REPORT TITLE:
Income Tax Credit, Ethanol


DESCRIPTION:
Provides an investment credit for investment in a qualifying
ethanol production facility.  (CD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 2000                                H.D. 2
STATE OF HAWAII                                            C.D. 1
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO ETHANOL.



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

 1      SECTION 1.  The legislature finds that ethanol can be
 
 2 produced from agricultural crops or byproducts and municipal
 
 3 solid wastes or other low or no value products. 
 
 4      Ethanol can be mixed with gasoline up to a ten per cent
 
 5 blend without a change in the performance or operating
 
 6 reliability of gasoline powered vehicles.  Ethanol may also be
 
 7 blended with diesel or waste cooking oils produced from crops to
 
 8 produce biodiesel as a replacement for diesel fuel.
 
 9      Further, in addition to traditional methods of producing
 
10 ethanol from molasses and sugar products, newly developed
 
11 technology can also convert bagasse, crop residues, newspaper,
 
12 municipal solid waste, and other underutilized materials to
 
13 ethanol.  As the cost of locating new landfills rises and
 
14 pollution is of greater concern, the conversion of these wastes
 
15 to ethanol can help reduce waste disposal problems.
 
16      The legislature finds that incentives are needed to
 
17 stimulate private sector investments required to develop this
 
18 industry.  Therefore, the purpose of this Act is to create an
 
19 ethanol investment tax credit to encourage private sector
 

 
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 1 investment in ethanol production facilities in the State of
 
 2 Hawaii.
 
 3      SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended
 
 4 by adding a new section to be appropriately designated and to
 
 5 read as follows:
 
 6      "235-    Ethanol investment tax credit.  (a)  Each year
 
 7 during the credit period, there shall be allowed to each taxpayer
 
 8 subject to the taxes imposed by this chapter, an ethanol
 
 9 investment tax credit that shall be applied to the taxpayer's net
 
10 income tax liability, if any, imposed by this chapter for the
 
11 taxable year in which the credit is properly claimed.  The
 
12 maximum annual credit allowable for the investment in a qualified
 
13 ethanol facility that is in production on or before January 1,
 
14 2012, subject to subsection (e), shall be determined in
 
15 accordance with the following schedule:
 
16      (1)  If nameplate capacity is at least 500,000 but not over
 
17           1,000,000, the investment tax credit is the lesser of
 
18           thirty per cent of the investment, or $150,000;
 
19      (2)  If nameplate capacity is over 1,000,000, but not over
 
20           2,000,000, the investment tax credit is the lesser of
 
21           thirty per cent of the investment, or $300,000;
 
22      (3)  If nameplate capacity is over 2,000,000, but not over
 
23           3,000,000, the investment tax credit is the lesser of
 
24           thirty per cent of the investment or $600,000;
 

 
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 1      (4)  If nameplate capacity is over 3,000,000, but not over
 
 2           4,000,000, the investment tax credit is the lesser of
 
 3           thirty per cent or $900,000;
 
 4      (5)  If nameplate capacity is over 4,000,000, but not over
 
 5           5,000,000, the investment tax credit is the lesser of
 
 6           thirty per cent or $1,200,000;
 
 7      (6)  If nameplate capacity is over 5,000,000, but not over
 
 8           6,000,000, the investment tax credit is the lesser of
 
 9           thirty per cent or $1,500,000;
 
10      (7)  If nameplate capacity is over 6,000,000, but not over
 
11           7,000,000, the investment tax credit is the lesser of
 
12           thirty per cent or $1,800,000;
 
13      (8)  If nameplate capacity is over 7,000,000, but not over
 
14           8,000,000, the investment tax credit is the lesser of
 
15           thirty per cent or $2,100,000;
 
16      (9)  If nameplate capacity is over 8,000,000, but not over
 
17           9,000,000, the investment tax credit is the lesser of
 
18           thirty per cent or $2,400,000;
 
19     (10)  If nameplate capacity is over 9,000,000, but not over
 
20           10,000,000, the investment tax credit is the lesser of
 
21           thirty per cent or $2,700,000;
 
22     (11)  If nameplate capacity is over 10,000,000, but not over
 
23           11,000,000, the investment tax credit is the lesser of
 
24           thirty per cent or $3,000,000;
 

 
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 1     (12)  If nameplate capacity is over 11,000,000, but not over
 
