REPORT TITLE:
Research Tax Credit


DESCRIPTION:
Permits a tax credit for increasing research activities.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           966
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   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 it desirable to diversify
 
 2 the economy and stimulate business activity by developing and
 
 3 attracting technology companies to Hawaii.  Many states are
 
 4 supporting technology development by offering tax credits to
 
 5 companies for their expenditures in research and development
 
 6 activities.  
 
 7      The purpose of this Act is to enhance our technology
 
 8 industries by offering tax credits for qualified research
 
 9 activities. 
 
10      SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended
 
11 by adding a new section to be appropriately designated and to
 
12 read as follows:
 
13      "235-      Tax credit for increasing research activities.
 
14 (a)  There shall be allowed to each taxpayer subject to the tax
 
15 imposed by this chapter a tax credit for increasing research
 
16 activities which shall be deductible from the taxpayer's net
 
17 income tax liability, if any, imposed by this chapter for the
 
18 taxable year in which the credit is properly claimed.  Section 41
 
19 (with respect to credit for increasing research activities) of
 

 
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                                     S.B. NO.           966
                                                        
                                                        

 
 1 the Internal Revenue Code shall be operative for the purposes of
 
 2 this chapter as provided in this section.  The credit shall be
 
 3 determined under this section.
 
 4      (1)  For taxable years ending after December 31, 1999, as
 
 5           operative in this section, section 41 shall apply as
 
 6           follows:
 
 7           (A)  The reference to "20 per cent" in section 41(a)(1)
 
 8                shall instead read "8 per cent"; and
 
 9           (B)  The reference to "20 per cent" in section 41(a)(2)
 
10                shall instead read "12 per cent".
 
11      (2)  For taxable years beginning after December 31, 2000,
 
12           and thereafter, as operative in this section,
 
13           section 41 shall apply as follows:
 
14           (A)  The reference to "20 per cent" in section 41(a)(1)
 
15                shall instead read "11 per cent"; and
 
16           (B)  The reference to "20 per cent" in section 41(a)(2)
 
17                shall instead read "24 per cent".
 
18      (b)  "Qualified research" and "basic research" as used in
 
19 section 41 shall be limited to research conducted in Hawaii.
 
20      (c)  The definition of "basic research" in
 
21 section 41(e)(7)(A) for purposes of this section, means any basic
 
22 or applied research including scientific inquiry or original
 
23 investigation for the advancement of scientific or engineering
 

 
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                                     S.B. NO.           966
                                                        
                                                        

 
 1 knowledge or the improved effectiveness of commercial products,
 
 2 except that the term does not include any of the following:
 
 3      (1)  Basic research conducted outside Hawaii;
 
 4      (2)  Basic research in the social sciences, arts, or
 
 5           humanities;
 
 6      (3)  Basic research for the purpose of improving a
 
 7           commercial product if the improvements relate to style,
 
 8           taste, cosmetic, or seasonal design factors;
 
 9      (4)  Any expenditure paid or incurred for the purpose of
 
10           ascertaining the existence, location, extent, or
 
11           quality of any deposit of ore or other mineral
 
12           (including oil and gas); and
 
13      (5)  A qualified organization as described in
 
14           section 170(b)(1)(A)(iii) of the Internal Revenue Code
 
15           and owned by an institution of higher education as
 
16           described in section 3304(f) of the Internal Revenue
 
17           Code.
 
18      (d)  If the credit allowed by this section exceeds the tax
 
19 liability of the taxpayer no refund shall be made but the excess
 
20 credit may be carried over to reduce the tax liability in the
 
21 following year, and succeeding years if necessary, until the
 
22 credit has been exhausted."
 
23      SECTION 3.  Section 235-2.3, Hawaii Revised Statutes, is
 

 
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                                     S.B. NO.           966
                                                        
                                                        

 
 1 amended by amending subsection (b) to read as follows:
 
 2      "(b)  The following Internal Revenue Code subchapters, parts
 
 3 of subchapters, sections, subsections, and parts of subsections
 
 4 shall not be operative for the purposes of this chapter, unless
 
 5 otherwise provided:
 
 6      (1)  Subchapter A (sections 1 to 59A) (with respect to
 
 7           determination of tax liability), except [section]
 
 8           sections 1(h)(3) (relating to net capital gain reduced
 
 9           by the amount taken into account as investment income),
 
10           [except section] 41 (with respect to tax credit for
 
11           increasing research activities), 42 (with respect to
 
12           low-income housing credit), and [except sections] 47
 
13           and 48, as amended, as of December 31, 1984 (with
 
14           respect to certain depreciable tangible personal
 
15           property).  For treatment, see sections 235-    ,
 
16           235-110.7, and 235-110.8;
 
