Bill Text: HI HB1451 | 2010 | Regular Session | Amended
Bill Title: High Technology Tax Credits; Workforce; Drop-down Subsidiary
Spectrum: Moderate Partisan Bill (Democrat 11-3)
Status: (Enrolled - Dead) 2009-05-11 - Carried over to 2010 Regular Session. [HB1451 Detail]
Download: Hawaii-2010-HB1451-Amended.html
Report Title:
High Technology Tax Credits; Workforce; Drop-down Subsidiary
Description:
Provides aggregate caps on the high technology business investment tax credit for each qualified high technology business and disallows 100% of the credit in the year that a recapture event occurs and each year thereafter. Requires a
per cent increase in workforce to continue claiming the research activities tax credit after two years. Requires a drop-down subsidiary to obtain a comfort letter. Repeals the technology infrastructure renovation tax credit. Effective 7/1/90. (SD2)
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HOUSE OF REPRESENTATIVES |
H.B. NO. |
1451 |
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TWENTY-FIFTH LEGISLATURE, 2009 |
H.D. 2 |
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STATE OF HAWAII |
S.D. 2 |
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A BILL FOR AN ACT
RELATING TO TAXATION.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. Section 235-110.9, Hawaii Revised Statutes, is amended to read as follows:
"§235-110.9 High technology business investment tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter a high technology business investment tax credit that shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the investment was made and the following four years provided the credit is properly claimed. The tax credit shall be as follows:
(1) In the year the investment was made, thirty-five per cent;
(2) In the first year following the year in which the investment was made, twenty-five per cent;
(3) In the second year following the investment, twenty per cent;
(4) In the third year following the investment, ten per cent; and
(5) In the fourth year following the investment, ten per cent;
of the investment made by the taxpayer in each qualified high technology business, up to a maximum allowed credit in the year the investment was made, $700,000; in the first year following the year in which the investment was made, $500,000; in the second year following the year in which the investment was made, $400,000; in the third year following the year in which the investment was made, $200,000; and in the fourth year following the year in which the investment was made, $200,000. For investments made in a qualified high technology business on or after July 1, 2009, the total maximum allowed credits available to all taxpayers for the sum of all of their investments in any single qualified high technology business invested in a single calendar year shall not exceed $3,500,000 for the year in which the investment was made; $2,500,000 for the first year following the year in which the investment was made; $2,000,000 for the second year following the year in which the investment was made; $1,000,000 for the third year following the year in which the investment was made; and $1,000,000 for the fourth year following the year in which the investment was made, for a total of $10,000,000 over that five-year period. The five-year period referenced in this subsection shall only refer to tax credits applicable to investments that were made in qualified high technology businesses on or before December 31, 2010. Under no circumstances shall the reference to the five-year period be interpreted to mean that the eligibility period for claiming tax credits for new investments in qualified high technology businesses is extended beyond December 31, 2010. After July 1, 2009, "taxpayer" shall mean the taxpayer that is ultimately liable to pay any applicable taxes and shall not include a partnership, limited liability company, or other pass-through entity; provided that any direct or indirect investment made into a qualified high technology business by a partnership, limited liability company, or other pass-through entity shall be deemed to have been made by their respective partners, members, or other beneficial owners who are the taxpayers that are ultimately liable to pay any applicable taxes.
(b) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year. For the purpose of this section, "net income tax liability" means net income tax liability reduced by all other credits allowed under this chapter. By accepting an investment for which the credit allowed under this section may be claimed, a qualified high technology business consents to the public disclosure of the qualified high technology business' name and status as a beneficiary of the credit under this section.
(c) If the tax credit under this section exceeds the taxpayer's income tax liability for any of the five years that the credit is taken, the excess of the tax credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. Every claim, including amended claims, for a tax credit under this section shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.
(d) If at the close of any taxable year in the
five-year period in subsection (a)[:], any of the following recapture
events occurs:
(1) The business no longer qualifies as a qualified high technology business;
(2) The business or an interest in the business has
been sold by the [taxpayer] person or entity directly investing
in the qualified high technology business; or
(3) The [taxpayer] person or entity
directly investing in the qualified high technology business has withdrawn
[the taxpayer's] its investment wholly or partially from the
qualified high technology business;
then the credit claimed under this section shall be recaptured. The recapture shall be equal to ten per cent of the amount of the total tax credit claimed under this section in the preceding two taxable years. In addition, one hundred per cent of the total tax credit that would otherwise be available for the year in which the recapture event occurs, and each year thereafter during the five-year period set forth in subsection (a), shall be disallowed. The amount of the credit recaptured or disallowed shall apply only to the investment in the particular qualified high technology business that meets the requirements of paragraph (1), (2), or (3). The recapture and disallowed credit provisions of this subsection shall not apply to a tax credit claimed for a qualified high technology business that does not fall within the provisions of paragraph (1), (2), or (3). The amount of the recaptured or disallowed tax credit determined under this subsection shall be added to the taxpayer's tax liability for the taxable year in which the recapture or disallowed credit occurs under this subsection.
