Qualified Project Construction Income Tax Credit
Allows income tax credit for qualified commercial construction projects of four percent for projects costs up to $10 million, and ten per cent for project costs exceeding $10 million over a consecutive five-year period.
HOUSE OF REPRESENTATIVES
TWENTY-SECOND LEGISLATURE, 2003
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO INCOME TAX CREDITS.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. In October of 2001, the legislature met in special session to approve legislation designed to ameliorate the negative effects that the September 11, 2001, terrorist attacks had on Hawaii’s economy. Act 10, Third Special Session 2001, raised the percentage of the tax credit for construction and remodeling of hotels from four to ten per cent to assist the tourism industry in its efforts to attract more visitors to Hawaii. The ten per cent tax credit is due to expire on June 30, 2003.
The legislature further finds that this tax credit is an excellent means to boost Hawaii’s tourism and construction industries, and should be expanded to include a wider range of construction activities, both related and unrelated to tourism. As an industry, construction is very important to Hawaii’s economy. Investment in physical assets provides the means by which future economic activity will take place and is a significant component of overall economic activity.
Construction projects provide the necessary stimulus for economic development and creation of needed jobs in the current economic climate. The additional economic activity generated by construction and the resultant tax revenues gained will more than offset the short-term loss in tax revenues from the credit.
Hawaii is one of only a few states that impose a general excise tax on construction activity. Hawaii continues to have higher construction costs per square foot than other competitive destinations. Therefore, significant incentives are necessary to help overcome these barriers to development in Hawaii.
Tax credits that extend to all commercial development will help create a stronger, more sustainable, and better-equipped economy statewide. Therefore, this Act creates a new tax credit for the development of all commercial construction projects, with enhanced tax credits for large-scale projects. Only enhanced credits can attract large-scale developments, which in turn produce the greatest impact on economic activity.
The purpose of this Act is to promote Hawaii’s construction industries by establishing a nonrefundable qualified project construction income tax credit for qualified projects.
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 project construction tax credit. (a) There shall be allowed to each taxpayer, subject to the taxes imposed by this chapter, a qualified project construction tax credit that shall be deductible from the taxpayer’s net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed. If the credit allowed under this section exceeds the taxpayer’s tax liability for the tax in the taxable year, the excess of the credit over liability may be carried forward until exhausted.
(b) The amount of the credit claimed under this section shall be the applicable credit percentage of the qualified project construction costs as follows:
(1) For qualified project construction costs to be incurred of up to $10,000,000, the applicable credit percentage shall be four per cent of the costs incurred in each taxable year; and
(2) For qualified project construction costs to be incurred of more than $10,000,000 over a consecutive five-year period, the applicable credit percentage shall be ten per cent of the costs incurred in each taxable year of the consecutive five-year period;
provided that the taxpayer shall require that any general contractor performing work for the qualified project pay its employees the prevailing wages as defined in section 104-1 for qualified project construction costs of more than $250,000 over a consecutive five-year period.
(c) All claims for the credit under this section shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit is claimed. Failure to meet the filing requirements of this subsection shall constitute a waiver of the right to claim the credit.
(d) For qualified project construction costs to be incurred of more than $10,000,000 over a consecutive five-year period, the taxpayer shall elect the year in which the consecutive five-year period commences, and shall certify to the department of taxation for each qualified project the amount of the qualified project construction costs to be incurred over the consecutive five-year period. The election and certification shall be made on or before the end of the twelfth month following the close of the first taxable year for which the credit is claimed. If the taxpayer’s actual qualified project construction costs for the qualified project at the close of the consecutive five-year period do not exceed $10,000,000, there shall be added to the taxpayer’s tax liability in the following taxable year the amount of the tax credits taken in excess of four percent in each year of the consecutive five-year period.
(e) The taxpayer shall be either the owner, developer, lessee, or permittee of the real property relating to the qualified project.
(f) In the case of a partnership, S corporation, estate, or trust, the credit is for qualified project construction costs incurred by the entity for 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 pursuant to section 235-110.7.
(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 credit shall be allowed for that portion of the qualified project construction costs for which the deduction is taken.
(h) If the credit under section 235-110.4 or 235-110.51 is claimed by the taxpayer for any taxable year for the qualified project construction costs, no credit shall be claimed by the taxpayer under this section for the qualified project construction costs.
(i) As used in this section:
"Qualified project" means a commercial building or facility in a single or multiple phase development or renovation project situated on one or more parcels of real property, which are contiguous or adjoining. "Qualified project" does not include "residential real property" as defined in section 508D-1.
"Qualified project construction costs" means any costs incurred after June 30, 2003 and before January 1, 2011 for plans, design, construction, infrastructure, amenities, equipment, alterations, modifications, telecommunications, and information technology infrastructure related to new construction, alterations, or modifications of a qualified project."
SECTION 2. New statutory material is underscored.
SECTION 3. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2002, and ending before January 1, 2011.