Report Title:

State enterprise zone

Description:

Amends the eligibility requirements for the State Enterprise Zone Program to allow more agricultural businesses the opportunity to participate. (HB2784 HD1)

HOUSE OF REPRESENTATIVES

H.B. NO.

2784

TWENTY-SECOND LEGISLATURE, 2004

H.D. 1

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO STATE ENTERPRISE ZONES.

 

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

SECTION 1. The legislature finds that agriculture is a vital component of Hawaii's economy. It provides Hawaii with a stage for tourism, export products, a diversity of employment opportunities, and land and water stewardship. The legislature further finds that to encourage further economic development in the rural areas, the agricultural industry must be given the opportunity to prosper. While thousands of acres of agricultural land lie idle, both new and existing agricultural ventures must be encouraged to expand and develop into long-lasting businesses.

The state enterprise zone program (EZP) provides business incentives designed to increase agricultural activity. However, it is difficult to qualify for this program and this discourages many businesses from applying. Although agricultural businesses face challenges similar to those that confront other small businesses, they must also deal with unique problems. For example, employment in agricultural business is affected by both the local and global marketplace, seasonal crops, and changing weather conditions. These unique factors often make the EZP "qualified business" employment requirement unattainable.

The purpose of this Act is to amend the eligibility requirements of the EZP to allow more agricultural businesses the opportunity to participate.

SECTION 2. Chapter 209E, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"209E-     Force majeure event affecting agricultural business. If a force majeure event prevents an agricultural business from wholly or partially maintaining its eligibility under section 209E-9, then commencing on the first day of any such event the agricultural business shall not be disqualified under section 209E-9 and shall remain eligible for all benefits during a period following the event and the seven-year eligibility shall be extended by the number of months of the duration of the force majeure event. A business claiming qualification under this section shall be prompt and diligent in providing the department with:

(1) Notice of the force majeure event; or

(2) As much notice as practicable of any situation that might lead to a force majeure event.

For purposes of this section, "force majeure event" means a natural and unavoidable catastrophe outside the reasonable control of a business and not attributable to its neglect, including fire, flood, lava flow or other volcanic activity, drought, seismic or tidal wave, and hurricane."

SECTION 3. Section 209E-9, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:

"(a) Any business firm may be eligible to be designated a qualified business for purposes of this chapter if the business:

(1) Begins the operation of a trade or business within an enterprise zone;

(2) During each taxable year has at least fifty per cent of its enterprise zone establishment's gross receipts attributable to the active conduct of trade or business within the enterprise zone;

(3) Increases its average annual number of full-time employees by at least ten per cent by the end of its first tax year of participation; provided that an agricultural business shall increase its annual gross revenues by at least two per cent by the end of its first tax year of participation if it is unable to achieve the required increase in its average annual number of full-time employees; and

(4) During each subsequent taxable year at least maintains that higher level of employment[.]; provided that during each subsequent taxable year an agricultural business shall at least maintain the increase in its annual gross revenues under paragraph (3).

(b) A business firm also may be eligible to be designated a qualified business for purposes of this chapter if the business:

(1) Is actively engaged in the conduct of a trade or business in an area immediately prior to an area being designated an enterprise zone;

(2) Meets the requirements of subsection (a)(2); and

(3) Increases its average annual number of full-time employees employed at the business' establishment or establishments located within the enterprise zone by at least ten per cent annually[.]; provided that an agricultural business shall increase its annual gross revenues by at least two per cent by the end of its first tax year of participation if it is unable to achieve the required increase in its average annual number of full-time employees."

SECTION 4. Section 209E-10, Hawaii Revised Statutes, is amended to read as follows:

"209E-10 State business tax credit. (a) The department shall certify annually to the department of taxation the applicability of the tax credit provided in this chapter for a qualified business against any taxes due the State. Except for the general excise tax, the credit shall be [eighty]:

(1) Eighty per cent of the tax due for the first tax year[, seventy];

(2) Seventy per cent of the tax due for the second tax year[, sixty];

(3) Sixty per cent of the tax due for the third year[, fifty];

(4) Fifty per cent of the tax due the fourth year[, forty];

(5) Forty per cent of the tax due the fifth year[, thirty];

(6) Thirty per cent of the tax due the sixth year[,]; and [twenty]

(7) Twenty per cent of the tax due the seventh year.

Any tax credit not usable shall not be applied to future tax years.

(b) When a partnership is eligible for a tax credit under this section, each partner shall be eligible for the tax credit provided for in this section on the partner's income tax return in proportion to the amount of income received by the partner from the partnership. Any qualified business having taxable income from business activity, both within and without the enterprise zone, shall allocate and apportion its taxable income attributable to the conduct of business. Tax credits provided for in this section shall only apply to taxable income of a qualified business attributable to the conduct of business within the enterprise zone.

(c) In addition to any tax credit authorized under this section, any qualified business shall be entitled to a tax credit against any taxes due the State in an amount equal to a percentage of unemployment taxes paid. The amount of the credit shall be equal to [eighty]:

(1) Eighty per cent of the unemployment taxes paid during the first year[, seventy];

(2) Seventy per cent of the taxes paid during the second year[, sixty];

(3) Sixty per cent of the taxes paid during the third year[, fifty];

(4) Fifty per cent of the taxes paid during the fourth year[, forty];

(5) Forty per cent of the taxes paid during the fifth year[, thirty];

(6) Thirty per cent of the taxes paid during the sixth year[,]; and [twenty]

(7) Twenty per cent of the taxes paid during the seventh year.

(d) Tax credits provided for in subsection (c) shall only apply to the unemployment tax paid on employees employed at the qualified business' establishment or establishments located within the enterprise zone. Any tax credit not usable shall not be applied to future tax years.

(e) A qualified agricultural business certified by the department shall be eligible for the tax credits provided under this section for an additional seven-year period."

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect upon its approval.