REPORT TITLE:
Lender Exemptions


DESCRIPTION:
Encourages lending for commercial projects and for small and
emerging high technology businesses pursuing innovative
techniques by making exemptions from current taxation law.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           1457
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO LENDER EXEMPTIONS.



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

 1      SECTION 1.  The purpose of this Act is to encourage lending
 
 2 for commercial projects and for small and emerging high
 
 3 technology businesses pursuing innovative techniques and the
 
 4 application of technology in industry in this State.  Making
 
 5 exemptions from certain state laws available to lenders without a
 
 6 registration requirement will expand the sources for residential
 
 7 and commercial lending in the State of Hawaii, and expand the
 
 8 sources of lending for small and emerging high technology
 
 9 businesses including funds for the start-up and early stage
 
10 businesses.
 
11      SECTION 2.  Chapter 241, Hawaii Revised Statutes, is amended
 
12 by adding a new section to be appropriately designated and to
 
13 read as follows:
 
14      "241-    Exemptions.  This chapter shall not apply to
 
15 amounts received, charged, or attributable to loans or other
 
16 extensions of credit, whether secured or unsecured, made to a
 
17 high technology business."
 
18      SECTION 3.  Section 207-11, Hawaii Revised Statutes, is
 
19 amended by amending the definition of "foreign lender" to read as
 

 
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 1 follows:
 
 2      ""Foreign lender" means [(A) "a depository institution" as
 
 3 defined in section 501(a)(2) of the federal Depository
 
 4 Institutions Deregulation and Monetary Control Act of 1980, a
 
 5 "real estate investment trust" as defined in the Internal Revenue
 
 6 Code, an insurance company, the principal office of which is in
 
 7 another state, whether incorporated or unincorporated and whether
 
 8 acting in its individual capacity or in a fiduciary capacity, (B)
 
 9 the trustee or trustees from time to time in office of any
 
10 employee benefit plan, (C) a lender approved by the Secretary of
 
11 the United States Department of Housing and Urban Development for
 
12 participation in any mortgage insurance program under the
 
13 National Housing Act, (D) any corporation of which all of the
 
14 capital stock (except the directors' qualifying shares) is owned
 
15 by one or more foreign lenders specified in (A), (B), and (C),
 
16 and (E) any corporation of which all of the capital stock (except
 
17 for the directors' qualifying shares) is owned by one or more
 
18 foreign lenders specified in (D), but the term "foreign lender"
 
19 does not include any financial services loan company licensed
 
20 under article 9 of chapter 412.] any person who:
 
21      (1)  Does not otherwise transact business in this State
 
22           (except for the permitted activities described in
 
23           section 207-13);
 

 
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 1      (2)  Makes or invests in loans or other extensions of credit
 
 2           aggregating more than $1,000,000 per year, wherever the
 
 3           loans or investments may be made; and
 
 4      (3)  Is any of the following:
 
 5           (A)  A foreign financial institution;
 
 6           (B)  A "real estate investment trust", a "real estate
 
 7                mortgage investment conduit" or a "financial asset
 
 8                securitization investment trust", as defined in
 
 9                the federal Internal Revenue Code of 1986, as
 
10                amended;
 
11           (C)  A lender approved by the Secretary of the United
 
12                States Department of Housing and Urban Development
 
13                for participation in any mortgage insurance
 
14                program under the National Housing Act; or
 
15           (D)  An institutional lender, insurance company, trust,
 
16                pension fund, employee benefit plan, special
 
17                purpose financing organization, entity, or
 
18                enterprise, or other financial intermediary.
 
19 The term "foreign lender" does not include any "Hawaii financial
 
20 institution" or "federal financial institution" whose operations
 
21 are principally conducted in this State as defined in section
 
22 412:1-109 or any corporation or limited liability company for
 
23 which a certificate of authority has been granted and remains in
 

 
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                                     S.B. NO.           1457
                                                        
                                                        

 
 1 effect under chapter 415, 415B, or 428, or any partnership
 
 2 registered to transact business under chapter 425 or 425D or any
 
 3 other person that is a resident of this State or authorized to
 
 4 transact business in this State."
 