17      (2)  Section 78 (with respect to dividends received from
 
18           certain foreign corporations by domestic corporations
 
19           choosing foreign tax credit);
 
20      (3)  Section 86 (with respect to social security and tier 1
 
21           railroad retirement benefits);
 
22      (4)  Section 103 (with respect to interest on state and
 
23           local bonds).  For treatment, see section 235-7(b);
 

 
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                                     S.B. NO.           966
                                                        
                                                        

 
 1      (5)  Section 120 (with respect to amounts received under
 
 2           qualified group legal services plans).  For treatment,
 
 3           see section 235-7(a)(9) to (11);
 
 4      (6)  Section 122 (with respect to certain reduced uniformed
 
 5           services retirement pay).  For treatment, see section
 
 6           235-7(a)(3);
 
 7      (7)  Section 135 (with respect to income from United States
 
 8           savings bonds used to pay higher education tuition and
 
 9           fees).  For treatment, see section 235-7(a)(1);
 
10      (8)  Subchapter B (sections 141 to 150) (with respect to tax
 
11           exemption requirements for state and local bonds);
 
12      (9)  Section 151 (with respect to allowance of deductions
 
13           for personal exemptions).  For treatment, see section
 
14           235-54;
 
15     (10)  Section 196 (with respect to deduction for certain
 
16           unused investment credits);
 
17     (11)  Sections 241 to 247 (with respect to special deductions
 
18           for corporations).  For treatment, see section
 
19           235-7(c);
 
20     (12)  Section 280C (with respect to certain expenses for
 
21           which credits are allowable);
 
22     (13)  Section 291 (with respect to special rules relating to
 
23           corporate preference items);
 

 
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                                     S.B. NO.           966
                                                        
                                                        

 
 1     (14)  Section 367 (with respect to foreign corporations);
 
 2     (15)  Section 501(c)(12), (15), (16) (with respect to exempt
 
 3           organizations);
 
 4     (16)  Section 515 (with respect to taxes of foreign countries
 
 5           and possessions of the United States);
 
 6     (17)  Subchapter G (sections 531 to 565) (with respect to
 
 7           corporations used to avoid income tax on shareholders);
 
 8     (18)  Subchapter H (sections 581 to 597) (with respect to
 
 9           banking institutions), except section 584 (with respect
 
10           to common trust funds).  For treatment, see chapter
 
11           241;
 
12     (19)  Section 642(a) and (b) (with respect to special rules
 
13           for credits and deductions applicable to trusts).  For
 
14           treatment, see sections 235-54(b) and 235-55;
 
15     (20)  Section 668 (with respect to interest charge on
 
16           accumulation distributions from foreign trusts);
 
17     (21)  Subchapter L (sections 801 to 848) (with respect to
 
18           insurance companies).  For treatment, see sections
 
19           431:7-202 and 431:7-204;
 
20     (22)  Section 853 (with respect to foreign tax credit allowed
 
21           to shareholders).  For treatment, see section 235-55;
 
22     (23)  Subchapter N (sections 861 to 999) (with respect to tax
 
23           based on income from sources within or without the
 
24           United States), except sections 985 to 989 (with
 

 
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                                     S.B. NO.           966
                                                        
                                                        

 
 1           respect to foreign currency transactions).  For
 2                                                    1
 3           treatment, see sections 235-4, 235-5, and  235-7(b),
 
 4           and 235-55;
 
 5     (24)  Section 1042(g) (with respect to sales of stock in
 
 6           agricultural refiners and processors to eligible farm
 
 7           cooperatives);
 
 8     (25)  Section 1055 (with respect to redeemable ground rents);
 
 9     (26)  Section 1057 (with respect to election to treat
 
10           transfer to foreign trust, etc., as taxable exchange);
 
11     (27)  Sections 1291 to 1298 (with respect to treatment of
 
12           passive foreign investment companies);
 
13     (28)  Subchapter Q (sections 1311 to 1351) (with respect to
 
14           readjustment of tax between years and special
 
15           limitations); and
 
16     (29)  Subchapter U (sections 1391 to 1397F) (with respect to
 
17           designation and treatment of empowerment zones,
 
18           enterprise communities, and rural development
 
19           investment areas).  For treatment, see chapter 209E."
 
20      SECTION 4.  Statutory material to be repealed is bracketed.
 
21 New statutory material is underscored.
 
22      SECTION 5.  This Act, upon its approval, shall apply to
 
23 taxable years beginning after December 31, 1999.
 
24 
 
25                           INTRODUCED BY:  _______________________