Tax Credit; Federally Qualified Health Centers
Provides a tax credit for improvements made to federally qualified health centers.
HOUSE OF REPRESENTATIVES
TWENTY-FIRST LEGISLATURE, 2002
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO QUALIFIED IMPROVEMENT TAX CREDIT.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds and declares that it is in the public interest to encourage the development of health care in the State.
Hawaii's federally qualified health centers, which are all not-for—profit Hawaii corporations, are in various stages of developing and improving their health care facilities. A new federally mandated Medicaid Prospective Payment System began on January 1, 2001 for federally qualified health centers that has effectively eliminated a mechanism for federally qualified health centers to recoup costs associated with future capital improvements, thus severely limiting the ability of health centers to serve the public.
The legislature further finds that federally qualified health centers are "safety net" primary health service providers serving predominantly uninsured, poor and indigent people of Hawaii regardless of their ability to pay. Funding or financing capital improvement is one of the critical elements to foster the growth of federally qualified health centers to further contribute to Hawaii's economy. Federally qualified health centers are not only susceptible to low compensation, increasing operating costs for uninsured patients and increasing government regulation, but are also affected by poor access to capital markets. Loans to not-for-profit federally qualified health centers pose higher risks in comparison to conventional commercial lending.
The purpose of this Act is to provide a tax credit for qualified improvements made to federally qualified health centers.
SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§235- Qualified improvement tax credit. (a) Whenever used in this chapter, unless the context otherwise requires:
"Construction costs" means any costs related to construction, including labor and materials, planning, design, site work and other infrastructure costs, as well as indirect costs such as impact and license fees.
"Equipment" means any tangible or intangible item that has a useful life of more than one year and costs more than $5,000.
"Federally qualified health center" means an entity that has entered into an agreement with the Center for Medicare and Medicaid Services, formerly known as Health Care Financing Administration to meet Medicare program requirement under United States Code section 405.2434 and is receiving a grant under section 330 of the Public Health Service Act, or is receiving funding from the recipient of a grant under section 330 of the Public Health Service Act.
"Net income tax liability" means income tax liability reduced by all other allowed credits, as determined under chapter 235.
"Qualified facility" means:
(1) Any land, buildings, or equipment owned or leased by a federally qualified health center; and
(2) On property not so owned or leased, but the primary purpose of which is for commercial use to support or service a federally qualified health center.
"Qualified improvement costs" means any construction costs and equipment of a permanent nature related to a qualified facility.
"Taxpayer" means any person who owns a qualified facility.
(b) There shall be allowed to each taxpayer, subject to the taxes imposed by this chapter, a qualified improvement tax credit, which shall be available to reduce the taxpayer's net income tax liability.
(c) The total amount of the qualified improvement tax credit shall be determined by applying the applicable credit percentage to the qualified improvement costs incurred by the taxpayer in the taxable year or incurred by the taxpayer in the taxable year and the two preceding taxable years, if three year's culminative amount of qualified improvement costs is to be applied. For qualified improvement costs to a federally qualified health center facility totaling $300,000 or more in a taxable year or $1,000,000 or more over a three-taxable-year period, the applicable credit percentage shall be fifty per cent. For the purpose of calculating qualified improvement costs over a three-taxable—year period for qualified improvement tax credit application, the total amount of qualified improvement costs shall be reduced by any qualified improvement costs for which the qualified improvement tax credit was claimed for any of the three taxable years.
(d) If the taxpayer is a tax exempt entity under Internal Revenue Code Section 501(c)(3), the qualified improvement tax credit shall be refundable to the not—for-profit entity in three equal installments over three taxable years beginning with the year in which the not-for-profit entity assumes ownership of the qualified improvement. The refund shall be used by the tax exempt entity receiving the refund solely for purposes of providing preventive health care, outreach, and other enabling services to high risk patients. Each 501(c)(3) entity receiving such a refund shall submit an annual report to the department of taxation to account for the expenditures.
(e) For any taxpayer other than a tax exempt entity in subsection (d), the tax credit allowed under this chapter may be taken over a period not to exceed ten consecutive taxable years. The taxpayer shall elect the period and annual allocation of the tax credit in the initial year for which the credit is claimed.
(f) In the case of a partnership, S corporation, estate, or trust, the allowable tax credit shall be for qualified improvement costs incurred by the entity during the taxable year. The costs upon which the tax credit is computed shall be determined at the entity level. Distribution and share of the tax credit shall be determined by rules adopted pursuant to chapter 91.
(g) If a deduction is taken under section 179 (with respect to election to expense depreciable business assets) of the Internal Revenue Code of 1986, as amended, no tax credit shall be allowed for that portion of the qualified improvement costs for which the deduction is taken.
(h) The basis of eligible property for depreciation or accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowed and claimed under this chapter.
