REPORT TITLE:
Technology Omnibus


DESCRIPTION:
Consolidates high tech agencies under a special advisor for
technology development; creates tax credits for technology
training or job creation and investment in technology business;
prohibits the imposition of taxes on internet commerce; and
provides other incentives for Hawaii high tech companies. (SB1583
HD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1583
THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 1999                                H.D. 2
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO TECHNOLOGY.



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

 1                              PART I
 
 2      SECTION 1.  The legislature finds that Hawaii is one of the
 
 3 most geographically isolated communities on earth, and for many
 
 4 years, our economic opportunities were limited by this isolation.
 
 5 Recent advances in telecommunications, information technology,
 
 6 and the explosive growth of the internet, however, present
 
 7 significant new opportunities for the State to develop and
 
 8 diversify its economy, opening the global market to Hawaii
 
 9 businesses.
 
10      Fiber optic cables, connecting Hawaii with the mainland
 
11 United States and Asia, and new communications satellites have
 
12 dramatically increased both the volume of information sent and
 
13 the range of transmittal.  While transmission capacity increases,
 
14 costs continue to fall.  Today, internet commerce represents a
 
15 small fraction of all business transacted, but industry watchers
 
16 estimate that within the next seven years, half of all business
 
17 and consumer purchases will be done by computer.  In this new
 
18 era, connection is everything.
 

 
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 1      The legislature further finds that Hawaii's opportunities
 
 2 also represent new challenges.  Businesses -- particularly the
 
 3 small, start-ups associated with high technology -- no longer
 
 4 need to factor in Hawaii's geographic isolation, but must still
 
 5 consider the cost of doing business in the State.  They also face
 
 6 a confusing, often overlapping, group of state agencies that
 
 7 provide support for technology-related business.  Providing
 
 8 targeted assistance to these businesses, as well as a clear focus
 
 9 of responsibility within state government for aggressive
 
10 development and support of high technology resources, will better
 
11 serve the burgeoning technology industry.
 
12      The legislature also finds that education will be forever
 
13 changed as businesses and workers alike demand new skills and
 
14 rapid-response delivery of these skills.  Our schools must move
 
15 beyond the traditional book and classroom delivery and embrace a
 
16 technologically-connected model for learning.  In 1998, the
 
17 legislature appropriated funds to provide high-speed internet
 
18 access to the University of Hawaii and all state agencies,
 
19 including schools.  As a result, establishing schools and
 
20 libraries as community access points can be accelerated.
 
21      If Hawaii is to become a state known for leading its people
 
22 effectively into the twenty-first century, the legislature
 

 
 
 
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 1 believes progress and change must begin immediately.  The purpose
 
 2 of this Act is to support the growth and development of high
 
 3 technology industries in Hawaii by:
 
 4      (1)  Consolidating the State's high technology agencies,
 
 5           divisions, and offices under the coordination and
 
 6           direction of a special advisor for technology
 
 7           development and creating a governor's special advisory
 
 8           council for technology development to assist the
 
 9           advisor;
 
10      (2)  Offering a tax incentive for investment in new high
 
11           technology businesses;
 
12      (3)  Integrating technology with Hawaii's tourism and
 
13           marketing industries;
 
14      (4)  Prohibiting the imposition of taxes on internet
 
15           commerce;
 
16      (5)  Focusing work force development programs to ensure a
 
17           pool of technology professionals;
 
18      (6)  Accelerating high speed access to the internet for the
 
19           University of Hawaii and the public schools, and
 
20           establishing educational technology programs within
 
21           public schools;
 
22      (7)  Exempting stock options from qualified high technology
 
23           businesses from taxation;
 

 
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 1      (8)  Assisting Ohana Foundation and its not-for-profit
 
 2           affiliates in financing or refinancing costs related to
 
 3           the development of a high technology park in Kakaako;
 
 4      (9)  Exempting royalties from qualified high technology
 
 5           businesses and other sources from gross income for tax
 
 6           purposes; and
 
 7     (10)  Creating tax credits for high technology companies that
 
 8           invest in high technology businesses and increase
 
 9           research activities.
 
10                              PART II
 
11     SECTION 2.  Over the years, the legislature has created a
 
12 number of state agencies charged with promoting the development
 
13 of a variety of technological industries.  While these agencies
 
14 provide valuable services, they lack focus, and in some cases,
 
15 their original missions have changed considerably.  Consolidation
 
16 of these agencies under a single entity to coordinate their
 
17 activities will provide a more focused effort in attracting high
 
18 technology businesses to Hawaii.
 
19     SECTION 3.  The Hawaii Revised Statutes is amended by adding
 
20 two new sections to be appropriately designated and to read as
 
21 follows:
 

 
 
 
 
 
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 1     "   -     Special advisor for technology development.  (a)
 
 2 There is established within the office of the governor a special
 
 3 advisor for technology development to be appointed by the
 
 4 governor as provided in section 26-34.
 
