Report Title:

Ethanol Tax Credit

Description:

Changes ethanol investment tax credit to a production tax credit that provides an incentive based on production capacity of the facility. Provides credit of 30 cents per gallon of nameplate capacity between 10,000 and 15 million gallons.

THE SENATE

S.B. NO.

3169

TWENTY-SECOND LEGISLATURE, 2004

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO ETHANOL.

 

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

SECTION 1. The purpose of this Act is to change the existing ethanol investment tax credit to a facility tax credit so that the tax incentive is based on the production capability of the facility. This change will simplify administration of the tax incentive and will clarify the intent of the incentive to encourage the production of up to thirty-four million gallons per year of fuel-grade ethanol in Hawaii.

Ethanol can be mixed with gasoline up to a ten per cent blend without a change in the performance or operating reliability of gasoline powered vehicles. Ethanol may also be used in flexibly-fueled vehicles, in the production of biodiesel, in the production of e-diesel, and in fuel cells. Federal tax incentives for ethanol include a small producer credit of ten cents per gallon. Also, the federal excise tax on gasoline blended ethanol is several cents per gallon less than the federal excise tax on gasoline without ethanol.

Ethanol can be produced from agricultural crops, agricultural byproducts, or other locally-available materials, including wastes. Conversion of wastes to ethanol may help reduce waste disposal problems.

Ethanol fuel has been identified in both the National Energy Policy and in the Hawaii energy strategy as a means to improve national and state energy security and economic development.

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

1. By amending its title and subsections (a) and (b) to read:

"[[]§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),] (f), 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.] thirty cents per gallon of nameplate capacity between ten thousand gallons but not over fifteen million gallons.

(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.

["Investment" means a nonrefundable expenditure directly related to the construction of any qualifying ethanol production facility, exclusive of land costs. 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) reduced by the dollar amount of any other tax credit provided under this section, and 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 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.

"Qualifying ethanol production" means ethanol produced from renewable, organic feedstocks, or waste materials, including municipal solid waste. All qualifying production shall be fermented, distilled, or produced by physical chemical conversion methods such as reformation and catalytic conversion 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."

2. By amending subsection (e) to read:

"(e) Once the total nameplate capacities of 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 that does not exceed the statewide [forty] thirty-four million gallon per year level shall be eligible for the credit."

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.

INTRODUCED BY:

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