 2           12,000,000, the investment tax credit is the lesser of
 
 3           thirty per cent or $3,300,000;
 
 4     (13)  If nameplate capacity is over 12,000,000, but not over
 
 5           13,000,000, the investment tax credit is the lesser of
 
 6           thirty per cent or $3,600,000;
 
 7     (14)  If nameplate capacity is over 13,000,000, but not over
 
 8           14,000,000, the investment tax credit is the lesser of
 
 9           thirty per cent or $3,900,000;
 
10     (15)  If nameplate capacity is over 14,000,000, but not over
 
11           15,000,000, the investment tax credit is the lesser of
 
12           thirty per cent or $4,200,000; and
 
13     (16)  If nameplate capacity is over 15,000,000, the
 
14           investment tax credit is the lesser of thirty per cent
 
15           or $4,500,000.
 
16      (b)  As used in this section:
 
17      "Credit period" means a maximum period of eight years for
 
18 facilities with a total investment of less than $50,000,000, and,
 
19 a maximum period of ten years for facilities with a total
 
20 investment equal to or greater than $50,000,000, beginning from
 
21 the first taxable year in which the credit is properly claimed.
 
22      "Investment" means a nonrefundable expenditure directly
 
23 related to the construction of any qualifying ethanol production
 

 
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 1 facility, exclusive of land costs.  For purposes of this section,
 
 2 investment includes any investment for which the taxpayer is at
 
 3 risk, as that term is used in section 465 of the Internal Revenue
 
 4 Code (with respect to deductions limited to amount at risk).
 
 5      "Maximum annual credit allowable" means the total credit
 
 6 allowed under subsection (a) claimed against the taxpayer's net
 
 7 income tax liability for any taxable year; provided that the
 
 8 qualifying ethanol facility operated in such taxable year at a
 
 9 level of production of at least seventy-five per cent of its
 
10 nameplate capacity on an annualized basis.
 
11      "Nameplate capacity" means the qualifying ethanol facility's
 
12 production design capacity, in gallons of ethanol per year, based
 
13 on an assumed operating year of three hundred fifty days.
 
14      "Net income tax liability" means net income tax liability
 
15 reduced by all other credits allowed under this chapter.
 
16      "Qualifying ethanol production" means ethanol produced from
 
17 renewable, organic feedstocks, or waste materials, including
 
18 municipal solid waste.  All qualifying production shall be
 
19 fermented, distilled, and dehydrated at the facility.
 
20      "Qualifying ethanol production facility" means a facility
 
21 located in Hawaii which produces motor fuel grade ethanol meeting
 
22 the minimum specifications by the American Society of Testing and
 
23 Materials standard D-4806, as amended.
 

 
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 1      (c)  If the credit under this section exceeds the taxpayer's
 
 2 income tax liability, the excess of credit over liability shall
 
 3 be refunded to the taxpayer; provided that no refunds or payments
 
 4 on account of the tax credit allowed by this section shall be
 
 5 made for amounts less than $1.  All claims for a credit under
 
 6 this section must be properly filed on or before the end of the
 
 7 twelfth month following the close of the taxable year for which
 
 8 the credit may be claimed.  Failure to comply with the foregoing
 
 9 provision shall constitute a waiver of the right to claim the
 
10 credit.
 
11      (d)  If a qualifying ethanol facility or an interest therein
 
12 is acquired by a taxpayer prior to the expiration of the credit
 
13 period, the credit allowable under subsection (a) for any period
 
14 after such acquisition shall be equal to the maximum annual
 
15 credit allowable and credit period that would have been allowable
 
16 under subsection (a) to the prior owner had the owner not
 
17 disposed of the interest.  If an interest is disposed of during
 
18 any year for which the credit is allowable under subsection (a),
 
19 the credit shall be allowable between the parties on the basis of
 
20 the number of days during the year the interest was held by each
 
21 owner.  In no case shall the credit allowed under subsection (a)
 
22 be allowed after the expiration of the credit period.
 
23      (e)  Once the total nameplate capacities of ethanol
 
24 production facilities built within the State reaches or exceeds a
 

 
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 1 level of forty million gallons per year, no new ethanol
 
 2 investments or ethanol production facilities shall be allowed to
 
 3 begin claiming credits under this section.  If a new facility's
 
 4 production capacity would cause the statewide ethanol production
 
 5 capacity to exceed forty million gallons per year, only the
 
 6 portion of the investment corresponding to ethanol production
 
 7 that does not exceed the statewide forty million gallon per year
 
 8 level shall be eligible for the credit.
 