 5     (b)  The duties of the special advisor shall include but not
 
 6 be limited to:
 
 7     (1)   Developing, coordinating, and implementing short- and
 
 8           long-range state policies and directions to enhance the
 
 9           development of high technology industries in Hawaii;
 
10     (2)   Coordinating all state high technology agencies while
 
11           developing a plan for reorganization or consolidation
 
12           of these agencies in the interests of greater
 
13           efficiency and cost effectiveness;
 
14     (3)   Advising the private sector in the development of high
 
15           technology activities and resources and providing
 
16           technical or other assistance to private industry upon
 
17           request;
 
18     (4)   Creating, disseminating, and updating a listing of all
 
19           high technology assistance programs in the State and
 
20           where they can be reached;
 
21     (5)   Pursuing appropriate public-private sector business
 
22           partnerships;
 

 
 
 
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 1     (6)   Coordinating the State's promotion and marketing of the
 
 2           high technology industry, including a review of current
 
 3           marketing efforts;
 
 4     (7)   Arranging for the conduct of research through
 
 5           contractual services with the University of Hawaii or
 
 6           any agency or other qualified persons;
 
 7     (8)   Encouraging the development of educational, training,
 
 8           and career programs in high technology industries; and
 
 9     (9)   Performing other necessary or desirable functions to
 
10           facilitate the intent of this section.
 
11     (c)  In carrying out the duties of this section, the special
 
12 advisor for technology development may utilize the services of
 
13 the State's high technology agencies, including those of the
 
14 University of Hawaii, as appropriate.
 
15        -     Governor's special advisory council for technology
 
16 development; establishment; appointment, number, and term of
 
17 members; duties.  (a)  There is established within the office of
 
18 the governor, for administrative purposes, an advisory council to
 
19 be known as the governor's special advisory council for
 
20 technology development, that shall review and make
 
21 recommendations on matters relating to the marketing and
 
22 promotion of Hawaii as a location for high technology companies.
 

 
 
 
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 1 The council shall be composed of         members appointed in
 
 2 accordance with section 26-34, and shall include representatives
 
 3 of the high technology industry, business leaders, educators,
 
 4 government leaders, and legislators.
 
 5     (b)  The members shall be appointed by the governor for four
 
 6 years, except that the terms of the members first appointed shall
 
 7 be for two and four years, respectively, as designated by the
 
 8 governor at the time of appointment.  The council shall elect a
 
 9 chairperson from among its members.
 
10     (c)  In appointing members, the governor shall select persons
 
11 who have knowledge of the high technology industry, the
 
12 educational needs of the industry, or in the marketing and
 
13 promotion of high technology industries.  The members of the
 
14 council shall serve without compensation but shall be reimbursed
 
15 for expenses, including travel expenses, necessary for the
 
16 performance of their duties.
 
17     (d)  The council shall assist the special advisor for
 
18 technology development in developing and coordinating the
 
19 marketing and promotion of the high technology industry in
 
20 Hawaii.
 
21     (e)  This section is repealed on January 1, 1999."
 

 
 
 
 
 
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 1     SECTION 4.  There is appropriated out of the general revenues
 
 2 of the State of Hawaii the sum of $            or so much thereof
 
 3 as may be necessary for fiscal year 1999-2000 and the same sum or
 
 4 so much thereof as may be necessary for fiscal year 2000-2001 for
 
 5 the special advisor for technology development and the governor's
 
 6 special advisory council for technology development.  The sums
 
 7 appropriated shall be expended by the office of the governor for
 
 8 the purposes of section 3.
 
 9                             PART III
 
10     SECTION 5.  While the advantages of Hawaii's proximity to
 
11 Pacific and Asian markets are a lure for technology business in
 
12 Hawaii, the costs of doing business are high.  Opportunities must
 
13 be created for high technology companies through tax credits, tax
 
14 exemptions, and by proving additional investment capital through
 
15 targeted assistance to technology start-ups.
 
16     SECTION 6.  Chapter 241, Hawaii Revised Statutes, is amended
 
17 by adding a new section to be appropriately designated and to
 
18 read as follows:
 
19     "241-     Tax credit for funds invested in qualified high
 
20 technology businesses.  (a)  Any bank, building and loan
 
21 association, development company, financial corporation,
 
22 financial services loan company, trust company, mortgage loan
 

 
 
 
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 1 company, financial holding company, small business investment
 
 2 company, or subsidiary may claim a tax credit for funds invested
 
 3 in qualified high technology businesses in this State under this
 
 4 section.  The credit shall be equal to twenty-five per cent of
 
 5 the total investment in a qualified high technology business in
 
 6 this State.
 
