Report Title:

The Ethanol Income Tax Credit

Description:

Encourages the construction and operation of large-capacity ethanol production facilities by changing the existing ethanol investment tax credit to a facility tax credit.

HOUSE OF REPRESENTATIVES

H.B. NO.

2518

TWENTY-SECOND LEGISLATURE, 2004

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO THE ETHANOL INCOME TAX CREDIT.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The purpose of this Act is to encourage the construction of operating, large-capacity ethanol production facilities by changing the ethanol investment tax credit to a facility tax credit. This Act also clarifies that this tax credit shall not exceed the amount invested in the qualifying ethanol production facility. Thirdly, the definition of "investment" is broadened to include the costs of construction financing. And lastly, because this credit offers a tax benefit that is both substantial and refundable, this Act also prohibits a taxpayer from claiming or receiving any other tax credit under chapter 235, Hawaii Revised Statutes, relating to the development of the qualifying ethanol production facility if this credit is claimed.

SECTION 2. Section 235-110.3, Hawaii Revised Statutes, is amended to read as follows:

"[[]235-110.3[]] Ethanol [investment] facility tax credit. (a) Each year during the credit period, there shall be allowed to each taxpayer subject to the taxes imposed by this chapter, an ethanol [investment] facility tax credit that shall be applied to 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 maximum annual credit allowable for the investment in a qualified ethanol facility that is in production on or before January 1, 2012, subject to subsection (e), shall be determined in accordance with the following schedule:

(1) If nameplate capacity is at least 500,000 but not over 1,000,000, the investment tax credit is the lesser of thirty per cent of the investment, or $150,000;

(2) If nameplate capacity is over 1,000,000, but not over 2,000,000, the investment tax credit is the lesser of thirty per cent of the investment, or $300,000;

(3) If nameplate capacity is over 2,000,000, but not over 3,000,000, the investment tax credit is the lesser of thirty per cent of the investment or $600,000;

(4) If nameplate capacity is over 3,000,000, but not over 4,000,000, the investment tax credit is the lesser of thirty per cent or $900,000;

(5) If nameplate capacity is over 4,000,000, but not over 5,000,000, the investment tax credit is the lesser of thirty per cent or $1,200,000;

(6) If nameplate capacity is over 5,000,000, but not over 6,000,000, the investment tax credit is the lesser of thirty per cent or $1,500,000;

(7) If nameplate capacity is over 6,000,000, but not over 7,000,000, the investment tax credit is the lesser of thirty per cent or $1,800,000;

(8) If nameplate capacity is over 7,000,000, but not over 8,000,000, the investment tax credit is the lesser of thirty per cent or $2,100,000;

(9) If nameplate capacity is over 8,000,000, but not over 9,000,000, the investment tax credit is the lesser of thirty per cent or $2,400,000;

(10) If nameplate capacity is over 9,000,000, but not over 10,000,000, the investment tax credit is the lesser of thirty per cent or $2,700,000;

(11) If nameplate capacity is over 10,000,000, but not over 11,000,000, the investment tax credit is the lesser of thirty per cent or $3,000,000;

(12) If nameplate capacity is over 11,000,000, but not over 12,000,000, the investment tax credit is the lesser of thirty per cent or $3,300,000;

(13) If nameplate capacity is over 12,000,000, but not over 13,000,000, the investment tax credit is the lesser of thirty per cent or $3,600,000;

(14) If nameplate capacity is over 13,000,000, but not over 14,000,000, the investment tax credit is the lesser of thirty per cent or $3,900,000;

(15) If nameplate capacity is over 14,000,000, but not over 15,000,000, the investment tax credit is the lesser of thirty per cent or $4,200,000; and

(16) If nameplate capacity is over 15,000,000, the investment tax credit is the lesser of thirty per cent or $4,500,000.]

The credit may be claimed by any taxpayer who is an owner of a qualifying ethanol production facility.