(i) The tax credit allowed under this chapter shall be claimed against any or all net income tax liability for the taxable years over which the credit is claimed.
(j) If the amount of the tax credit claimed in any year exceeds the total of the taxpayer's net income tax liability payable for that taxable year, the excess of credit over liability shall not be refunded to the taxpayer except as provided under subsection (d); provided that a taxpayer may claim any excess tax credits against any general excise tax liability under section 237-24(17).
All claims for a tax credit under this chapter shall be filed on or before the end of the twelfth month following the close of the initial taxable year for which the credit may be claimed. Failure to comply with this section shall constitute a waiver of the right to claim the credit.
(k) The director of taxation shall prepare forms as may be necessary to claim a tax credit under this chapter. The director of taxation may also require the taxpayer to furnish information to ascertain the validity of a claim for a tax credit made under this chapter and may adopt rules necessary to effectuate the purposes of this chapter pursuant to chapter 91.
(l) The tax credit allowed under this chapter shall be available for qualified improvement costs incurred during taxable years beginning after December 31, 2001, and before January 1, 2011."
SECTION 3. Section 237-24, Hawaii Revised Statutes, is amended to read as follows:
"§237-24 Amounts not taxable. This chapter shall not apply to the following amounts:
(1) Amounts received under life insurance policies and contracts paid by reason of the death of the insured;
(2) Amounts received (other than amounts paid by reason of death of the insured) under life insurance, endowment, or annuity contracts, either during the term or at maturity or upon surrender of the contract;
(3) Amounts received under any accident insurance or health insurance policy or contract or under workers' compensation acts or employers' liability acts, as compensation for personal injuries, death, or sickness, including also the amount of any damages or other compensation received, whether as a result of action or by private agreement between the parties on account of the personal injuries, death, or sickness;
(4) The value of all property of every kind and sort acquired by gift, bequest, or devise, and the value of all property acquired by descent or inheritance;
(5) Amounts received by any person as compensatory damages for any tort injury to the person, or to the person's character reputation, or received as compensatory damages for any tort injury to or destruction of property, whether as the result of action or by private agreement between the parties (provided that amounts received as punitive damages for tort injury or breach of contract injury shall be included in gross income);
(6) Amounts received as salaries or wages for services rendered by an employee to an employer;
(7) Amounts received as alimony and other similar payments and settlements;
(8) Amounts collected by distributors as fuel taxes on "liquid fuel" imposed by chapter 243, and the amounts collected by such distributors as a fuel tax imposed by any Act of the Congress of the United States;
(9) Taxes on liquor imposed by chapter 244D on dealers holding permits under that chapter;
(10) The amounts of taxes on cigarettes and tobacco products imposed by chapter 245 on wholesalers or dealers holding licenses under that chapter and selling the products at wholesale;
(11) Federal excise taxes imposed on articles sold at retail and collected from the purchasers thereof and paid to the federal government by the retailer;
(12) The amounts of federal taxes under chapter 37 of the Internal Revenue Code, or similar federal taxes, imposed on sugar manufactured in the State, paid by the manufacturer to the federal government;
(13) An amount up to, but not in excess of, $2,000 a year of gross income received by any blind, deaf, or totally disabled person engaging, or continuing, in any business, trade, activity, occupation, or calling within the State;
(14) Amounts received by a producer of sugarcane from the manufacturer to whom the producer sells the sugarcane, where:
(A) The producer is an independent cane farmer, so classed by the Secretary of Agriculture under the Sugar Act of 1948 (61 Stat. 922, Chapter 519) as the Act may be amended or supplemented;
(B) The value or gross proceeds of sale of the sugar, and other products manufactured from the sugarcane, is included in the measure of the tax levied on the manufacturer under section 237-13(1) or 237-13(2);
(C) The producer's gross proceeds of sales are dependent upon the actual value of the products manufactured therefrom or the average value of all similar products manufactured by the manufacturer; and
(D) The producer's gross proceeds of sales are reduced by reason of the tax on the value or sale of the manufactured products;
(15) Money paid by the State or eleemosynary child-placing organizations to foster parents for their care of children in foster homes; [
(16) Amounts received by a cooperative housing corporation from its shareholders in reimbursement of funds paid by such corporation for lease rental, real property taxes, and other expenses of operating and maintaining the cooperative land and improvements; provided that such a cooperative corporation is a corporation:
(A) Having one and only one class of stock outstanding;
(B) Each of the stockholders of which is entitled solely by reason of the stockholder's ownership of stock in the corporation, to occupy for dwelling purposes a house, or an apartment in a building owned or leased by the corporation; and
(C) No stockholder of which is entitled (either conditionally or unconditionally) to receive any distribution not out of earnings and profits of the corporation except in a complete or partial liquidation of the corporation[
(17) Amounts equal to the excess qualified improvement tax
credits not claimed under section 235- ."
SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 5. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2001.