 7     (b)  The tax credit claimed pursuant to this section shall be
 
 8 deductible from the bank, building and loan association,
 
 9 development company, financial corporation, financial services
 
10 loan company, trust company, mortgage loan company, financial
 
11 holding company, small business investment company, or
 
12 subsidiary's tax liability, if any, for the tax year in which it
 
13 is properly claimed.  If the tax credit claimed by a bank,
 
14 building and loan association, development company, financial
 
15 corporation, financial services loan company, trust company,
 
16 mortgage loan company, financial holding company, small business
 
17 investment company, or subsidiary exceeds the amount of tax
 
18 payment due, the excess of credit over payments due shall be
 
19 carried over as additional credits for a period not exceeding ten
 
20 years.
 
21     (c)  For the purpose of this section:
 
22     "Qualified high technology business" has the same meaning as
 
23 in section 235-   .
 

 
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 1     "Qualified research" has the same meaning as in section
 
 2 235-   ."
 
 3                              PART IV
 
 4     SECTION 7.  The purpose of this part is to foster the
 
 5 development of knowledge-based industries by integrating those
 
 6 industries with Hawaii's economy in a way that enhances and
 
 7 strengthens the tourism industry.
 
 8     SECTION 8.  Section 201-97, Hawaii Revised Statutes, is
 
 9 amended to read as follows:
 
10     "[[]201-97[]]  Integration and development of the tourism
 
11 industry.  The office shall be responsible for planning for the
 
12 integrated and coordinated development and expansion of the
 
13 tourism industry of the State.  The office shall investigate and
 
14 recommend to appropriate governmental officers, agencies,
 
15 legislative committees, and private groups ways and means of
 
16 coordinating promotional activities on behalf of tourism with the
 
17 development of recreational and other facilities, and with
 
18 existing and potential information and communications technology
 
19 networks and services in the State, for improved tourism
 
20 development.  The office shall also review the expenditure of
 
21 governmental funds for tourism-related activities and shall
 
22 prepare an annual report on the expenditures, together with any
 

 
 
 
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 1 recommendations the office may have.  The annual report shall be
 
 2 submitted to the legislature as part of the annual report
 
 3 required under section 201-98."
 
 4     SECTION 9.  Section 201B-6, Hawaii Revised Statutes, is
 
 5 amended by amending subsection (a) to read as follows:
 
 6     "(a)  The authority shall be responsible for developing a
 
 7 strategic tourism marketing plan [which] that shall be updated
 
 8 every three years[, that] and includes the following:
 
 9     (1)   Identification and evaluation of current and future
 
10           tourism needs for the different regions of the State;
 
11     (2)   Goals and objectives in accordance with identified
 
12           needs;
 
13     (3)   Statewide promotional efforts and programs;
 
14     (4)   Targeted markets;
 
15     (5)   Efforts to enter into brand marketing projects that
 
16           make effective use of cooperative advertising programs;
 
17     (6)   Measures of effectiveness for the authority's
 
18           promotional programs; and
 
19     (7)   Coordination of marketing plans of all destination
 
20           marketing organizations receiving state funding prior
 
21           to finalization of the authority's marketing plan.
 
22     The authority shall also develop and include in its marketing
 
23 plan, goals and objectives for marketing the State to the
 

 
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 1 techno-tourism niche as well as for integrating marketing
 
 2 objectives with existing and potential state telecommunications
 
 3 and information resources in the public and private sectors."
 
 4                              PART V
 
 5     SECTION 10.  Economic development opportunities are changing.
 
 6 The playing field is now the world and not the next state or
 
 7 country.  The internet is the catalyst, and the enabling
 
 8 infrastructure is technology and telecommunications.  The
 
 9 legislature finds that exempting internet commerce from state
 
10 taxation will be a key element that allows Hawaii's businesses to
 
11 establish a global presence.  The legislature also finds,
 
12 however, that the location of a server in Hawaii does not
 
13 establish a nexus of taxation for that business in Hawaii.
 
14     SECTION 11.  Chapter 231, Hawaii Revised Statutes, is amended
 
15 by adding a new section to be appropriately designated and to
 
16 read as follows:
 
17     "231-     Hawaii internet tax freedom act.  (a)  No income
 
18 tax under chapter 235, general excise tax under chapter 237, or
 
19 use tax under chapter 238, shall be imposed on internet
 
20 electronic commerce.
 
21     (b)  As used in this section:
 
22     "Electronic commerce" means any transaction conducted over
 

 
 
 
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 1 the internet or through internet access, comprising the sale,
 
 2 lease, license, offer, or delivery of property, goods, services,
 
 3 or information, whether or not for consideration, and includes
 
 4 the provision of internet access; provided that the location of a
 
 5 server in this State by any person shall not of itself subject
 
 6 that person to any tax in Hawaii.
 
 7     "Internet" means collectively the myriad of computer and
 
 8 telecommunications facilities, including equipment and operating
 
 9 software that comprise the interconnected world-wide network of
 
10 networks that employ the transmission control protocol/internet
 
11 protocol, or any predecessor or successor protocols to that
 
12 protocol, to communicate information of all kinds by wire or
 
13 radio.
 
