Report Title:

Construction Tax Credits

Description:

Provides an income tax credit for large-scale construction projects. (SD1)

HOUSE OF REPRESENTATIVES

H.B. NO.

1394

TWENTY-SECOND LEGISLATURE, 2003

H.D. 2

STATE OF HAWAII

S.D. 1


 

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) When the provisions of subsection (i) are met, 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 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 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 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 qualified construction project tax credit for projects that meet the requirements of subsection (b)(1) may be claimed only upon a declaration by the governor. The governor shall issue a declaration allowing taxpayers to claim the income tax credit when the revenue collections at the close of each of two successive fiscal years exceed 7.5 per cent of the general fund revenues for each of the two fiscal years. The director of taxation shall notify the governor of the revenue balance at the close of every year.

(j) 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.

(k) 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, 2006, 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. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2053, and shall apply to taxable years beginning after December 31, 2002, and shall be repealed on January 1, 2007.