fifteen years.
Possible Relief. Act 166 of 2009 has presented delinquent taxpayers with the prospect of relief that did not previously exist. Taxpayers anticipating prospective relief should be sure that they fall within its provisions. This article is an overview and is no substitute for consulting a competent tax professional and/or reviewing the section(s) applicable to your situation.
Fifteen years, however, may be too long to wait for relief for a variety of reasons and alternatives should be explored with a competent tax professional. Delinquent taxpayers should keep in mind that the policies and activity level of the Department of Taxation may well change in the period prior to June 30, 2024. In other words, the Department might become increasingly aggressive with obligations set to expire are resort to collection tactics that are not common today.
Tax professionals should review the applicable statutory language for each type of tax as the sections appear to be slightly different. The importance of filing annual returns or reconciliations remains of the utmost importance to qualify for relief.
This article is not intended as legal advice and concerns or questions should be addressed to a competent tax or legal professional.
Richard Paul McClellan III (c) 2012
ABOUT THE AUTHOR: Richard Paul McClellan III Lawyer
Richard Paul McClellan III Lawyer has been representing taxpayers in Hawaii in State of Hawaii Department of Taxation and Internal Revenue Service matters since 1993. His office is located at 820 Mililani Street, Suite 701, Honolulu, Hawaii 96183.
Copyright Richard Paul McClellan III Lawyer
More information about Richard Paul McClellan III Lawyer
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
In 2009, Hawaii enacted a prospective fifteen-year civil statute of limitations for collection for most assessed tax obligations (Net Income Tax, General Excise Tax, Transient Accommodations Tax, Use Tax, Fuel Tax, Conveyance Tax, Rental Motor Vehicle and Tour Vehicle Surcharge, Nursing Facility Tax, and Insurance Premium Tax) via Act 166, Sections 6 through 14.
“Collection.” Collection refers to active actions by the Department of Taxation Collection Division including the filing and enforcement of liens, financial account and wage garnishments, levy and offset of tax refunds, potential seizures of personal property, and formal legal proceedings to foreclose a tax lien against interests in real property.
“Assessment.” The limitations period for collection of unpaid or “back” taxes is fifteen years after assessment. Assessment can occur in a number of ways, but the most common method is by filing the required tax return. For purposes of the statute of limitations on collection, if an annual return is required, only the filing of the annual return will constitute assessment. Periodic returns, such as monthly or quarterly returns, are not sufficient for this purpose. See, for example, Hawaii Revised Statutes 237-40(a) [assessment starts upon the later of the filing of the annual return or the due date therefore] & HRS 237-40(b) [excepting “a failure to file the annual return.”]
Not Retroactive. Act 166 was not made retroactive. The earliest expiration date for any tax assessed prior to July 1, 2009, is June 30, 2024. The earliest date that liabilities assessed prior to July 1, 2009, will expire, barring tolling events, is June 30, 2024. Taxes assessed after July 1, 2009, barring tolling events, will expire fifteen years from the date of assessment.
Tax Fraud/Tax Evasion. Please keep in mind with respect to assessment, the State of Hawai’i Department of Taxation is permitted to challenge a return as false and fraudulent or with intent to evade tax at any time, but the burden of proof to prove such falsity or intention is placed upon the State.
Tolling Periods. There are a number of actions or occurrences that can extend or “toll” the fifteen year limitations period, summarized below:
1. For the period that the taxpayer agrees to suspend the period;
2. For the period that the taxpayer’s assets are in control or custody of a court in any proceeding before any court of the United States or any State, plus six months thereafter;
3. For the period that an “offer in compromise” pursuant to HRS section 231-3(10) is pending;
4. For the period that the taxpayer is outside the State for a continuous period of six months, with at least six months to run from the taxpayer’s return should the final return to the state be less than six months from the end of the fifteen years.
Possible Relief. Act 166 of 2009 has presented delinquent taxpayers with the prospect of relief that did not previously exist. Taxpayers anticipating prospective relief should be sure that they fall within its provisions. This article is an overview and is no substitute for consulting a competent tax professional and/or reviewing the section(s) applicable to your situation.
Fifteen years, however, may be too long to wait for relief for a variety of reasons and alternatives should be explored with a competent tax professional. Delinquent taxpayers should keep in mind that the policies and activity level of the Department of Taxation may well change in the period prior to June 30, 2024. In other words, the Department might become increasingly aggressive with obligations set to expire are resort to collection tactics that are not common today.
Tax professionals should review the applicable statutory language for each type of tax as the sections appear to be slightly different. The importance of filing annual returns or reconciliations remains of the utmost importance to qualify for relief.
This article is not intended as legal advice and concerns or questions should be addressed to a competent tax or legal professional.
Richard Paul McClellan III (c) 2012
ABOUT THE AUTHOR: Richard Paul McClellan III Lawyer
Richard Paul McClellan III Lawyer has been representing taxpayers in Hawaii in State of Hawaii Department of Taxation and Internal Revenue Service matters since 1993. His office is located at 820 Mililani Street, Suite 701, Honolulu, Hawaii 96183.
Copyright Richard Paul McClellan III Lawyer
More information about Richard Paul McClellan III Lawyer
View all articles published by Richard Paul McClellan III Lawyer
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