The annual dollar amount of the ethanol facility tax credit during the eight year period shall be equal to thirty per cent of the nameplate capacity of the facility between 500,000 but not over 15,000,000 gallons; provided that:

(1) The cumulative claims for this credit by any owner of a qualifying ethanol production facility shall not exceed one hundred per cent of the cumulative investment amount made by the owner in the qualifying ethanol production facility;

(2) The qualifying ethanol production facility operated in such taxable year at a level of production of at least seventy-five per cent of its nameplate capacity on an annualized basis;

(3) The qualifying ethanol production facility is in production on or before January 1, 2012; and

(4) No taxpayer that claims the credit under this section shall claim or receive any other tax credit under this chapter for expenses incurred or investments made relating to the facility.

(b) As used in this section:

"Credit period" means a maximum period of eight years [for facilities with a total investment of less than $50,000,000, and, a maximum period of ten years for facilities with a total investment equal to or greater than $50,000,000,] beginning from the first taxable year in which the [credit is properly claimed.] qualifying ethanol production facility begins production even if actual production is not at seventy-five per cent of nameplate capacity.

"Investment" means a nonrefundable expenditure directly related to the construction of any qualifying ethanol production facility, exclusive of land costs[.], and shall include interest payments on a construction loan relating to any qualifying ethanol production facility. For purposes of this section, investment includes any investment for which the taxpayer is at risk, as that term is used in section 465 of the Internal Revenue Code (with respect to deductions limited to amount at risk).

["Maximum annual credit allowable" means the total credit allowed under subsection (a) claimed against the taxpayer's net income tax liability for any taxable year; provided that the qualifying ethanol facility operated in such taxable year at a level of production of at least seventy-five per cent of its nameplate capacity on an annualized basis].

"Nameplate capacity" means the qualifying ethanol facility's production design capacity, in gallons of motor fuel grade ethanol per year[, based on an assumed operating year of three hundred fifty days].

"Net income tax liability" means net income tax liability reduced by all other credits allowed under this chapter.

"Owner" means one or more persons, jointly or severally, in whom is vested:

(1) All or any part of the legal title to property; or

(2) All or any part of the beneficial ownership and a right to present use and enjoyment of the property; and includes a mortgagee in possession.

["Qualifying ethanol production" means ethanol produced from renewable, organic feedstocks, or waste materials, including municipal solid waste. All qualifying production shall be fermented, distilled, and dehydrated at the facility.]

"Qualifying ethanol production facility" means a facility located in Hawaii which produces motor fuel grade ethanol meeting the minimum specifications by the American Society of Testing and Materials standard D-4806, as amended[.], with all qualifying production being fermented, distilled, and dehydrated at the facility.

(c) In the case of a taxable year in which the cumulative claims for the credit by the owner of a qualifying ethanol production facility exceeds the cumulative investment made in the qualifying ethanol production facility by the owner, only that portion that does not exceed the cumulative investment shall be claimed and allowed.

(d) The department of business, economic development, and tourism shall:

(1) Maintain records of the owners of qualifying ethanol production facilities and the total amount of the investment made by each owner in such facilities;

(2) Verify the amount of the qualifying investment;

(3) Total all qualifying and cumulative investments that the department of business, economic development, and tourism certifies; and

(4) Certify the amount of the tax credit for each taxable year and cumulative amount of the tax credit during the credit period.

Upon each determination, the department of business, economic development, and tourism shall issue a certificate to the taxpayer verifying the qualifying investment amounts, the credit amount certified for each taxable year, and the cumulative amount of the tax credit during the credit period. The taxpayer shall file the certificate with the taxpayer's tax return with the department of taxation. Notwithstanding the department of business, economic development, and tourism's certification authority under this section, the director of taxation has the power to audit and adjust certification to conform to the facts.

If in any year, the annual amount of certified credits reaches $10,200,000, in the aggregate the department of business, economic development, and tourism shall immediately discontinue certifying credits and notify the department of taxation. In no instance, shall the total amount of certified credits exceed $10,200,000 per year. Notwithstanding any other law to the contrary, this information shall be available for public inspection and dissemination under chapter 92F.

