REPORT TITLE:


DESCRIPTION:


 
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THE SENATE                              S.B. NO.           
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO THE RESEARCH AND DEVELOPMENT INCOME TAX CREDIT FOR
   QUALIFIED EXPENDITURES.



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

 1      SECTION 1.  Chapter 235, Hawaii Revised Statutes, is
 
 2 amended by adding a new section to be appropriately designated
 
 3 and to read as follows:
 
 4      "235-A  Tax credit for increasing research activities.  (a)
 
 5 Section 41 (with respect to the credit for increasing research
 
 6 activities) and section 280C(c) (with respect to certain expenses
 
 7 for which the credit for increasing research activities are
 
 8 allowable) of the Internal Revenue Code shall be operative for
 
 9 the purposes of this chapter as provided in this section.
 
10      (b)  All references to Internal Revenue Code sections within
 
11 section 41 and section 280C(c) of the Internal Revenue Code shall
 
12 be operative for purposes of this section.
 
13      (c)  There shall be allowed to each taxpayer subject to the
 
14 tax imposed by this chapter, an income tax credit for increasing
 
15 research activities that shall be deductible from the taxpayer's
 
16 net income tax liability, if any, imposed by this chapter for the
 
17 taxable year in which the credit is properly claimed.
 
18      (d)  The tax credit for increased research activities shall
 

 
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 1 be equal to the sum of:
 
 2      (1)  2.5 per cent of the excess (if any) of:
 
 3           (A)  The qualified research expenses for the taxable
 
 4                year, over
 
 5           (B)  The base amount; and
 
 6      (2)  2.5 per cent of the basic research payments determined
 
 7           under section 41(e)(1)(A) of the Internal Revenue Code.
 
 8      (e)  For purposes of this section:
 
 9      (1)  The alternative incremental credit in section 41(c)(4)
 
10           of the Internal Revenue Code shall be equal to the sum
 
11           of 12.5 per cent of:
 
12           (A)  1.65 per cent of so much of the qualified research
 
13                expenses for the taxable year as exceeds 1 per
 
14                cent of the average described in section
 
15                41(c)(1)(B) but does not exceed 1.5 per cent of
 
16                such average;
 
17           (B)  2.2 per cent of so much of such expenses as
 
18                exceeds 1.5 per cent of such average but does not
 
19                exceed 2 per cent of such average; and
 
20           (C)  2.75 per cent of so much of such expenses as
 
21                exceeds 2 per cent of such average;
 
22      (2)  The term "qualified research" under section 41(d) of
 

 
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 1           the Internal Revenue Code shall not include research
 
 2           conducted outside of the State;
 
 3      (3)  The term "basic research" under section 41(e) of the
 
 4           Internal Revenue Code shall not include research
 
 5           conducted outside of the State; and
 
 6      (4)  Notwithstanding section 41(h) of the Internal Revenue
 
 7           Code, the tax credit provided in this section shall
 
 8           expire on December 31, 2005.
 
 9      (f)  The amount of reduced credit in section 280C(c)(3)(B)
 
10 of the Internal Revenue Code shall be equal to the excess of:
 
11      (1)  The amount of credit determined under section 41(a) (as
 
12           provided for in this section) (without regard to this
 
13           paragraph); over
 
14      (2)  the product of:
 
15           (A)  The amount described in section f(1); and
 
16           (B)  12.5 per cent of the maximum rate of tax under
 
17                section 11(b)(1) of the Internal Revenue Code.
 
18      (g)  If the tax credit for increased research activities
 
19 claimed by a taxpayer exceeds the amount of income tax payment
 
20 due from the taxpayer, the excess of the tax credit over payments
 
21 due may be used as a credit against the taxpayer's income tax
 
22 liability in subsequent years until exhausted.
 

 
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 1      (h)  All claims for a tax credit under this section must be
 
 2 filed on or before the end of the twelfth month following the
 
 3 close of the taxable year for which the credit may be claimed.
 
 4 Failure to properly claim the credit shall constitute a waiver of
 
 5 the right to claim the credit.
 
 6      (i)  The director of taxation may adopt any rules under
 
 7 chapter 91 and forms necessary to carry out this section. "
 
 8 SECTION 2.  Section 235-2.3, Hawaii Revised Statutes, is amended
 
 9 by amending subsection (b) to read as follows:
 
10      "(b)  The following Internal Revenue Code subchapters, parts
 
11 of subchapters, sections, subsections, and parts of subsections
 
12 shall not be operative for the purposes of this chapter, unless
 
13 otherwise provided:
 
14      (1)  Subchapter A (sections 1 to 59A) (with respect to
 
15           determination of tax liability), except section 1(h)(3)
 