14     "Internet access" means a service that enables users to
 
15 access content, information, electronic mail, or other services
 
16 offered over the internet, and may also include access to
 
17 proprietary content, information, and other services as part of a
 
18 package of services offered to user.  The term does not include
 
19 telecommunications services as defined in section 269-1."
 
20     SECTION 12.  Section 304-8.9, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 

 
 
 
 
 
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 1     "304-8.9  Systemwide information technology and services
 
 2 special fund.  There is established a special fund to be known as
 
 3 the systemwide information technology and services special fund,
 
 4 from which all moneys shall be used in support of systemwide
 
 5 information technology and services, including personnel,
 
 6 equipment costs, and other expenses, as well as[,] planning,
 
 7 design, and implementation of information technology
 
 8 infrastructure within the university.  All moneys for the fund
 
 9 shall be provided from revenues collected from users of
 
10 information technology and services and any information
 
11 technology user fee established pursuant to section 304-4.
 
12 Notwithstanding section 304-7.8 or any other law to the contrary,
 
13 the University of Hawaii office of technology transfer may expend
 
14 amounts up to $2,000,000 for the purposes of the systemwide
 
15 information technology and services special fund in any fiscal
 
16 year."
 
17     SECTION 13.  There is appropriated out of the general
 
18 revenues of the State of Hawaii the sum of $           or so much
 
19 thereof as may be necessary for fiscal year 1999-2000 and the
 
20 same sum or so much thereof as may be necessary for fiscal year
 
21 2000-2001 for the establishment of a University of Hawaii
 
22 teleconferencing center in an appropriate location in
 

 
 
 
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 1 California's "Silicon Valley."  The purpose of the center shall
 
 2 be to establish a teleconferencing link with the Silicon Valley
 
 3 area to provide outreach classes and telecommunications
 
 4 capability to that area.  The sums appropriated shall be expended
 
 5 by the University of Hawaii for the purposes of this section.
 
 6                              PART VI
 
 7     SECTION 14.  The legislature finds that a training program to
 
 8 improve the skills of new and existing workers for jobs in new
 
 9 and emerging industries would help stimulate the State's economy.
 
10 Industries such as biotechnology, health care, information
 
11 technology, environmental science and technology, and
 
12 telecommunications must often import their workers because the
 
13 State's existing workforce lacks necessary skills.  A state-
 
14 funded training program would lessen the need to import workers
 
15 and increase the opportunities for Hawaii's residents to move
 
16 upward in the job market by improving their skills.
 
17     SECTION 15.  The Hawaii Revised Statutes is amended by adding
 
18 a new section to be appropriately designated and to read as
 
19 follows:
 
20     "   -     Millenium workforce development training program.
 
21 (a)  There is established a millenium workforce development
 
22 training program, hereinafter referred to as the program, that
 

 
 
 
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 1 shall be placed with the department of labor and industrial
 
 2 relations for administrative purposes.  The program shall provide
 
 3 education and training at the post-high-school to graduate
 
 4 levels, and shall include public, private, and for-profit
 
 5 educational institutions.  In the design and delivery of
 
 6 training, the program may cooperate or contract with other
 
 7 public, private, and for-profit institutions.
 
 8     (b)  The program shall seek and encourage partnerships with
 
 9 private sector industries such as biotechnology, information
 
10 technology, environmental science and technology, and
 
11 telecommunications, as may be appropriate, to provide pre-
 
12 employment or employment training, or on-the-job training for
 
13 local residents.
 
14     (c)  The department of labor and industrial relations shall
 
15 establish and lead a public and private partnership task group,
 
16 that shall include representatives from the department of
 
17 business, economic development, and tourism, the University of
 
18 Hawaii at Manoa, the University of Hawaii community colleges, and
 
19 private sector representatives to advise on the program design,
 
20 industry, recruitment, and training delivery activities of
 
21 participating entities."
 

 
 
 
 
 
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 1     SECTION 16.  (a)  There is appropriated out of the general
 
 2 revenues of the State of Hawaii the sum of $         or so much
 
 3 thereof as may be necessary for fiscal year 1999-2000 and the
 
 4 same sum or so much thereof as may be necessary for fiscal year
 
 5 2000-2001 to provide funds to the department of labor and
 
 6 industrial relations to establish a millenium workforce
 
 7 development program.  The sums appropriated shall be expended by
 
 8 the department of labor and industrial relations for the purposes
 
 9 of this part.
 
10     (b)  The director of labor and industrial relations may:
 
11     (1)   Employ;
 
12     (2)   Dismiss; and
 
13     (3)   Compensate;
 
14 at pleasure and without regard to chapters 76 and 77, Hawaii
 
15 Revised Statutes, such persons as the director finds necessary
 
16 for the performance of this part.
 
