Revitalization of Older Commercial Facilities; Tax Credit
Establishes an income tax credit for revitalization of older commercial facilities, including retail, hotel, warehouse, and industrial facilities; provided that either the facility or the commercial district where the facility is located is at least twenty-five years old; projects over $2,500,000 required to pay prevailing wages under chapter 104, Hawaii Revised Statutes.
HOUSE OF REPRESENTATIVES
TWENTY-SECOND LEGISLATURE, 2003
STATE OF HAWAII
A BILL FOR AN ACT
relating to taxation.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that one of the lingering effects of Hawaii's recent economic stagnation is the deterioration of many of the State's older commercial districts. Older established commercial districts, such as Hilo town, Kailua-Kona, Wailuku, Kahului, Lahaina, Lihue, Kaimuki, Kapahulu, Waikiki, McCully, Kapiolani-Keeaumoku, Kakaako, downtown Honolulu-Chinatown, Kalihi, Aiea, Pearl City, Waipahu, Wahiawa, Haleiwa, the Honolulu Airport industrial area, and Mapunapuna, face increasing competition from large new shopping centers, yet often do not have the means to improve their commercial facilities to a competitive level.
The legislature further finds that a tax incentive to encourage tenants and building owners to redevelop and improve older, established commercial districts in need of new buildings, reconstruction, and investment, would provide an economic benefit to the State as well as to these older commercial districts.
The purpose of this Act is to establish a tax credit for the revitalization of older commercial buildings and districts throughout the State of Hawaii.
SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§235- Commercial construction and remodeling tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter and chapter 237, an income tax credit, which 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.
The amount of the credit shall be five per cent of the construction or renovation costs incurred during the taxable year for each qualified facility located in Hawaii, and shall not include the construction or renovation costs for which another credit was claimed under this chapter for the taxable year.
(b) The credit allowed under this section shall be available for taxable years beginning after December 31, 2002, and shall not be available for taxable years beginning after December 31, 2010.
(c) No taxpayer that claims a credit under this section shall claim a credit under chapter 235D.
(d) In the case of a partnership, S corporation, estate, or trust, the credit allowable is for construction or renovation costs incurred by the entity for the taxable year. The cost upon which the credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined pursuant to section 235-110.7(a).
If a deduction is taken under section 179 (with respect to election to expense depreciable business assets) of the Internal Revenue Code, no credit shall be allowed for that portion of the construction or renovation cost for which the deduction is taken.
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 allowable and claimed. In the alternative, the taxpayer shall treat the amount of the credit allowable and claimed as a taxable income item for the taxable year in which it is properly recognized under the method of accounting used to compute taxable income.
(e) To claim the credit for the costs of any construction or renovation project with total costs of over $2,500,000, the taxpayer shall:
(1) Pay all employees the prevailing wages under chapter 104 if the taxpayer is the general contractor on the project; or
(2) Provide, in any contract let in connection with the project, stipulations requiring the contractor and any subcontractor to pay the prevailing wages under chapter 104 for the employees working on the project.
(f) To qualify for the credit, the taxpayer shall be in compliance with all applicable federal, state, and county statutes, rules, and regulations.
(g) The credit allowed under this section shall be claimed against the taxpayer's net income tax liability for the taxable year. If the credit exceeds the taxpayer's net income tax liability, the excess of credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. All claims for a 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 properly and timely claim the credit shall constitute a waiver of the right to claim the credit.
(h) The director of taxation shall prepare any forms that may be necessary to claim a credit under this section, may require proof of the claim, and may adopt rules under chapter 91 to carry out this section.
(i) As used in this section:
"Construction or renovation cost" means any costs incurred after December 31, 2002, for plans, design, construction, and equipment related to new construction, alterations, or modifications to a qualified facility.
"Net income tax liability" means income tax liability reduced by all other credits allowed under this chapter.
"Qualified facility" means a commercial, retail, hotel, warehouse, or industrial facility; provided that either the facility or the commercial district where the facility is located is at least twenty-five years old.
"Taxpayer" means a taxpayer under this chapter.
(j) This section shall be repealed on December 31, 2010."
SECTION 3. Following each year in which a tax credit under this section may be claimed, the director of taxation shall submit a written report to the governor and the legislature, which shall include all projects qualifying for the credit, the commercial district where each project is located, the annual and projected total costs of each project, and the amount of the credit for each project.
At the termination of the tax credit in 2010, the legislature shall evaluate the overall impact of the credit on the revitalization of Hawaii's older commercial districts and shall determine if the credit should be extended.
SECTION 4. New statutory material is underscored.
SECTION 5. This Act shall take effect upon its approval; provided that section 2 shall apply to taxable years beginning after December 31, 2002.