(e) Every taxpayer, before March 31 of each year in which an investment in a qualified high technology business was made in the previous taxable year, shall submit a written, certified statement to the director of taxation identifying:
(1) Qualified investments, if any, expended in the previous taxable year; and
(2) The amount of tax credits claimed pursuant to this section, if any, in the previous taxable year.
(f) The department shall:
(1) Maintain records of the names and addresses of the taxpayers claiming the credits under this section and the total amount of the qualified investment costs upon which the tax credit is based;
(2) Verify the nature and amount of the qualifying investments;
(3) Total all qualifying and cumulative investments that the department certifies; and
(4) Certify the amount of the tax credit for each taxable year and cumulative amount of the tax credit.
Upon each determination made under this subsection, the department shall issue a certificate to the taxpayer verifying information submitted to the department, including qualifying investment amounts, the credit amount certified for each taxable year, and the cumulative amount of the tax credit during the credit period. The taxpayer shall file the certificate with the taxpayer's tax return with the department.
The director of taxation may assess and collect a fee to offset the costs of certifying tax credits claims under this section. All fees collected under this section shall be deposited into the tax administration special fund established under section 235-20.5.
(g) As used in this section:
"Investment tax credit allocation ratio" means, with respect to a taxpayer that has made an investment in a qualified high technology business, the ratio of:
(1) The amount of the credit under this section that is, or is to be, received by or allocated to the taxpayer over the life of the investment, as a result of the investment; to
(2) The amount of the investment in the qualified high technology business.
"Qualified high technology business" means a business, employing or owning capital or property, or maintaining an office, in this State; provided that:
(1) More than fifty per cent of its total business activities are qualified research; and provided further that the business conducts more than seventy-five per cent of its qualified research in this State; or
(2) More than seventy-five per cent of its gross income is derived from qualified research; and provided further that this income is received from:
(A) Products sold from, manufactured in, or produced in this State; or
(B) Services performed in this State.
"Qualified research" means the same as defined in section 235-7.3.
(h) Common law principles, including the doctrine of economic substance and business purpose, shall apply to any investment. There exists a presumption that a transaction satisfies the doctrine of economic substance and business purpose to the extent that the special allocation of the high technology business tax credit has an investment tax credit ratio of 1.5 or less of credit for every dollar invested.
Transactions for which an investment tax credit allocation ratio greater than 1.5 but not more than 2.0 of credit for every dollar invested and claimed may be reviewed by the department for applicable doctrines of economic substance and business purpose.
Businesses claiming a tax credit for transactions with investment tax credit allocation ratios greater than 2.0 of credit for every dollar invested shall substantiate economic merit and business purpose consistent with this section.
(i) This section shall not apply to taxable years beginning after December 31, 2010.
(j) All claims of high technology business investment tax credits under this section for investments in qualified high technology businesses made after June 30, 2009, shall be made subject to the following aggregate and periodic credit caps and credit allotment procedures:
(1) Aggregate and periodic credit caps for all new investments. The maximum amount of high technology business investment tax credits available under this section shall not exceed the following amounts for the following periods:
(A) $100,000,000 to be claimed over the five-year period set forth in subsection (a) for investments made beginning on July 1, 2009, and through December 31, 2009;
(B) $100,000,000 to be claimed over the five-year period set forth in subsection (a), for investments made during each subsequent calendar year, beginning on January 1 and through December 31 of each respective calendar year, plus any carryover credits available from unused allotments from the prior calendar years and in subparagraph (A).
(2) Credit allotments. Beginning on July 1, 2009, the department shall allot to qualified high technology businesses up to the maximum amount of high technology business investment tax credits as provided in paragraph (1). A qualified high technology business may apply for an allotment of high technology business investment tax credits in any amount not to exceed an aggregate of $10,000,000 for investments it receives in a single calendar year (to be claimed over the five-year period set forth in subsection (a)) for investments, as defined in section 235-1, made in a qualified high technology business in the same calendar year. A qualified high technology business may apply for an allotment of high technology business investment credits, on a form prescribed by the department, on or after the day on which that qualified high technology business has received the investment for which that allotment is applied for; provided that in order to apply for that allotment, the qualified high technology business shall attest and declare to the department the amount of investment that the qualified high technology business has received for which it is applying for that allotment; provided further that the qualified high technology business submits to the department a copy of the checks, bank deposit receipts, wire transfer confirmations, or other evidence reasonably acceptable to the department to verify that the qualified high technology business has received the investment for which the allotment is being applied for. All allotments issued by the department shall be made on a first to apply basis only. Notices of all allotments and denials thereof shall be certified in writing and delivered to the respective qualified high technology business by the department by email, facsimile transmission, United States Postal Service, or other means reasonably requested by the qualified high technology business and approved by the department, within one business day of the department's receipt of the application for that allotment. If a qualified high technology business does not receive the full allotment of high technology business investment tax credits applied for, the qualified high technology business may, at an investor's option, refund to that investor all or any portion of that investor's investment for which allotment was applied for. An investor's right to receive a refund of its investment shall not negate or invalidate an investment's status as being nonrefundable or at risk, as required by section 235-1. The department shall post on its website in a manner accessible to the general public the total amount of allotments made, and the total unused allotments of credits remaining available under this subsection, which posting shall be updated by the department within one business day of making any allotment of credits pursuant to this subsection.