17                             PART VII
 
18     SECTION 17.  The legislature finds that students must be
 
19 afforded opportunities in new educational technologies, such as
 
20 the E Academy concept, that will provide relevant, challenging,
 
21 and meaningful course offerings for students interested in
 
22 pursuing a career in advanced technology fields.  The purpose of
 

 
 
 
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 1 this part is to provide Hawaii's students with meaningful and
 
 2 relevant preparation for immediate opportunities in entry level
 
 3 technology positions and advanced studies in post secondary
 
 4 information technology, science, engineering, and math.
 
 5     SECTION 18.  Chapter 302A, Hawaii Revised Statutes, is
 
 6 amended by adding a new section to be appropriately designated
 
 7 and to read as follows:
 
 8     "302A-     E-mail accounts for students.  (a)  The
 
 9 department of education, in conjunction and coordination with the
 
10 University of Hawaii, shall provide e-mail accounts at no charge
 
11 to any student who applies to the department for such an account.
 
12     (b)  As used in this section, the term "student" means any
 
13 person attending public or private school in ninth grade or
 
14 above, including:
 
15     (1)   Both degree and nondegree candidates;
 
16     (2)   Individuals attending school on a full-time, part-time,
 
17           or occasional basis, including continuing education or
 
18           other nondegree courses;
 
19     (3)   Individuals in educational, technical, or vocational
 
20           programs; and
 
21     (4)   Individuals attending public or private, undergraduate
 
22           or postgraduate college and university programs.
 

 
 
 
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 1     (c)  The department of education, in cooperation with the
 
 2 University of Hawaii, shall adopt rules pursuant to chapter 91 as
 
 3 may be necessary to implement this section."
 
 4     SECTION 19.  Section 226-107, Hawaii Revised Statutes, is
 
 5 amended to read as follows:
 
 6     "226-107  Quality education.  Priority guidelines to promote
 
 7 quality education:
 
 8     (1)   Pursue effective programs which reflect the varied
 
 9           district, school, and student needs to strengthen basic
 
10           skills achievement[.];
 
11     (2)   Continue emphasis on general education "core"
 
12           requirements to provide common background to students
 
13           and essential support to other university programs[.];
 
14     (3)   Initiate efforts to improve the quality of education by
 
15           improving the capabilities of the education work
 
16           force[.];
 
17     (4)   Promote increased opportunities for greater autonomy
 
18           and flexibility of educational institutions in their
 
19           decisionmaking responsibilities[.];
 
20     (5)   Increase and improve the use of information technology
 
21           in education [and encourage] by the availability of
 
22           telecommunications equipment for:
 

 
 
 
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 1           (A)  The electronic exchange of information;
 
 2           (B)  Statewide electronic mail; and
 
 3           (C)  Access to the internet.
 
 4           Encourage programs [which] that increase the public's
 
 5           awareness and understanding of the impact of
 
 6           information technologies on our lives[.];
 
 7     (6)   Pursue the establishment of Hawaii's public and private
 
 8           universities and colleges as research and training
 
 9           centers of the Pacific[.];
 
10     (7)   Develop resources and programs for early childhood
 
11           education[.];
 
12     (8)   Explore alternatives for funding and delivery of
 
13           educational services to improve the overall quality of
 
14           education[.]; and
 
15     (9)   Strengthen and expand educational programs and services
 
16           for students with special needs."
 
17     SECTION 20.  (a)  The department of education shall establish
 
18 E Academies throughout the State with onsite locations based at
 
19 selected public high schools in each departmental school
 
20 district.  The department of education shall also develop new
 
21 challenging high school course offerings in math, science, and
 
22 technology content areas and include the new courses in the
 

 
 
 
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 1 authorized course code and number guide, for the purposes of the
 
 2 E Academies.  The department of education shall provide an
 
 3 innovative training program for E Academy teachers, and conduct
 
 4 instructional assessment activities beginning in the 1999-2000
 
 5 school year.  
 
 6     (b)  As used in this section, "E Academy" means a virtual,
 
 7 site-based school that provides students with industry and
 
 8 academic standards-based instruction and assessments in 
 
 9 technology, science, math, and engineering.
 
10     SECTION 21.  There is appropriated out of the general
 
11 revenues of the State of Hawaii the sum of $            or so
 
12 much thereof as may be necessary for fiscal year 1999-2000 and
 
13 the same sum or so much thereof as may be necessary for fiscal
 
14 year 2000-2001 to provide funds for the establishment of E
 
15 Academies statewide at selected schools in each of the
 
16 departmental school districts.  The sums appropriated shall be
 
17 expended by the department of education for the purposes of
 
18 section 20.
 
19                             PART VIII
 
20     SECTION 22.  Chapter 235, Hawaii Revised Statutes, is amended
 
21 by adding a new section to be appropriately designated and to
 
22 read as follows:
 

 
 
 
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 1     "235-     Stock options from qualified high technology
 
 2 businesses exempt from taxation.  (a)  Notwithstanding any law to
 
 3 the contrary, all income received from stock options from
 
 4 qualified high technology businesses that, except for this
 
 5 section, would otherwise be taxed as ordinary income or as
 
 6 capital gains shall be exempt from taxation under this chapter.
 