 5      SECTION 4.  Section 207-11, Hawaii Revised Statutes, is
 
 6 amended by amending the definition of "loans" to read as follows:
 
 7      ""Loans" means [obligations] either:
 
 8      (1)  Obligations secured by liens upon real property, or any
 
 9           interest in real property, situated in this State,
 
10           which liens may also cover such personal property as is
 
11           or may from time to time be affixed or attached to or
 
12           located on or in or about the real property or any
 
13           improvements thereon or thereto, and include
 
14           obligations secured by liens upon real property or
 
15           interests therein situated both within and without this
 
16           State[.]; or
 
17      (2)  Loans or other extensions of credit, whether secured or
 
18           unsecured, made to a high-technology business.
 
19      SECTION 5.  Section 207-11, Hawaii Revised Statutes, is
 
20 amended by adding four new definitions to be appropriately
 
21 inserted and to read as follows:
 
22      ""Foreign financial institution" means a person, other than
 
23 a Hawaii financial institution or a federal financial institution
 

 
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 1 whose operations are principally conducted in this State, which
 
 2 is authorized to engage under the laws of its jurisdiction of
 
 3 organization, or does engage, in the business of accepting
 
 4 deposits or making loans or engaging in the trust business."
 
 5      "High-technology" means the application of science,
 
 6 especially to industrial or commercial objectives, that involves
 
 7 highly advanced or specialized systems or devices in the areas
 
 8 of:
 
 9      (1)  Information technology, such as computer software,
 
10           Internet, multimedia, or telecommunications;
 
11      (2)  Biotechnology and ocean science technology, such as
 
12           mariculture, aquaculture, laser technology, medical
 
13           technology, tropical agriculture, or Hawaiian natural
 
14           products;
 
15      (3)  Space travel and exploration, such as astronomical
 
16           research; or
 
17      (4)  Engineering and electronics, such as digital data
 
18           processing, storage and/or transmission.
 
19 The term "high-technology" does not include any trade or business
 
20 involving the performance of services in the field of law,
 
21 architecture, accounting, actuarial science, performing arts,
 
22 athletics, financial services, or brokerage services; any
 
23 banking, insurance, financing, leasing, rental, investing, or
 

 
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                                     S.B. NO.           1457
                                                        
                                                        

 
 1 similar business; any business involving the production or
 
 2 extraction of products of a character with respect to which a
 
 3 deduction is allowable under section 611, 613, or 613A of the
 
 4 federal Internal Revenue Code of 1986, as amended; any business
 
 5 operating a hotel, motel, restaurant, or similar business; any
 
 6 trade or business involving a private office of a licensed health
 
 7 care professional, a group practice of licensed health care
 
 8 professionals, or nursing home.
 
 9      "High-technology business" means a business employing or
 
10 owning capital or property, or maintaining an office in this
 
11 State for the purposes of establishing or expanding operations in
 
12 this State and engaged in any of the following activities for
 
13 high technology services or products:  research, development,
 
14 manufacturing, production, distribution, marketing, or delivery.
 
15      "Person" means a natural person, entity, or organization,
 
16 including without limitation, an individual, corporation, limited
 
17 liability company, joint venture, partnership, sole
 
18 proprietorship, association, cooperative, estate, trust, or
 
19 government unit."
 
20      SECTION 6.  Section 207-12, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "207-12  Exemptions and immunities.  (a)  A foreign lender
 
23 [which (1)] that does not maintain a place of business in this
 

 
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                                     S.B. NO.           1457
                                                        
                                                        

