Bill Text: HI SB2293 | 2010 | Regular Session | Amended

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Bill Title: High Technology Research and Development Tax Credit

Spectrum: Moderate Partisan Bill (Democrat 5-1)

Status: (Introduced - Dead) 2010-02-10 - (S) Report adopted; Passed Second Reading and referred to WAM. [SB2293 Detail]

Download: Hawaii-2010-SB2293-Amended.html

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STAND. COM. REP. NO. 2153

 

Honolulu, Hawaii

                  

 

RE:    S.B. No. 2293

 

 

 

Honorable Colleen Hanabusa

President of the Senate

Twenty-Fifth State Legislature

Regular Session of 2010

State of Hawaii

 

Madam:

 

     Your Committee on Economic Development and Technology, to which was referred S.B. No. 2293 entitled:

 

"A BILL FOR AN ACT RELATING TO HIGH TECHNOLOGY,"

 

begs leave to report as follows:

 

     The purpose of this measure is to support Hawaii's science and technology industry by:

 

     (1)  Extending the ending date for the tax credit for research activities from December 31, 2010, to December 31, 2011; and

 

     (2)  Establishing a high technology research and development task force to develop legislative initiatives to improve the tax credit or establish alternatives to the tax credit.

 

     Testimony in support of this measure was submitted by the Department of Business, Economic Development, and Tourism; Hawaii Strategic Development Corporation; High Technology Development Corporation; The Chamber of Commerce of Hawaii; Puko‘a Scientific; and three individuals.  The Department of Taxation submitted testimony in opposition.  The Tax Foundation of Hawaii submitted comments.

 

     Written testimony presented to the Committee may be reviewed on the Legislature's website.

 

     In testimony, the Department of Taxation anticipated a revenue loss of approximately $20,000,000 in fiscal year 2012 for the one-year extension of the tax credit for research activities, but provided no information as to how the Department arrived at this figure.

 

     Your Committee finds that one of the key issues regarding the tax credit for research activities is how the revenues generated to the State by research and development companies compare to the expenses of the tax credit.  According to recent industry analysis, in 2008, $13,400,000 in tax credits was claimed.  Given a credit of twenty per cent of qualified expenses, the qualified expenses are five times the credit, or $67,000,000.  Typically, about half of companies' expenses are qualified, yielding total expenses of approximately $134,000,000 by companies relating to qualified research and development activities.  Wages average about sixty per cent of those expenses, with the remaining forty per cent attributable to a variety of expenses, including rent, etc.  The industry analysis is based on a six per cent income tax rate and a 4.5 per cent general excise tax rate to estimate the taxes directly paid by these companies, and an economic multiplier of two was used, as most of the wages and other expenses are recycled in the economy.  Finally, total revenue of about $14,400,000 is calculated to be attributable to the research and development efforts of the companies receiving $13,400,000 in tax credits, thereby showing that the refundable tax credit can generate more tax revenue than it costs the State in the form of the credit.

 

     Your Committee also finds that in a highly competitive industry, Hawaii's tax credit for research activities compares well with other countries and states.  While a direct comparison of comparable tax credits in other countries and jurisdictions is more difficult because the incentives are in various forms such as tax abatements or enhanced deductions, examples such as Canada's Quebec Province where overall tax credits can reach 72.5 per cent, illustrate the competition that Hawaii faces.

 

     Your Committee is in strong support of the extension of the tax credit for research activities, as a means of attracting and sustaining this critical sector of Hawaii's economy.

 

     As affirmed by the record of votes of the members of your Committee on Economic Development and Technology that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2293 and recommends that it pass Second Reading and be referred to the Committee on Ways and Means.

 

Respectfully submitted on behalf of the members of the Committee on Economic Development and Technology,

 

		____________________________ CAROL FUKUNAGA, Chair