 7     (b)  For the purposes of this section:
 
 8     "Qualified high technology business" means:
 
 9     (1)   A business, employing or owning capital or property, or
 
10           maintaining an office, in this State; and
 
11     (2)   (A)  The majority activity of the business is
 
12                performing qualified research in this State; or
 
13           (B)  That receives most of its income from qualified
 
14                research expenses; provided that the income is
 
15                received from products sold from, manufactured, or
 
16                produced in the State; or services performed in
 
17                this State.
 
18     The term "qualified high technology business" does not
 
19 include any trade or business involving the performance of
 
20 services in the field of law, engineering, architecture,
 
21 accounting, actuarial science, performing arts, consulting,
 
22 athletics, financial services, or brokerage services, or any
 

 
 
 
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 1 trade or business where the principal asset of the trade or
 
 2 business is the reputation or skill of one or more of its
 
 3 employees; any banking, insurance, financing, leasing, rental,
 
 4 investing, or similar business; any farming business, including
 
 5 the business of raising or harvesting trees; any business
 
 6 involving the production or extraction of products of a character
 
 7 with respect to which a deduction is allowable under section 611
 
 8 (with respect to allowance of deduction for depletion), 613 (with
 
 9 respect to basis for percentage depletion), or 613A (with respect
 
10 to limitation on percentage depleting in cases of oil and gas
 
11 wells) of the Internal Revenue Code; any business operating a
 
12 hotel, motel, restaurant, or similar business; any trade or
 
13 business involving a hospital, a private office of a licensed
 
14 health care professional, a group practice of license health care
 
15 professionals, or nursing home.
 
16     "Qualified research" means the same as in section 41(d) of
 
17 the Internal Revenue Code, except that it shall not include
 
18 expenses for research conducted outside the State."
 
19                              PART IX
 
20     SECTION 23.  The legislature finds and declares that the high
 
21 technology industry is a growing sector of the nation's economy
 
22 and that the State is lacking in training and educational
 

 
 
 
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 1 facilities which support the high technology industry.  The
 
 2 legislature further finds and declares that support for the
 
 3 development of such facilities will promote the economic growth
 
 4 of the State by making the State a more attractive location for
 
 5 the high technology industry and provide support for the State's
 
 6 existing high technology industry.  The legislature also finds
 
 7 that the high technology industry and the development of training
 
 8 and educational facilities for the high technology industry
 
 9 constitute an industrial enterprise within the meaning of section
 
10 12, article VII of the state constitution, and that it is in the
 
11 public interest to promote the development of a high technology
 
12 industry in the State by authorizing the issuance of special
 
13 purpose revenue bonds for the development of an industrial park
 
14 that will provide training and certification for professionals
 
15 and other individuals who will serve the high technology
 
16 industry.
 
17     SECTION 24.  The department of budget and finance, with the
 
18 approval of the governor, is authorized to issue special purpose
 
19 revenue bonds in a total amount not to exceed $100,000,000 in one
 
20 or more series for the purpose of assisting Ohana Foundation
 
21 and/or one or more of its not-for-profit affiliates in financing
 
22 or refinancing costs related to the development of a high
 

 
 
 
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 1 technology park in Kakaako.  The legislature finds and determines
 
 2 that the activities and facilities of Ohana Foundation and its
 
 3 affiliates constitutes an industrial enterprise as defined in
 
 4 part V, chapter 39A, Hawaii Revised Statutes, and that the
 
 5 financing thereof constitutes assistance to an industrial
 
 6 enterprise within the meaning of part V, chapter 39A, Hawaii
 
 7 Revised Statutes, and section 12, article VII of the state
 
 8 constitution.
 
 9     SECTION 25.  The special purpose revenue bonds issued under
 
10 the part shall be issued pursuant to part V, chapter 39A, Hawaii
 
11 Revised Statutes.
 
12     SECTION 26.  The department of budget and finance is further
 
13 authorized to issue from time to time refunding special purpose
 
14 revenue bonds authorized in such principal amounts as the
 
15 department shall determine to be necessary to refund the special
 
16 purpose revenue bonds authorized in this part.  Such refunding
 
17 special purpose revenue bonds issued under this part shall be
 
18 issued pursuant to part V, chapter 39A, Hawaii Revised Statutes.
 
19     SECTION 27.  The authorization to issue special purpose
 
20 revenue bonds under this part shall lapse on June 30, 2003.
 

 
 
 
 
 
 
 
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 1                              PART X
 
 2     SECTION 28.  The legislature finds that there is a need to
 
 3 encourage the creative community in Hawaii in order to support
 
 4 Hawaii's growth in the high technology business sector.  The
 
 5 legislature further finds that exempting both individuals and
 
 6 high technology businesses from taxes on royalties received from
 
 7 copyrights and patents will help to encourage this creative
 
 8 community, which in turn will help produce its own synergy to
 
 9 foster electronic commerce in Hawaii.  The purpose of this part
 
10 is therefore to exempt individuals and qualified high technology
 
11 businesses in Hawaii from taxation on royalties owned by those
 
12 individuals or businesses and developed or arising out of those
 
13 businesses or any other source.
 
