REPORT TITLE:



DESCRIPTION:


 
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HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO THE HIGH-TECHNOLOGY BUSINESS INVESTMENT TAX CREDIT.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  Chapter 235, Hawaii Revised Statutes, is amended
 
 2 by adding to part VI a new section to be appropriately designated
 
 3 and to read as follows:
 
 4      "235-    High-technology business investment tax credit.
 
 5 (a)  There shall be allowed to each taxpayer subject to the taxes
 
 6 imposed by this chapter, a high technology investment tax credit
 
 7 which shall be deductible from the taxpayer's net income tax
 
 8 liability, if any, imposed by this chapter for the taxable year
 
 9 in which the credit is properly claimed.  The tax credit shall be
 
10 an amount equal to ten per cent of the investment made by the
 
11 taxpayer in each of the three consecutive tax years beginning on
 
12 or after January 1 following the enactment of this act, in a
 
13 qualified high technology business, up to a maximum allowed
 
14 credit of $500,000 for the tax year for each investment made by
 
15 the taxpayer.
 
16      (b)  The credit allowed under this section shall be claimed
 
17 against the net income tax liability for the taxable year.  For
 
18 purpose of this section, "net income tax liability" means net
 
19 income tax liability reduced by all other credits allowed under
 

 
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 1 this chapter.
 
 2      (c)  If the tax credit under this section exceeds the
 
 3 taxpayer's income tax liability, the excess of the tax credit
 
 4 over liability may be used as a credit against the taxpayer's
 
 5 income tax liability in subsequent years until exhausted.  All
 
 6 claims, including any amended claims, for tax credits under this
 
 7 section shall be filed on or before the end of the twelfth month
 
 8 following the close of the taxable year for which the credit may
 
 9 be claimed.  Failure to comply with the foregoing provision shall
 
10 constitute a waiver of the right to claim the credit.
 
11      (d)  As used in this section:
 
12      "Investment" means a nonrefundable investment, at risk (as
 
13 that term is used in Internal Revenue Code section 465) in a
 
14 qualified high technology business, of cash that is transferred
 
15 to the qualified high technology business, the transfer of which
 
16 is in connection with a transaction in exchange for stock,
 
17 interests in partnerships, joint ventures, or other entities,
 
18 licenses (exclusive or non-exclusive), rights to use technology,
 
19 marketing rights, warrants, options or any items similar to those
 
20 included herein, including but not limited to options or rights
 
21 to acquire any of the items included herein.  The nonrefundable
 
22 investment is entirely at risk of loss where repayment depends
 

 
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 1 upon the success of the qualified high technology business.  If
 
 2 the money invested is to be repaid to the taxpayer, no repayment
 
 3 except for dividends or interest, shall be made for at least
 
 4 three years from the date the investment is made.  The annual
 
 5 amount of any dividend and interest payment to the taxpayer shall
 
 6 not exceed twelve per cent of the amount of the investment.
 
 7      "Qualified high technology business" means:
 
 8 (1)  A business, employing or owning capital or  property, or
 
 9      maintaining an office, in this State; and
 
10 (2)  (A)  That has qualified research expenses paid or incurred
 
11           for research conducted in this State, or
 
12      (B)  That receives income derived from qualified research
 
13           expenses, provided that the income is received from
 
14           products sold from, manufactured, or produced in the
 
15           State; or services performed in this State.
 
16 The term "qualified high technology business" does not include
 
17 any trade or business involving the performance of services in
 
18 the field of law, engineering, architecture, accounting,
 
19 actuarial science, performing arts, consulting, athletics,
 
20 financial services, or brokerage services, or any trade or
 
21 business where the principal asset of the trade or business is
 
22 the reputation or skill of one or more of its employees; any
 

 
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 1 banking, insurance, financing, leasing, rental, investing, or
 
 2 similar business; any farming business, including the business of
 
 3 raising or harvesting trees; any business involving the
 
 4 production or extraction of products of a character with respect
 
 5 to which a deduction is allowable under section 611, 613, or 613A
 
 6 of the Internal Revenue Code; any business operating a hotel,
 
 7 motel, restaurant, or similar business; any trade or business
 
 8 involving a hospital, a private office of a licensed health care
 
 9 professional, a group practice of license health care
 
10 professionals, or nursing home.
 