 9      (f)  Prior to construction of any new ethanol production
 
10 facility, the producer shall provide written notice of the
 
11 producer's intention to begin construction of a qualifying
 
12 ethanol production facility.  The information shall be provided
 
13 to the department of taxation and the department of business,
 
14 economic development, and tourism on forms provided by the
 
15 department of business, economic development, and tourism, and
 
16 shall include information on the facility owner, facility
 
17 location, facility production capacity, anticipated production
 
18 start date, and the facility owner's contact information.  This
 
19 information shall be available for public inspection and
 
20 dissemination.
 
21      (g)  A qualifying ethanol producer shall provide written
 
22 notice to the director of taxation and the director of business,
 
23 economic development, and tourism within thirty days of the
 

 
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 1 initial qualifying production.  The notice shall include the
 
 2 production start date and expected qualifying production for the
 
 3 next twenty-four months.  This information shall be available for
 
 4 public inspection and dissemination.
 
 5      (h)  If a qualifying facility fails to achieve an average
 
 6 annual production of at least seventy-five per cent of its
 
 7 nameplate capacity for two consecutive years, the stated capacity
 
 8 of that facility may be revised by the director of taxation to
 
 9 reflect actual production for the purposes of determining
 
10 statewide production capacity under subsection (e) and allowable
 
11 investment credits for that facility under subsection (a).
 
12      (i)  Each calendar year during the credit period, each
 
13 qualifying producer shall provide information to the director of
 
14 business, economic development, and tourism on the number of
 
15 gallons of ethanol produced and sold during the previous calendar
 
16 year, how much was sold in Hawaii versus overseas, feedstocks
 
17 used for ethanol production, the number of employees of the
 
18 facility, and the projected number of gallons of ethanol
 
19 production for the succeeding year.
 
20      (j)  Following each year in which a credit under this
 
21 section has been claimed, the director of business, economic
 
22 development, and tourism shall submit a written report to the
 
23 governor and legislature regarding the production and sale of
 
24 ethanol.  The report shall include:
 

 
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 1      (1)  The number, location, and nameplate capacities of
 
 2           qualifying ethanol production facilities in the State;
 
 3      (2)  The total number of gallons of ethanol produced and
 
 4           sold during the previous year; and
 
 5      (3)  The projected number of gallons of ethanol production
 
 6           for the succeeding year.
 
 7      (k)  The director of taxation shall prepare forms that may
 
 8 be necessary to claim a credit under this section.  The director
 
 9 may also require the taxpayer to furnish information to ascertain
 
10 the validity of the claim for credit made under this section and
 
11 may adopt rules necessary to effectuate the purposes of this
 
12 section pursuant to chapter 91."
 
13      SECTION 3.  Section 237-27.1, Hawaii Revised Statutes, is
 
14 amended to read as follows:
 
15      "237-27.1  Exemption of sale of alcohol fuels.(a)  There
 
16 shall be exempted from and excluded from the measure of the taxes
 
17 imposed by this chapter all of the gross proceeds arising from
 
18 the sale of alcohol fuels for consumption or use by the purchaser
 
19 and not for resale. 
 
20      (b)  As used in this section, "alcohol fuels" means neat
 
21 biomass-derived alcohol liquid fuel or a petroleum-derived fuel
 
22 and alcohol liquid fuel mixture consisting of at least ten volume
 
23 per cent denatured biomass-derived alcohol commercially usable as
 

 
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 1 a fuel to power aircraft, seacraft, spacecraft, automobiles, or
 
 2 other motorized vehicles. 
 
 3      [(c)  The director of taxation shall annually submit a
 
 4 written report to the governor and legislature prior to the
 
 5 regular session of the legislature indicating a comparison of the
 
 6 number of gallons and average price per gallon of alcohol fuels
 
 7 and gasoline sold in the State.
 
 8      (d)] (c)  The director of taxation shall adopt rules
 
 9 pursuant to chapter 91 necessary to administer this section.
 
10      (d)  This section shall be repealed on December 31, 2006."
 
11      SECTION 4.  Statutory material to be repealed is bracketed.
 
12 New statutory material is underscored.
 
13      SECTION 5.  This Act shall take effect upon its approval and
 
14 shall apply to taxable years beginning after December 31, 2001.