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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 TAXATION.



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

 1      SECTION 1.  The legislature finds that Hawaii's economy
 
 2 continues to depend upon the health of the visitor industry,
 
 3 which is in need of revitalization.  In addition, the legislature
 
 4 finds that seventy per cent or more of Hawaii's visitor
 
 5 accommodations are in dire need of refurbishing, repair, or
 
 6 renovation.  Many are more than twenty or thirty years old.
 
 7 There is also a need for visitor accommodations to add capacity
 
 8 or new facilities to meet the changing market needs of visitors.
 
 9 Act 108, Session Laws of Hawaii 1997, was enacted to provide a
 
10 tax credit aimed at visitor accommodation remodeling and
 
11 upgrades.  The credit was to encourage the owners of these
 
12 facilities to refurbish, repair, and renovate their facilities.
 
13 Newly remodeled facilities can generate additional tax revenues
 
14 providing a sound return on the State's initial investment.  This
 
15 tax credit, however, was available only for the 1997 and 1998 tax
 
16 years.
 
17      The purpose of this Act is to provide a new credit similar
 
18 to the hotel remodeling tax credit which would be available from
 
19 tax years beginning after December 31, 1998 and before
 

 
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 1 December 31, 2001.  This new credit will provide incentives for
 
 2 new construction.  In addition, the credit enacted in 1997 was
 
 3 capped at an amount equal to ten per cent of the transient
 
 4 accommodations taxes paid by the qualified hotel facility.  To
 
 5 increase the value of this credit, this Act has no cap.  This Act
 
 6 also allows the association of apartment owners of a hotel-condo
 
 7 as defined in section 486K-1 to claim the credit.  Persons who
 
 8 take the credit will have the option of treating the credit as
 
 9 taxable income or reducing the basis of the property by the
 
10 amount of the credit.
 
11      SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended
 
12 by adding a new section to be appropriately designated and to
 
13 read as follows:
 
14      "235-      Hotel construction and remodeling tax credit.
 
15 (a)  There shall be allowed to each taxpayer subject to the taxes
 
16 imposed by this chapter and chapter 237D or the association of
 
17 apartment owners of a hotel-condo as defined in section 486K-1 an
 
18 income tax credit which shall be deductible from the taxpayer's
 
19 or association of apartment owners' net income tax liability, if
 
20 any, imposed by this chapter for the taxable year in which the
 
21 credit is properly claimed.
 
22      The amount of the credit shall be four per cent of the
 
23 construction or renovation costs incurred during the taxable year
 

 
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 1 for each qualified hotel facility located in Hawaii, and shall
 
 2 not include the construction or renovation costs for which
 
 3 another credit was claimed under this chapter for the taxable
 
 4 year.
 
 5      In the case of a partnership, S corporation, estate, trust,
 
 6 or the association of apartment owners of a hotel-condo as
 
 7 defined in section 486K-1, the tax credit allowable is for
 
 8 construction or renovation costs incurred by the entity for the
 
 9 taxable year.  The cost upon which the tax credit is computed
 
10 shall be determined at the entity level.  Distribution and share
 
11 of credit shall be determined pursuant to section 235-110.7(a).
 
12      If a deduction is taken under section 179 (with respect to
 
13 election to expense depreciable business assets) of the Internal
 
14 Revenue Code of 1986, as amended, no tax credit shall be allowed
 
15 for that portion of the renovation cost for which the deduction
 
16 is taken.
 
17      The basis of eligible property for depreciation or ACRS
 
18 purposes for state income taxes shall be reduced by the amount of
 
19 credit allowable and claimed.  Alternatively, the taxpayer shall
 
20 treat the amount of credit allowable and claimed as a taxable
 
21 income item for the taxable year in which it is properly
 
22 recognized under the method of accounting used to compute taxable
 
23 income.
 

 
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 1      (b)  As used in this section:
 
 2      "Qualified hotel facility" means a hotel/hotel-condo as
 
 3 defined in section 486K-1.
 
 4      "Construction or renovation cost" means any costs for plans,
 
 5 design, construction, and equipment related to new construction,
 
 6 alterations, and modifications to a qualified hotel facility.
 
 7      (c)  The credit allowed under this section shall be claimed
 
 8 against the net income tax liability for the taxable year.  For
 
 9 the purpose of this tax credit, "net income tax liability" means
 
10 net income tax liability reduced by all other credits allowed
 
11 under this chapter.
 
12      (d)  If the tax credit under this section exceeds the
 
13 taxpayer's or association of apartment owners' income tax
 
14 liability, the excess of credit over liability shall be refunded
 
15 to the taxpayer or association of apartment owners; provided that
 
16 no refunds or payment on account of the tax credit allowed by
 
17 this section shall be made for amounts less that $1.  All claims
 
18 for a tax credit under this section must be filed on or before
 
19 the end of the twelfth month following the close of the taxable
 
20 year for which the credit may be claimed.  Failure to comply with
 
21 the foregoing provision shall constitute a waiver of the right to
 
22 claim the credit.
 
23      (e)  The director of taxation shall prepare such forms as
 

 
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 1 may be necessary to claim a credit under this section.  The
 
 2 director also may require the taxpayer to furnish information to
 
 3 ascertain the validity of the claim for credit made under this
 
 4 section and may adopt rules necessary to effectuate the purposes
 
 5 of this section pursuant to chapter 91.
 
 6      (f)  The tax credit allowed under this section shall be
 
 7 available for taxable years beginning after December 31, 1998,
 
 8 and shall not be available for taxable years beginning after
 
 9 December 31, 2001."
 
10      SECTION 3.  New statutory material is underscored.
 
11      SECTION 4.  This Act shall take effect upon approval and
 
12 shall apply to taxable years beginning after December 31, 1998
 
13 and before December 31, 2001.
 
14 
 
15                           INTRODUCED BY:  _______________________
 

 
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