11      (e)  For the purpose of this section "Qualified research
 
12 expenses" means
 
13      (1)  Research
 
14           (A)  With respect to which expenditures may be treated
 
15                as expenses under Internal Revenue Code section
 
16                174;
 
17           (B)  Which is undertaken for the purpose of discovering
 
18                information
 
19                (i)  Which is technological in nature; and
 
20               (ii)  The application of which is intended to be
 
21                     useful in the development of a new or
 
22                     improved business component of the taxpayer;
 

 
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 1                     and
 
 2           (C)  Substantially all of the activities of which
 
 3                constitute elements of a process of
 
 4                experimentation for a purpose described in
 
 5                paragraph (3).
 
 6           Such term does not include any activity described in
 
 7           paragraph (4).
 
 8      (2)  Tests to be applied separately to each business
 
 9           component.
 
10           (A)  Paragraph (1) shall be applied separately with
 
11                respect to each business component of the
 
12                taxpayer.
 
13           (B)  The term "business component" means any product,
 
14                process, computer software, technique, formula, or
 
15                invention which is to be
 
16                (i)  Held for sale, lease, or license; or
 
17               (ii)  Used by the taxpayer in a trade or business
 
18                     of the taxpayer.
 
19           (C)  Special rule for production processes.  Any plant
 
20                process, machinery, or technique for commercial
 
21                production of a business component shall be
 
22                treated as a separate business component (and not
 

 
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 1                as part of the business component being produced).
 
 2      (3)  Purposes for which research may qualify for credit. For
 
 3           purposes of paragraph (1)(C):
 
 4           (A)  Research shall be treated as conducted for a
 
 5                purpose described in this paragraph if it relates
 
 6                to:
 
 7                (i)  A new or improved function;
 
 8               (ii)  Performance; or
 
 9              (iii)  Reliability or quality.
 
10           (B)  Certain purposes not qualified.  Research shall in
 
11                no event be treated as conducted for a purpose
 
12                described in this paragraph if it relates to
 
13                style, taste, cosmetic, or seasonal design
 
14                factors.
 
15      (4)  Activities for which credit not allowed.  "Qualified
 
16           research expenses" shall not include the following:
 
17           (A)  Any research conducted after the beginning of
 
18                commercial production of the business component;
 
19           (B)  Any research related to the adaptation of an
 
20                existing business component to a particular
 
21                customer's requirement or need;
 
22           (C)  Any research related to the reproduction of an
 

 
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 1                existing business component (in whole or in part)
 
 2                from a physical examination of the business
 
 3                component itself or from plans, blueprints,
 
 4                detailed specifications, or publicly available
 
 5                information with respect to such business
 
 6                component;
 
 7           (D)  Any efficiency survey; activity relating to
 
 8                management function or technique; market research,
 
 9                testing, or development (including advertising or
 
10                promotions); routine data collection; or routine
 
11                or ordinary testing or inspection for quality
 
12                control;
 
13           (E)  Any research with respect to computer software
 
14                which is developed by (or for the benefit of) the
 
15                taxpayer primarily for internal use by the
 
16                taxpayer, other than for use in
 
17                (i)  An activity which constitutes qualified
 
18                     research (determined with regard to this
 
19                     subparagraph); or
 
20               (ii)  A production process with respect to which
 
21                     the requirements of paragraph (1) are met;
 
22           (F)  Any research conducted outside the State;
 

 
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 1           (G)  Any research in the social sciences, arts, or
 
 2                humanities; and
 
 3           (H)  Any research to the extent funded by any grant,
 
 4                contract, or otherwise by another person (or
 
 5                governmental entity)."
 
 6      SECTION 2.  New statutory material is underscored.
 
 7      SECTION 3.  This Act, upon its approval, shall apply to
 
 8 taxable years beginning after December 31, 1999 and before
 
 9 January 1, 2001.
 
10 
 
11                           INTRODUCED BY:  _______________________
 

 
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