Report Title:

Construction tax credits

Description:

Provides various tax credits for large-scale construction projects. (HB1394 HD1)

HOUSE OF REPRESENTATIVES

H.B. NO.

1394

TWENTY-SECOND LEGISLATURE, 2003

H.D. 1

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to taxation to stimulate the economy.

 

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 Laws of Hawaii 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 finds that this tax credit is an excellent means to boost Hawaii’s tourism and construction industries, and it 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 the 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.

Credits that extend to all commercial development will help create a stronger, more sustainable, and better-equipped economy statewide.

The purpose of this Act is to provide construction project tax incentives for the development of all commercial construction projects, with enhanced tax credits for large-scale projects. The tax incentives provided for this Act shall only be applicable for a ten-year period.

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 construction project tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter, a qualified construction project 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 income tax liability for the tax in the taxable year, the excess of the credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted.

(b) The amount of the credit claimed under this section shall be the applicable credit percentage of the qualified construction project costs as follows:

(1) For qualified construction project 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 construction project 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 construction project pay its employees the "prevailing wages" as defined in section 104-1 for qualified construction project costs of more than $250,000 over a consecutive five-year period.

(c) Every claim, including amended claims, for the tax 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 may be claimed. Failure to meet the filing requirements of this subsection shall constitute a waiver of the right to claim the credit.

(d) For qualified construction projects incurring costs 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 construction project the amount of the qualified construction project costs to be incurred over the consecutive five-year period. The taxpayer shall make the election and certification on or before the end of the twelfth month following the close of the first taxable year for which the credit is claimed.

(e) If the taxpayer’s actual qualified construction project costs for the qualified construction 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 per cent in each year of the consecutive five-year period. Notwithstanding section 235-111(a) to the contrary, the department may assess the additional tax liability within three years after the due date prescribed for the filing of the return for the fifth year of the consecutive five-year period.

(f) If the taxpayer is a partnership, S corporation, estate, or trust, the credit is for qualified construction project 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 construction project 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 construction project costs, no credit shall be claimed by the taxpayer under this section for the qualified construction project costs.

(i) The director of taxation shall prepare forms that may be necessary to claim a credit under this section. The director may also require the taxpayer to furnish information to ascertain the validity of the claim for credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.

(j) As used in this section:

"Qualified construction project" means a single or multiple phase development or renovation project situated on one or more parcels of real property, which are contiguous or adjoining. "Qualified construction project" does not include "residential real property" as defined in section 508D-1.

"Qualified construction project 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.

"Taxpayer" means the owner, developer, lessee, or permittee of the real property relating to the qualified construction project."

SECTION 3. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§237-    Exemption of qualified construction projects. (a) This chapter shall not apply to the qualified construction project costs from a qualified construction project that are incurred and claimed as a tax credit by a taxpayer pursuant to section 235- .

(b) The exemption provided in this section shall apply to taxable years beginning after December 31, 2002, and ending before January 1, 2011."

SECTION 4. Chapter 239, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§239-    Exemption of qualified construction projects. (a) This chapter shall not apply to the qualified construction project costs from a qualified construction project that are incurred by any taxpayer pursuant to section 235- .

(b) The exemption provided in this section shall apply to taxable years beginning after December 31, 2002, and ending before January 1, 2011."

SECTION 5. Chapter 241, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§241-    Exemption of qualified construction projects. The qualified construction project tax credit provided under section 235- shall be operative for this chapter for the taxable years beginning after December 31, 2002, and ending before January 1, 2011."

SECTION 6. Chapter 431, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§431-    Qualified construction project tax credit. Notwithstanding any other law to the contrary, the qualified construction project tax credit provided under section 235-      shall be operative for this chapter for taxable years beginning after December 31, 2002, and ending before January 1, 2011."

SECTION 7. Section 237D-3, Hawaii Revised Statutes, is amended to read as follows:

"§237D-3 Exemptions. This chapter shall not apply to:

(1) Health care facilities including all such facilities enumerated in section 321-11(10);

(2) School dormitories of a public or private educational institution providing education in grades kindergarten through twelve, or of any institution of higher education;

(3) Lodging provided by nonprofit corporations or associations for religious, charitable, or educational purposes; provided that this exemption shall apply only to the activities of the religious, charitable, or educational corporation or association as such and not to any rental or gross rental the primary purpose of which is to produce income even if the income is used for or in furtherance of the exempt activities of such religious, charitable, or educational corporation or association;

(4) Living accommodations for persons in the military on permanent duty assignment to Hawaii, including the furnishing of transient accommodations to those military personnel who receive temporary lodging allowances while seeking accommodations in Hawaii or while awaiting reassignment to new duty stations outside the State;

(5) Low-income renters receiving rental subsistence from the state or federal governments and whose rental periods are for durations shorter than sixty days;