(3) Non-transferable nature of allotments. All credit allotments issued by the department shall be non-transferable, non-negotiable, and non-assignable; provided that a statutory conversion in the form of business entity shall not be considered a transfer or assignment.
(4) Credit claims subject to audit. Notwithstanding a credit allotment under this section, every claim for credit shall be subject to audit or review by the department.
(k) To qualify for the high technology business investment tax credit for an investment made on or after July 1, 2009, in a qualified high technology business that constitutes a "drop-down subsidiary", prior to receiving that investment, the qualified high technology business shall be required to obtain a private comfort letter ruling from the department that confirms its status as a qualified high technology business.
For purposes of this subsection, a "drop-down subsidiary" shall mean a qualified high technology business that is more than eighty per cent owned and controlled directly or indirectly, as defined in section 368(c) of the Internal Revenue Code and as stock ownership is applied pursuant to the rules in section 318 (with respect to constructive ownership of stock) of the Internal Revenue Code, by any company or entity that in the previous taxable year either owned assets located in the State of Hawaii worth more than $100,000,000 or earned gross income within the State of Hawaii of more than $50,000,000. This subsection and the ownership and control principles set forth in sections 368(c) and 318 of the Internal Revenue Code shall apply equally whether a drop-down subsidiary is a corporation, partnership, or limited liability company, provided that ownership of more than eighty per cent of either a capital interest or a profits interest of a partnership or limited liability company shall be deemed to be ownership of more than eighty per cent of that partnership or limited liability company for purposes of this subsection."
SECTION 2. Section 235-110.91, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:
"(c) There shall be allowed to each qualified high
technology business subject to the tax imposed by this chapter an income tax
credit for qualified research activities equal to the credit for research
activities provided by section 41 of the Internal Revenue Code and as modified
by this section. The credit shall be deductible from the taxpayer's net income
tax liability, if any, imposed by this chapter for the taxable year in which
the credit is properly claimed[.]; provided that to qualify for the
tax credit after the effective date of this Act, the taxpayer shall have
increased its workforce by per cent from what it was at the beginning of
the tax year for two consecutive years beginning after December 31, 2009."
SECTION 3. Section 235-110.51, Hawaii Revised Statutes, is repealed.
["§235-110.51 Technology
infrastructure renovation tax credit. (a) There shall be allowed to each
taxpayer subject to the taxes imposed by this chapter, an income tax credit
which shall be deductible from the taxpayer's net income tax liability, if any,
imposed by this chapter for the taxable year in which the credit is properly
claimed.
(b) The amount of the credit shall be four
per cent of the renovation costs incurred during the taxable year for each
commercial building located in Hawaii.
(c) In the case of a partnership, S
corporation, estate, trust, or any developer of a commercial building, the tax
credit allowable is for renovation costs incurred by the entity for the taxable
year. The cost upon which the tax credit is computed shall be determined at
the entity level. Distribution and share of credit shall be determined
pursuant to section 235-110.7(a).
(d) If a deduction is taken under section
179 (with respect to election to expense depreciable business assets) of the
Internal Revenue Code, no tax credit shall be allowed for that portion of the
renovation cost for which the deduction is taken.
(e) The basis of eligible property for
depreciation or accelerated cost recovery system purposes for state income
taxes shall be reduced by the amount of credit allowable and claimed. In the
alternative, the taxpayer shall treat the amount of the credit allowable and
claimed as a taxable income item for the taxable year in which it is properly
recognized under the method of accounting used to compute taxable income.
(f) The credit allowed under this section
shall be claimed against the net income tax liability for the taxable year.
(g) If the tax credit under this section
exceeds the taxpayer's income tax liability, the excess of credit over
liability may be carried forward until exhausted.
(h) The tax credit allowed under this
section shall not be available for taxable years beginning after December 31,
2010.
(i) As used in this section:
"Net income tax liability" means
income tax liability reduced by all other credits allowed under this chapter.
"Renovation costs" means costs
incurred after December 31, 2000, to plan, design, install, construct, and
purchase technology-enabled infrastructure equipment to provide a commercial
building with technology-enabled infrastructure.
"Technology-enabled
infrastructure" means:
(1) High speed telecommunications systems
that provide Internet access, direct satellite communications access, and
videoconferencing facilities;
(2) Physical security systems that identify
and verify valid entry to secure spaces, detect invalid entry or entry
attempts, and monitor activity in these spaces;
(3) Environmental systems to include
heating, ventilation, air conditioning, fire detection and suppression, and
other life safety systems; and
(4) Backup and emergency electric power
systems.
(j) No taxpayer that claims a credit under
this section shall claim any other credit under this chapter."]
SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 5. This Act shall take effect on July 1, 2090.
