Report Title:

Tax Credits; Nonprofit Agencies


Provides an income tax credit for cash contributions made to qualified nonprofit agencies that provide direct services to the public.


H.B. NO.












SECTION 1. In the aftermath of the September 11, 2001, attacks on New York and Washington, D.C., the country is still reeling from the enormity of the loss of lives and pure devastation that held our nation in grief.

But despite a squeamish stock market and an airline industry facing new security challenges, the people of America came to the rescue of those in distress. Hundreds of millions of dollars from all around the country and the world poured into New York and Washington, D.C., to assist our fallen compatriots.

Although situated some five thousand miles away, the residents of Hawaii extended their Aloha and prayers to our sister states with generous donations of funds, blood, and volunteer services. Even while facing a looming economic crisis at home, with record unemployment rates and faltering visitor occupancy indicators, the people of Hawaii still responded as they always have in times of crisis--generously and unconditionally.

The United States and its allies have subsequently retaliated against the terrorists in Afghanistan, which has created an atmosphere of war with heightened security here at home. Our daily lives can no longer be characterized as "normal". Hawaii must make certain sacrifices in our lifestyle and spending habits due to the uncertainty at hand.

Our county, state, and federal governments are reallocating and shuffling funds to accommodate our defense efforts, while also providing for the needs of those newly unemployed or soon-to-become unemployed. The airline industry, which is facing bankruptcy, has also received funding support from the federal and state governments. With increased funding for defense needs, it is only a matter of time before funding cutbacks occur in other areas -- particularly in social services. Many nonprofit agencies that serve the under-privileged and depend on government funding will be severely impacted in the coming months.

The purpose of this Act is to address the anticipated cutback in social services funding by providing a tax credit for cash contributions made to qualifying nonprofit agencies that provide direct services to the public.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"235- Social services income tax credit. (a) Each individual resident taxpayer, who files an individual net income tax return for a taxable year, and who is not claimed or is not otherwise eligible to be claimed as a dependent by another taxpayer for income tax purposes, may claim a tax credit for a cash contribution made to a qualifying nonprofit agency. The credit shall be equal to ten per cent of the cash contribution and shall be applied against the taxpayer's income tax liability for the taxable year for which an income tax return is filed.

(b) To claim the tax credit, the taxpayer shall file a form prescribed by the director of taxation that is signed by the donor nonprofit agency evidencing the cash donation.

(c) For the purposes of this section:

(1) A "nonprofit agency" means an agency located in the State that provides direct services to clients in the State and whose nonprofit status for tax purposes is recognized by the department of taxation;

(2) "Contribution" means a donation of cash;

(3) "Direct services" means services that are made to clients without intermediaries, such as inner-city youth centers, homeless shelters, low-income medical clinics, drug treatment facilities, support services for the disabled and abused, and back-to-work programs.

(d) The amount of the tax credit claimed shall not exceed ten per cent of the taxpayer's cash contribution made under this section, nor the amount of the taxpayer's income tax liability. The taxpayer shall not be allowed to claim a tax credit in excess of $10,000 per year. Any tax credit not claimed in the taxable year the contribution is made may be carried over to succeeding taxable years until the full credit has been claimed.

(e) The director of taxation shall prepare such forms as may be necessary to claim a tax credit under this section, including the form required under subsection (c) to acknowledge receipt of the cash contribution by a qualifying agency, a copy of which shall be given to the donor. The form shall include:

(1) The name, address, and federal identification number of the nonprofit agency;

(2) The donor's name, address, social security number, and the amount of the cash contribution; and

(3) Any other information the director may require to effectuate this section.

The director shall adopt rules pursuant to chapter 91 to effectuate the purposes of this section.

(f) All claims for tax credits under this section, including any amended claims, must be filed on or before the end of the twelfth month following the close of the taxable year for which the credits may be claimed. Failure to comply with this provision shall constitute a waiver of the right to claim the credit."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval and shall apply to taxable years beginning after December 31, 2001.