Report Title:

Job Creation Income Tax Credit

Description:

Establishes a temporary job creation income tax credit. (HB291 HD1)

HOUSE OF REPRESENTATIVES

H.B. NO.

291

TWENTY-SECOND LEGISLATURE, 2003

H.D. 1

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to the job creation income tax credit.

 

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

SECTION 1. The legislature finds that a strong vibrant economy is essential in preserving Hawaii's unique culture, tradition, and way of life. One of the most important components of the economy is employment. Although other factors such as access to natural resources, quality and education of the labor supply, and availability of investment capital play significant roles in determining the viability of the economy, job creation and job growth serve as the foundational building blocks in ensuring the long term health of Hawaii's economy. Income earned from jobs is plowed right back into the economy in the form of consumer spending and capital investment in areas such as real estate or the financial markets. Furthermore, tax collections are heavily dependent on wages and salaries–-higher incomes generally result in higher tax collections, which are used to address some of the most critical needs of our society and protect our most vulnerable and needy citizens.

Although Hawaii's economy has recovered somewhat from the turmoil wrought by the September 11, 2001, terrorist attacks, its future is still uncertain. Significant recoveries in tourism activity from the western United States mainland are being offset by reduced visitor levels from Japan. Real personal income and real gross state product are expected to rise by a modest two to two and one-half per cent for 2002, while total wage and salary jobs are expected to decline by one-half per cent for 2002. The potential for a regional conflict in the Middle East and additional acts of terrorism further cloud the picture with respect to tourism and energy prices.

The legislature finds that although Hawaii's economy has shown remarkable resiliency in the face of recent economic turmoil, additional steps should be taken now by policymakers to promote job growth in Hawaii. Incentives such as tax credits for job creation can spur businesses in Hawaii to continue to invest in our workers. New jobs not only benefit workers, but also provide disposable income that will ultimately be used to purchase goods and services from the businesses themselves.

The purpose of this Act is to establish a temporary income tax credit equal to $5,000 per employee with the requirement that two-thirds of this credit be used for workforce training. To promote the creation of more stable, higher paying jobs, the tax credit will only apply to full-time employees whose annual wages are $25,000 or higher, and who remain employed by the taxpayer for at least two years.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Job creation income tax credit. (a) There shall be allowed to each eligible taxpayer subject to the taxes imposed by this chapter, a job creation 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 credit may be claimed only for qualified employees hired after December 31, 2002, and shall be equal to $5,000 per qualified employee; provided that an amount equal to two-thirds of the credit is used for workforce training. The credit may only be claimed if the number of qualified employees is equal to ten per cent or more of the full-time workforce employed at the time of application for the credit.

In the case of a partnership, S corporation, estate, or trust, the tax credit allowable shall be determined at the entity level. Distribution and share of credit shall be determined pursuant to section 235-110.7(a).

(b) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year.

(c) If the tax credit under this section exceeds the taxpayer's 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 tax credit under this section, including amended claims, 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 comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(d) The director of taxation shall prepare any forms that may be necessary to apply for or claim a credit under this section. In preparing the application form, the director shall make it easy to understand and use by including a list of requirements that must be met to claim the credit. The director may also require the taxpayer to furnish information to ascertain the validity of the application or claim for credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.

(e) To qualify for the job creation income tax credit, the taxpayer shall be in compliance with all applicable federal, state, and county statutes, ordinances, rules, and regulations.

(f) The credit allowed under this section may be applied for during taxable years beginning after December 31, 2002, through taxable years beginning prior to January 1, 2006. The credit shall not be taken until after the employee or employees for whom the credit is claimed have remained employed by the taxpayer for two years.

(g) For purposes of this section, "qualified employee" means a new full-time employee who earns $25,000 per year or more in wages, excluding benefits such as health insurance, pensions, vacation, and other employment benefits, and remains employed by the taxpayer for at least two years."

SECTION 3. Chapter 241, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§241-    Job creation tax credit. The job creation tax credit provided under section 235- shall be operative for this chapter on the effective date of this Act."

SECTION 4. (a) The department of taxation shall submit a yearly report to the legislature no later than twenty days before the beginning of each regular session beginning with the regular session of 2004 and ending with a final report to the regular session of 2006. The reports shall contain:

(1) The name and business address of every taxpayer that claimed the job creation tax credit in the previous year;

(2) The number of tax credits each taxpayer claimed in the previous year;

(3) The cost to the State of these tax credits for the previous year; and

(4) The sum of each of these for all the years since the tax credit became available.

(b) The report shall also include:

(1) An analysis of the economic impact of this tax credit on the State and the businesses that are eligible for the tax credit; and

(2) Recommendations for amending the availability or caps on the credit if amendments are deemed necessary by the department.

(c) The department of taxation shall work with the department of business, economic development, and tourism on this analysis.

SECTION 5. New statutory material is underscored.

SECTION 6. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2002, and shall be repealed on January 1, 2006.