 
 1 State[, (2)] and conducts its principal activities outside this
 
 2 State[, and (3) complies with this part,] does not by engaging in
 
 3 this State in any or all of the activities specified in section
 
 4 207-13[,] violate the laws of this State relating to doing
 
 5 business or doing a banking, trust, or insurance business, or
 
 6 become subject to chapter 412, 415, 415B, 425, 425D, 428, or 431,
 
 7 or become subject to any taxation which would otherwise be
 
 8 imposed for doing business in or doing a banking, trust, or
 
 9 insurance business in, or having gross income or receipts from
 
10 sources in, property in, or the conduct of any activity in, this
 
11 State, or become subject to any taxation under chapter 235, 237,
 
12 or 241, and no income or receipts of any foreign lender arising
 
13 out of any of the activities specified in the following section
 
14 shall constitute income from sources in, property in, or
 
15 activities conducted in this State for the purposes of any tax
 
16 imposed by this State[; provided that nothing in this part shall
 
17 be construed to exempt the real property of a foreign lender from
 
18 taxation to the same extent, according to its value, as other
 
19 real property is taxed, or to preclude the inclusion of the
 
20 dividends or other income from foreign lenders in the income of
 
21 individuals taxable under chapter 235 to the same extent as is
 
22 included dividends and other income from domestic lenders; and
 
23 provided further that if any such foreign lender shall acquire
 

 
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                                     S.B. NO.           1457
                                                        
                                                        

 
 1 any property in this State in enforcement of the rights of the
 
 2 foreign lender in the event of a default by any borrower, as
 
 3 permitted by section 207-13(4), then commencing one year after
 
 4 title to such property has vested in the foreign lender, the
 
 5 rents or other receipts received by the foreign lender from, and
 
 6 the proceeds of sale by the foreign lender of, such property
 
 7 shall be subject to taxation under chapters 235 and 237 in the
 
 8 same manner and to the same extent as if the rents, other
 
 9 receipts, or proceeds were received by a resident of this State;
 
10 and provided further that if any such foreign lender shall
 
11 otherwise acquire any property in this State or engage in any
 
12 business or activities in this State not specified in section
 
13 207-13, then the rents and other receipts received by the foreign
 
14 lender from such property and the proceeds of sale by the foreign
 
15 lender of such property and all income and receipts from the
 
16 foreign lender's business or activities in this State not
 
17 specified in section 207-13 shall be subject to taxation under
 
18 chapters 235 and 237 in the same manner and to the same extent as
 
19 if such rents, other receipts, proceeds, and income were received
 
20 by a resident of this State, but such other activities and
 
21 business shall not deprive the foreign lender of the immunities
 
22 and exemptions from taxation hereinabove stated with respect to
 
23 the activities specified in section 207-13].
 

 
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 1      (b)  Subsection (a) shall not be construed to:
 
 2      (1)  Exempt the real property of a foreign lender from
 
 3           taxation under county ordinance;
 
 4      (2)  Preclude the inclusion of dividends or other income
 
 5           received from foreign lenders in the income of
 
 6           individuals taxable under chapter 235;
 
 7      (3)  Exempt from taxation, under chapters 235 and 237, the
 
 8           rents and other receipts from property or proceeds of a
 
 9           sale of property in this State received by a foreign
 
10           lender commencing six months after title to the
 
11           property has vested in the foreign lender when the
 
12           property was acquired by the foreign lender in the
 
13           enforcement of its rights in the event of a default by
 
14           any borrower as permitted by section 207-13(4);
 
15      (4)  Exempt from taxation under chapters 235, 237, and 241,
 
16           as the case may be, any of the following:
 
17           (A)  Rents and other receipts from property or proceeds
 
18                of a sale of property acquired in this State by a
 
19                foreign lender except as permitted under section
 
20                207-13(4);
 
21           (B)  Income and receipts received by a foreign lender
 
22                for business or activities in this State not
 
23                specified in section 207-13; or
 

 
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 1           (C)  Interest in a corporation that constitutes equity
 
 2                for tax purposes as determined under the factors
 
 3                provided by section 385 of the federal Internal
 
 4                Revenue Code of 1986, as amended;
 
 5           provided, that these other activities and businesses
 
 6           shall not deprive the foreign lender of the immunities
 
 7           and exemptions from taxation hereinabove stated with
 
 8           respect to the activities specified in section 207-13
 
 9           and that an exemption is claimed in a form prescribed
 
10           by the director of taxation."
 