(6) Operators of transient accommodations who furnish accommodations to full-time students enrolled in an institution offering post-secondary education. The director of taxation shall determine what shall be deemed acceptable proof of full-time enrollment. This exemption shall also apply to operators who furnish transient accommodations to students during summer employment;

(7) Accommodations furnished without charge such as, but not limited to, complimentary accommodations, accommodations furnished to contract personnel such as physicians, golf or tennis professionals, swimming and dancing instructors, and other personnel to whom no salary is paid or to employees who receive room and board as part of their salary or compensation; [and]

(8) Accommodations furnished to foreign diplomats and consular officials who are holding cards issued or authorized by the United States Department of State granting them an exemption from state taxes[.]; and

(9) Accommodations certified by the taxpayer as a qualified construction project pursuant to section 235- for taxable years beginning after December 31, 2002, and ending before January 1, 2011."

SECTION 8. Section 238-2, Hawaii Revised Statutes, is amended to read as follows:

"§238-2 Imposition of tax; exemptions. There is hereby levied an excise tax on the use in this State of tangible personal property which is imported, or purchased from an unlicensed seller, for use in this State. The tax imposed by this chapter shall accrue when the property is acquired by the importer or purchaser and becomes subject to the taxing jurisdiction of the State. The rates of the tax hereby imposed and the exemptions thereof are as follows:

(1) If the importer or purchaser is licensed under chapter 237 and is:

(A) A wholesaler or jobber importing or purchasing for purposes of resale; or

(B) A manufacturer importing or purchasing material or commodities which are to be incorporated by the manufacturer into a finished or saleable product (including the container or package in which the product is contained) wherein it will remain in such form as to be perceptible to the senses, and which finished or saleable product is to be sold in such manner as to result in a further tax on the activity of the manufacturer as the manufacturer or as a wholesaler, and not as a retailer,

there shall be no tax; provided that if the wholesaler, jobber, or manufacturer is also engaged in business as a retailer (so classed under chapter 237), paragraph (2) shall apply to the wholesaler, jobber, or manufacturer, but the director of taxation shall refund to the wholesaler, jobber, or manufacturer, in the manner provided under section 231-23(c) such amount of tax as the wholesaler, jobber, or manufacturer shall, to the satisfaction of the director, establish to have been paid by the wholesaler, jobber, or manufacturer to the director with respect to property which has been used by the wholesaler, jobber, or manufacturer for the purposes stated in this paragraph;

(2) If the importer or purchaser is licensed under chapter 237 and is:

(A) A retailer or other person importing or purchasing for purposes of resale, not exempted by paragraph (1);

(B) A manufacturer importing or purchasing material or commodities which are to be incorporated by the manufacturer into a finished or saleable product (including the container or package in which the product is contained) wherein it will remain in such form as to be perceptible to the senses, and which finished or saleable product is to be sold at retail in this State, in such manner as to result in a further tax on the activity of the manufacturer in selling such products at retail;

(C) A contractor importing or purchasing material or commodities which are to be incorporated by the contractor into the finished work or project required by the contract and which will remain in such finished work or project in such form as to be perceptible to the senses;

(D) A person engaged in a service business or calling as defined in section 237-7, or a person furnishing transient accommodations subject to the tax imposed by section 237D-2, in which the import or purchase of tangible personal property would have qualified as a sale at wholesale as defined in section 237-4(a)(8) had the seller of the property been subject to the tax in chapter 237; or

(E) A publisher of magazines or similar printed materials containing advertisements, when the publisher is under contract with the advertisers to distribute a minimum number of magazines or similar printed materials to the public or defined segment of the public, whether or not there is a charge to the persons who actually receive the magazines or similar printed materials

the tax shall be one-half of one per cent of the purchase price of the property, if the purchase and sale are consummated in Hawaii; or, if there is no purchase price applicable thereto, or if the purchase or sale is consummated outside of Hawaii, then one-half of one per cent of the value of such property; [and]

(3) If the importer or purchaser is licensed under chapter 237 and is:

(A) A contractor incurring qualified construction project costs for a qualified construction project pursuant to section 235- ; and

(B) Importing or purchasing material or commodities that are to be incorporated by the contractor into the finished work product required by the contract and that will remain in the finished work or project in such form as to be perceptible to the senses,

there shall be no tax for the taxable years beginning after December 31, 2002, and ending before January 1, 2011; and

[(3)] (4) In all other cases, four per cent of the value of the property."

SECTION 9. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 10. This Act shall take effect on July 1, 2003, and shall apply to taxable years beginning after December 31, 2002, and ending before January 1, 2011; provided that:

(1) This Act shall be repealed on January 1, 2011; and

(2) Sections 237D-3 and 238-2, Hawaii Revised Statutes, shall be reenacted in the forms in which they read on June 30, 2003.