Bill Text: HI SB975 | 2010 | Regular Session | Introduced

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Bill Title: Income Tax; High Technology Business Investment Tax Credit

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced - Dead) 2009-05-11 - Carried over to 2010 Regular Session. [SB975 Detail]

Download: Hawaii-2010-SB975-Introduced.html

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Report Title:

Income Tax; High Technology Business Investment Tax Credit

 

Description:

Amends the High Technology Investment credit, also known as Act 221, to provide an aggregate cap on the amount of high technology business investment tax credit issued per year.

 

THE SENATE	S.B. NO.	975
TWENTY-FIFTH LEGISLATURE, 2009
STATE OF HAWAII

A BILL FOR AN ACT

 

 

RELATING TO HIGH TECHNOLOGY BUSINESS INVESTMENT TAX CREDIT.

 

 

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 eligible 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.

     (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):

     (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 investing in the qualified high technology business; or

     (3)  The taxpayer has withdrawn the taxpayer's investment wholly or partially from the qualified high technology business;

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.  The amount of the credit recaptured 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 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 tax credit determined under this subsection shall be added to the taxpayer's tax liability for the taxable year in which the recapture occurs under this subsection.

     (e)  Every taxpayer, before [March 31] April 1 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)  All tax credit claims under this section shall be made pursuant to the following credit allotment procedures:

     (1)  Aggregate and periodic credit caps.  The maximum amount of tax credits available under this section shall not exceed the following amounts for the following periods:

         (A)  $80,000,000 for investments made beginning July 1, 2009 and ending December 31, 2009;

         (B)  $40,000,000 for investments made beginning January 1, 2010 and ending June 30, 2010, plus any carryover credits available from unused allotments in subparagraph (A);

         (C)  $40,000,000 for investments made beginning July 1, 2010 and ending December 31, 2010, plus any carryover credit available from unused allotments in subparagraph (B);

          provided that the maximum amount of tax credits available under this section shall not exceed $160,000,000_for all periods beginning after June 30, 2009 and before January 1, 2011. 

     (2)  Credit allotment application.  Beginning July 1, 2009, the department shall allot up to the maximum amount of tax credits as provided in paragraph (1).  A qualified high technology business may apply to the department for an allotment of tax credits.  A qualified high technology business may apply for an allotment of tax credits in any amount not to exceed $10,000,000 per qualified high technology business per calendar year.  A qualified high technology business may apply for an allotment of tax credits, on the form prescribed by the department, no earlier than thirty days before the beginning of the allotment period for which it seeks allotment.  All allotments issued by the department shall be made on a first to file basis only. 

     (3)  Allotment periods.  Allotments of tax credits shall be issued and valid for the following allotment periods:

         (A)  For credits available in paragraph (1)(A), the allotments shall be issuable beginning July 1, 2009 and valid for placement of credits through December 31, 2009;

         (B)  For credits available in paragraph (1)(B), the allotments shall be issuable beginning January 1, 2010 and valid for placement of credits through June 30, 2010; and

         (C)  For credits available in paragraph (1)(C), the allotments shall be issuable beginning July 1, 2010 and valid for placement of credits through December 31, 2010.

     (4)  Credits for completed investments; loss of future allotments.  A qualified high technology business that receives an allotment of credits shall be entitled to receive investments for which credits may be claimed under this section; provided all other requirements of this section have been satisfied, up to the maximum amount of credits allotted to that qualified high technology business.  Where a qualified high technology business obtains less investments than the amount of credits allotted at the time the allotment expires, the difference between the amount of allotted credits and the amount of the investment received for which a credit may be claimed shall revert back to the department for distribution as carryover credits available as provided in paragraph (1).  A qualified high technology business that receives investments that are less than ninety per cent of the allotted credits during the allotment period shall be precluded from receiving a credit allotment for the allotment period immediately following the allotment period in which a credit allotment was received.

     (5)  Fees.  The department is authorized to assess a fee for requests for credit allotments.  The fee shall be $1,000 for every $1,000,000 of credit requested or fraction thereof; provided that the fee shall be $500 for credit requests of less than $1,000,000.  The fee shall be refunded for any applications of credit allotment denied due to the exhaustion of the tax credits for the allotment period.

     (6)  Confirmation of allotted credits.  Within fifteen days after the end of the allotment period, every qualified high technology business receiving a credit allotment must prove to the department's satisfaction by the last day of the allotment period that the investment transaction was completed for the respective allotment period.  For purposes of this paragraph, an investment transaction will be considered completed where the following events have occurred:

         (A)  The cash representing the investment into the qualified high technology business has been deposited into a bank account of the qualified high technology business; and

         (B)  The equity interest in the qualified high technology business was issued in exchange for the cash investment.

          "Investment" as used in this paragraph is as defined in section 235-1.  Upon determining that the investment transaction has been completed, the department will issue a confirmation of the tax credits claimable, which must be attached to the tax return of any taxpayer claiming the allotted credits, including the tax return of an entity claiming credits for further allocation to its partners, members, or other equity holders.

     (7)  Non-transferable nature of allotments.  All credit allotments issued by the department are 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.

     (8)  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.

     [(g)] (h)  As used in this section:

     "Eligible qualified high technology business" means a qualified high technology business that has received an allotment of credits under subsection (g), limited to the amount of such allotted credits and the period as to which such credits were allotted.

     "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)] (i)  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)] (j)  This section shall not apply to taxable years beginning after December 31, 2010."

     SECTION 2.  Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

     SECTION 3.  This Act shall take effect upon approval and shall apply to investments made on or after July 1, 2009.

 

INTRODUCED BY:	_____________________________
	BY REQUEST