[(c)] (e) If the credit under this section exceeds the taxpayer's income tax liability, the excess of credit over liability shall be refunded to the taxpayer; provided that no refunds or payments on account of the tax credit allowed by this section shall be made for amounts less than $1. All claims for a credit under this section must be properly 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 comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

[(d)] (f) If a qualifying ethanol production facility or an interest therein is acquired by a taxpayer prior to the expiration of the credit period, the credit allowable under subsection (a) for any period after such acquisition shall be equal to the [maximum annual credit allowable and credit period] credit that would have been allowable under subsection (a) to the prior owner had the owner not disposed of the interest. If an interest is disposed of during any year for which the credit is allowable under subsection (a), the credit shall be allowable between the parties on the basis of the number of days during the year the interest was held by each owner. In no case shall the credit allowed under subsection (a) be allowed after the expiration of the credit period.

[(e)] (g) Once the total nameplate capacities of qualifying ethanol production facilities built within the State reaches or exceeds a level of [forty] thirty-four million gallons per year, no new [ethanol investments or] ethanol production facilities shall be allowed to begin claiming credits under this section. If a new facility's production capacity would cause the statewide ethanol production capacity to exceed [forty] thirty-four million gallons per year, only the [portion of the investment corresponding to] ethanol production capacity that does not exceed the statewide [forty] thirty-four million gallon per year level shall be eligible for the credit.

[(f)] (h) Prior to construction of any new ethanol production facility, the [producer] facility owner shall provide written notice of the [producer's] owner's intention to begin construction of a qualifying ethanol production facility. The information shall be provided to the department of taxation and the department of business, economic development, and tourism on forms provided by the department of business, economic development, and tourism, and shall include information on the facility owner, facility location, facility production capacity, anticipated production start date, and the facility owner's contact information. [This] Notwithstanding any other law to the contrary, this information shall be available for public inspection and dissemination[.] under chapter 92F.

[(g)] (i) [A qualifying ethanol producer] The owner of a qualifying ethanol production facility shall provide written notice to the director of taxation and the director of business, economic development, and tourism within thirty days [of the initial qualifying production] following the start of production. The notice shall include the production start date and expected [qualifying] ethanol fuel production for the next twenty-four months. [This] Notwithstanding any other law to the contrary, this information shall be available for public inspection and dissemination under chapter 92F.

[(h)] (j) If a qualifying ethanol production facility fails to achieve an average annual production of at least seventy-five per cent of its nameplate capacity for two consecutive years, the stated capacity of that facility may be revised by the director of [taxation] business, economic development, and tourism to reflect actual production for the purposes of determining statewide production capacity under subsection [(e)] (g) and allowable [investment] credits for that facility under subsection (a). Notwithstanding any other law to the contrary, this information shall be available for public inspection and dissemination under chapter 92F.

[(i)] (k) Each calendar year during the credit period, the owner of each qualifying [producer] ethanol production facility shall provide information to the director of business, economic development, and tourism on the number of gallons of ethanol produced and sold during the previous calendar year, how much was sold in Hawaii versus overseas, feedstocks used for ethanol production, the number of employees of the facility, and the projected number of gallons of ethanol production for the succeeding year.

(l) In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for every qualifying ethanol production facility. The cost upon which the tax 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).

(m) A taxpayer who receives a credit under this section must include the credit for the tax year in the taxpayer's gross income for that year.

[(j)] (n) Following each year in which a credit under this section has been claimed, the director of business, economic development, and tourism shall submit a written report to the governor and legislature regarding the production and sale of ethanol. The report shall include:

(1) The number, location, and nameplate capacities of qualifying ethanol production facilities in the State;

(2) The total number of gallons of ethanol produced and sold during the previous year; and

(3) The projected number of gallons of ethanol production for the succeeding year.

[(k)] (o) The director of taxation shall prepare forms that may be necessary to claim a credit under this section. Notwithstanding the department of business, economic development, and tourism's certification authority under this section, the director may audit and adjust certification to conform to the facts. 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."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval and shall apply to taxable years beginning after December 31, 2003.

INTRODUCED BY:

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BY REQUEST