11      SECTION 7.  Section 207-13, Hawaii Revised Statutes, is
 
12 amended to read as follows:
 
13      "207-13  Permitted activities.  The activities permitted in
 
14 this State referred to in the preceding section are: 
 
15      (1)  Making loans; 
 
16      (2)  Receiving security for loans; 
 
17      (3)  Acquiring by assignment or otherwise partial or entire
 
18           interests in loans or in security for loans; 
 
19      (4)  Servicing (but servicing if conducted through offices
 
20           or facilities in this State only by or through
 
21           [individuals] persons who are authorized to transact
 
22           business in this State or are residents of[, or
 
23           corporations doing business in,] this State),
 

 
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                                     S.B. NO.           1457
                                                        
                                                        

 
 1           collecting, enforcing, or otherwise realizing upon
 
 2           loans or upon security for loans or upon interests
 
 3           therein; and taking, holding, and disposing of any
 
 4           property acquired (whether by purchase at any sale
 
 5           pursuant to foreclosure by suit or foreclosure under
 
 6           power of sale, or by foreclosure by entry, or by
 
 7           conveyance in lieu of foreclosure) in enforcement of
 
 8           the rights of the foreign lender in the event of
 
 9           default by any borrower; and 
 
10      (5)  Empowering agents and servants or in connection with,
 
11           and entering into and performing contracts, and doing
 
12           other acts and things necessary or appropriate for or
 
13           preliminary or incident to, any of the foregoing
 
14           activities, but not maintaining any office in this
 
15           State for the conduct of any such activities."
 
16      SECTION 8.  Section 241-1, Hawaii Revised Statutes, is
 
17 amended by adding two new definitions to be appropriately
 
18 inserted and to read as follows:
 
19      ""High-technology" means the application of science,
 
20 especially to industrial or commercial objectives, that involves
 
21 highly advanced or specialized systems or devices in the areas
 
22 of:
 
23      (1)  Information technology, such as computer software,
 

 
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                                     S.B. NO.           1457
                                                        
                                                        

 
 1           Internet, multimedia, or telecommunications;
 
 2      (2)  Biotechnology and ocean science technology, such as
 
 3           mariculture, aquaculture, laser technology, medical
 
 4           technology, tropical agriculture, or Hawaiian natural
 
 5           products;
 
 6      (3)  Space travel and exploration, such as astronomical
 
 7           research; or
 
 8      (4)  Engineering and electronics, such as digital data
 
 9           processing, storage and/or transmission.
 
10 The term "high-technology" does not include any trade or business
 
11 involving the performance of services in the field of law,
 
12 architecture, accounting, actuarial science, performing arts,
 
13 athletics, financial services, or brokerage services; any
 
14 banking, insurance, financing, leasing, rental, investing, or
 
15 similar business; any business involving the production or
 
16 extraction of products of a character with respect to which a
 
17 deduction is allowable under section 611, 613, or 613A of the
 
18 federal Internal Revenue Code of 1986, as amended; any business
 
19 operating a hotel, motel, restaurant, or similar business; any
 
20 trade or business involving a private office of a licensed health
 
21 care professional, a group practice of licensed health care
 
22 professionals, or nursing home.
 
23      "High-technology business" means a business employing or
 

 
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 1 owning capital or property, or maintaining an office in this
 
 2 State for the purposes of establishing or expanding operations in
 
 3 this State and engaged in any of the following activities for
 
 4 high technology services or products:  research, development,
 
 5 manufacturing, production, distribution, marketing, or delivery."
 
 6      SECTION 9.  Statutory material to be repealed is bracketed.
 
 7 New statutory material is underscored.
 
 8      SECTION 10.  This Act shall take effect upon its approval;
 
 9 provided that section 2 shall apply to calendar year 1999, and to
 
10 calendar years thereafter, or for fiscal year taxpayers to the
 
11 fiscal year in which January 1, 1999, occurs and for fiscal years
 
12 thereafter.
 
13 
 
14                              INTRODUCED BY:______________________