14     SECTION 29.  Chapter 235, Hawaii Revised Statutes, is amended
 
15 by adding a new section to be appropriately designated and to
 
16 read as follows:
 
17     "235-     Royalties from high technology business and other
 
18 sources excluded from gross income.  (a)  In addition to the
 
19 exclusions in section 235-7, there shall be excluded from gross
 
20 income, adjusted gross income and taxable income, amounts
 
21 received by an individual or a qualified high technology business
 
22 as royalties and other income derived from patents and
 
23 copyrights:
 

 
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 1     (1)   Owned by the individual or qualified high technology
 
 2           business; and
 
 3     (2)   Developed and arising out of a qualified high
 
 4           technology business or any other source.
 
 5     (b)  For the purposes of this section:
 
 6     "Qualified high technology business" means:
 
 7     (1)   A business employing or owning capital or property, or
 
 8           maintaining an office, in this State; and
 
 9     (2)   (A)  The majority activity of the business is
 
10                performing qualified research in this State; or
 
11           (B)  That receives most of its income from qualified
 
12                research expenses; provided that the income is
 
13                received from products sold from, manufactured, or
 
14                produced in the State; or services performed in
 
15                this State.
 
16     The term "qualified high technology business" does not
 
17 include any trade or business involving the performance of
 
18 services in the field of law, engineering, architecture,
 
19 accounting, actuarial science, performing arts, consulting,
 
20 athletics, financial services, or brokerage services, or any
 
21 trade or business where the principal asset of the trade or
 
22 business is the reputation or skill of one or more of its
 

 
 
 
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 1 employees; any banking, insurance, financing, leasing, rental,
 
 2 investing, or similar business; any farming business, including
 
 3 the business of raising or harvesting trees; any business
 
 4 involving the production or extraction of products of a character
 
 5 with respect to which a deduction is allowable under section 611
 
 6 (with respect to allowance of deduction for depletion), 613 (with
 
 7 respect to basis for percentage depletion), or 613A (with respect
 
 8 to limitation on percentage depleting in cases of oil and gas
 
 9 wells) of the Internal Revenue Code; any business operating a
 
10 hotel, motel, restaurant, or similar business; any trade or
 
11 business involving a hospital, a private office of a licensed
 
12 health care professional, a group practice of license health care
 
13 professionals, or nursing home.
 
14     "Qualified research" means the same as in section 41(d) of
 
15 the Internal Revenue Code, except that it shall not include
 
16 expenses for research conducted outside the State."
 
17                              PART XI
 
18     SECTION 30.  While the advantages of Hawaii's proximity to
 
19 Pacific and Asian markets are a lure for technology business in
 
20 Hawaii, the costs of doing business are high.  The purpose of
 
21 this part is to assist in the creation of opportunities for high
 
22 technology companies through the creation of tax credits for
 

 
 
 
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 1 investing in high technology businesses and for increasing
 
 2 research activities.
 
 3     SECTION 31.  Chapter 235, Hawaii Revised Statutes, is amended
 
 4 by adding to part VI a new section to be appropriately designated
 
 5 and to read as follows:
 
 6     "235-    High-technology business investment tax credit. (a)
 
 7 There shall be allowed to each taxpayer, subject to the taxes
 
 8 imposed by this chapter, a high technology investment tax credit
 
 9 that shall be deductible from the taxpayer's net income tax
 
10 liability, if any, imposed by this chapter for the taxable year
 
11 in which the credit is properly claimed.  The tax credit shall be
 
12 an amount equal to ten per cent of the investment made by the
 
13 taxpayer in each qualified high technology business, up to a
 
14 maximum allowed credit of $500,000 for the tax year for the
 
15 investment made by the taxpayer in a qualified high technology
 
16 business.
 
17     (b)  The credit allowed under this section shall be claimed
 
18 against the net income tax liability for the taxable year.  For
 
19 the purpose of this section, "net income tax liability" means net
 
20 income tax liability reduced by all other credits allowed under
 
21 this chapter.
 

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

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

 
 
 
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                                                        H.D. 2
                                                        

 
 1 employees; any banking, insurance, financing, leasing, rental,
 
 2 investing, or similar business; any farming business, including
 
 3 the business of raising or harvesting trees; any business
 
 4 involving the production or extraction of products of a character
 
 5 with respect to which a deduction is allowable under section 611
 
 6 (with respect to allowance of deduction for depletion), 613 (with
 
 7 respect to basis for percentage depletion), or 613A (with respect
 
 8 to limitation on percentage depleting in cases of oil and gas
 
 9 wells) of the Internal Revenue Code; any business operating a
 
10 hotel, motel, restaurant, or similar business; any trade or
 
11 business involving a hospital, a private office of a licensed
 
12 health care professional, a group practice of license health care
 
13 professionals, or nursing home.
 