16           (relating to net capital gain reduced by the amount
 
17           taken into account as investment income), except
 
18           section 41 (with respect to tax credit for increasing
 
19           research activities), section 42 (with respect to low-
 
20           income housing credit), and except sections 47 and 48,
 
21           as amended, as of December 31, 1984 (with respect to
 
22           certain depreciable tangible personal property).  For
 

 
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 1           treatment, see sections 235-   , 235-110.7, and
 
 2           235-110.8;
 
 3      (2)  Section 78 (with respect to dividends received from
 
 4           certain foreign corporations by domestic corporations
 
 5           choosing foreign tax credit);
 
 6      (3)  Section 86 (with respect to social security and tier 1
 
 7           railroad retirement benefits);
 
 8      (4)  Section 103 (with respect to interest on state and
 
 9           local bonds).  For treatment, see section 235-7(b);
 
10      (5)  Section 120 (with respect to amounts received under
 
11           qualified group legal services plans).  For treatment,
 
12           see section 235-7(a)(9) to (11);
 
13      (6)  Section 122 (with respect to certain reduced uniformed
 
14           services retirement pay).  For treatment, see section
 
15           235-7(a)(3);
 
16      (7)  Section 135 (with respect to income from United States
 
17           savings bonds used to pay higher education tuition and
 
18           fees).  For treatment, see section 235-7(a)(1);
 
19      (8)  Subchapter B (sections 141 to 150) (with respect to tax
 
20           exemption requirements for state and local bonds);
 
21      (9)  Section 151 (with respect to allowance of deductions
 
22           for personal exemptions).  For treatment, see section
 

 
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 1           235-54;
 
 2     (10)  Section 196 (with respect to deduction for certain
 
 3           unused investment credits);
 
 4     (11)  Sections 241 to 247 (with respect to special deductions
 
 5           for corporations).  For treatment, see section
 
 6           235-7(c);
 
 7     (12)  Section 280C (with respect to certain expenses for
 
 8           which credits are allowable)[;], except section 280C(c)
 
 9           (with respect to certain expenses for which credit for
 
10           increasing research activities is allowable).  For
 
11           treatment, see section 235-   ;
 
12     (13)  Section 291 (with respect to special rules relating to
 
13           corporate preference items);
 
14     (14)  Section 367 (with respect to foreign corporations);
 
15     (15)  Section 501(c)(12), (15), (16) (with respect to exempt
 
16           organizations);
 
17     (16)  Section 515 (with respect to taxes of foreign countries
 
18           and possessions of the United States);
 
19     (17)  Subchapter G (sections 531 to 565) (with respect to
 
20           corporations used to avoid income tax on shareholders);
 
21     (18)  Subchapter H (sections 581 to 597) (with respect to
 
22           banking institutions), except section 584 (with respect
 

 
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 1           to common trust funds).  For treatment, see chapter
 
 2           241;
 
 3     (19)  Section 642(a) and (b) (with respect to special rules
 
 4           for credits and deductions applicable to trusts).  For
 
 5           treatment, see sections 235-54(b) and 235-55;
 
 6     (20)  Section 668 (with respect to interest charge on
 
 7           accumulation distributions from foreign trusts);
 
 8     (21)  Subchapter L (sections 801 to 848) (with respect to
 
 9           insurance companies).  For treatment, see sections
 
10           431:7-202 and 431:7-204;
 
11     (22)  Section 853 (with respect to foreign tax credit allowed
 
12           to shareholders).  For treatment, see section 235-55;
 
13     (23)  Subchapter N (sections 861 to 999) (with respect to tax
 
14           based on income from sources within or without the
 
15           United States), except sections 985 to 989 (with
 
16           respect to foreign currency transactions).  For
 
17           treatment, see sections 235-4, 235-5, [and] 235-7(b),
 
18           and 235-55;
 
19     (24)  Section 1042(g) (with respect to sales of stock in
 
20           agricultural refiners and processors to eligible farm
 
21           cooperatives);
 
22     (25)  Section 1055 (with respect to redeemable ground rents);
 

 
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 1     (26)  Section 1057 (with respect to election to treat
 
 2           transfer to foreign trust, etc., as taxable exchange);
 
 3     (27)  Sections 1291 to 1298 (with respect to treatment of
 
 4           passive foreign investment companies);
 
 5     (28)  Subchapter Q (sections 1311 to 1351) (with respect to
 
 6           readjustment of tax between years and special
 
 7           limitations); and
 
 8     (29)  Subchapter U (sections 1391 to 1397F) (with respect to
 
 9           designation and treatment of empowerment zones,
 
10           enterprise communities, and rural development
 
11           investment areas).  For treatment, see chapter 209E."
 
12      SECTION 3.  Statutory material to be repealed is bracketed.
 
13 New statutory material is underscored.
 
14      SECTION 4.  This Act, upon its approval, shall apply to
 
15 taxable years beginning after December 31, 1999.
 
16 
 
17                           INTRODUCED BY: ________________________
 

 
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