14     "Qualified research" means the same as in section 41(d) of
 
15 the Internal Revenue Code, except that it shall not include
 
16 expenses for research conducted outside the State."
 
17     SECTION 32.  Chapter 235, Hawaii Revised Statutes, is amended
 
18 by adding to part VI a new section to be appropriately designated
 
19 and to read as follows:
 
20     "235-     Tax credit for increasing research activities.
 
21 (a)  Section 41 (with respect to the credit for increasing
 
22 research activities) and section 280C(c) (with respect to certain
 

 
 
 
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 1 expenses for which the credit for increasing research activities
 
 2 are allowable) of the Internal Revenue Code shall be operative
 
 3 for the purposes of this chapter as provided in this section.
 
 4     (b)  All references to Internal Revenue Code sections within
 
 5 section 41 and section 280C(c) of the Internal Revenue Code shall
 
 6 be operative for purposes of this section.
 
 7     (c)  There shall be allowed to each taxpayer, subject to the
 
 8 tax imposed by this chapter, an income tax credit for increased
 
 9 research activities that shall be deductible from the taxpayer's
 
10 net income tax liability, if any, imposed by this chapter for the
 
11 taxable year in which the credit is properly claimed.
 
12     (d)  The tax credit for increased research activities shall
 
13 be equal to the sum of:
 
14     (1)   2.5 per cent of the excess (if any) of:
 
15           (A)  The qualified research expenses for the taxable
 
16                year; over
 
17           (B)  The base amount;
 
18           and
 
19     (2)   2.5 per cent of the basic research payments determined
 
20           under section 41(e)(1)(A) of the Internal Revenue Code.
 
21     (e)  For purposes of this section:
 
22     (1)   The alternative incremental credit in section 41(c)(4)
 

 
 
 
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 1           of the Internal Revenue Code shall be equal to the sum
 
 2           of 12.5 per cent of:
 
 3           (A)  1.65 per cent of so much of the qualified research
 
 4                expenses for the taxable year as exceeds one per
 
 5                cent of the average described in section
 
 6                41(c)(1)(B) but does not exceed 1.5 per cent of
 
 7                such average;
 
 8           (B)  2.2 per cent of so much of such expenses as
 
 9                exceeds 1.5 per cent of such average but does not
 
10                exceed two per cent of such average; and
 
11           (C)  2.75 per cent of so much of such expenses as
 
12                exceeds two per cent of such average;
 
13     (2)   The term "qualified research" under paragraph (1) of
 
14           the Internal Revenue Code shall not include research
 
15           conducted outside of the State; and
 
16     (3)   The term "basic research" under section 41(e) of the
 
17           Internal Revenue Code shall not include research
 
18           conducted outside of the State.
 
19     (f)  The amount of reduced credit in section 280C(c)(3)(B) of
 
20 the Internal Revenue Code shall be equal to the excess of:
 
21     (1)   The amount of credit determined under section 41(a) (as
 
22           provided for in this section) (without regard to this
 

 
 
 
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 1           paragraph); over
 
 2     (2)   The product of:
 
 3           (A)  The amount described in subsection (f)(1); and
 
 4           (B)  12.5 per cent of the maximum rate of tax under
 
 5                section 11(b)(1) of the Internal Revenue Code.
 
 6     (g)  If the tax credit for increased research activities
 
 7 claimed by a taxpayer exceeds the amount of income tax payment
 
 8 due from the taxpayer, the excess of the tax credit over payments
 
 9 due may be used as a credit against the taxpayer's income tax
 
10 liability in subsequent years until exhausted.
 
11     (h)  All claims for a tax credit under this section must be
 
12 filed on or before the end of the twelfth month following the
 
13 close of the taxable year for which the credit may be claimed.
 
14 Failure to properly claim the credit shall constitute a waiver of
 
15 the right to claim the credit.
 
16     (i)  The director of taxation may adopt any rules under
 
17 chapter 91 and forms necessary to carry out this section.
 
18     (j)  For the purpose of this section, "qualified research"
 
19 has the same meaning as in section 235-   ."
 
20                             PART XII
 
21     SECTION 33.  Statutory material to be repealed is bracketed.
 
22 New statutory material is underscored.
 

 
 
 
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 1     SECTION 34.  This Act shall take effect upon its approval;
 
 2 provided that:
 
 3     (1)   Sections 4, 13, 16, and 21 shall take effect on July 1,
 
 4           1999;
 
 5     (2)   Sections 22, 29, 31, and 32 shall apply to taxable
 
 6           years beginning after December 31, 1999; and
 
 7     (3)   Section 6 shall apply to calendar year 1999 and for
 
 8           calendar years thereafter, or if a fiscal year
 
 9           taxpayer, section 6 shall apply to the fiscal year in
 
10           which January 1, 1999, occurs and fiscal years
 
11           thereafter.