Report Title:

High Technology Tax Incentives

Description:

Clarifies the application of tax incentives relating to royalties, copyrights, or trade secrets excluded from gross income, and the high technology business investment tax credit.

THE SENATE

S.B. NO.

323

TWENTY-SECOND LEGISLATURE, 2003

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to High Technology Tax Incentives.

 

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

SECTION 1. Section 235-7.3, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) For the purposes of this section:

"Performing arts products" means:

(1) Audio files, video files, audiovideo files, computer animation, and other entertainment products perceived by or through the operation of a computer; and

(2) Commercial television and film products for sale or license, [and reuse or residual fee payments from these products.]; provided that at least fifty per cent of the postproduction work shall be performed in Hawaii.

"Postproduction work" means services for film or video that include editing, film and video transfers, transcoding, dubbing, subtitling, credits, close captioning, audio production, special effects (visual or sound), graphics, or animation.

"Qualified high technology business" means a business that conducts more than fifty per cent of its activities in qualified research.

"Qualified research" means:

(1) The same as in section 41(d) of the Internal Revenue Code;

(2) The development and design of [computer software using fourth generation or higher software development tools or native programming languages to design and construct] unique and specific code to create computer software applications and design databases for sale or license;

(3) Biotechnology;

(4) Performing arts products;

(5) Sensor and optic technologies;

(6) Ocean sciences;

(7) Astronomy; or

(8) Nonfossil fuel energy-related technology."

SECTION 2. Section 235-110.9, Hawaii Revised Statutes, is amended to read as follows:

"§235-110.9 High technology business investment tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter a high technology business investment tax credit that shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the investment was made and the following four years provided the credit is properly claimed. The tax credit shall be as follows:

(1) In the year the investment was made, thirty-five per cent;

(2) In the first year following the year in which the investment was made, twenty-five per cent;

(3) In the second year following the investment, twenty per cent;

(4) In the third year following the investment, ten per cent; and

(5) In the fourth year following the investment, ten per cent;

of the investment made by the taxpayer in each qualified high technology business, up to a maximum allowed credit in the year the investment was made, $700,000; in the first year following the year in which the investment was made, $500,000; in the second year following the year in which the investment was made, $400,000; in the third year following the year in which the investment was made, $200,000; and in the fourth year following the year in which the investment was made, $200,000.

(b) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year. For the purpose of this section, "net income tax liability" means net income tax liability reduced by all other credits allowed under this chapter.

(c) If the tax credit under this section exceeds the taxpayer's income tax liability for any of the five years that the credit is taken, the excess of the tax credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. Every claim, including amended claims, for a tax 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 comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(d) If at the close of any taxable year in the five-year period in subsection (a):

(1) The business no longer qualifies as a qualified high technology business;

(2) The business or an interest in the business has been sold or transferred by the taxpayer investing in the qualified high technology business; or

(3) The taxpayer has withdrawn the taxpayer's investment wholly or partially from the qualified high technology business;

the credit claimed under this section shall be recaptured. The recapture shall be equal to ten per cent of the amount of the total tax credit claimed under this section in the preceding two taxable years. The amount of the credit recaptured shall apply only to the investment in the particular qualified high technology business that meets the requirements of paragraph (1), (2), or (3). The recapture provisions of this subsection shall not apply to a tax credit claimed for a qualified high technology business that does not fall within the provisions of paragraph (1), (2), or (3). The amount of the recaptured tax credit determined under this subsection shall be added to the taxpayer's tax liability for the taxable year in which the recapture occurs under this subsection.

(e) As used in this section:

"Qualified high technology business" means a business, employing or owning capital or property, or maintaining an office, in this State; provided that[:] at the close of the taxable year for the business:

(1) More than fifty per cent of its total business activities are qualified research; and provided further that the business conducts more than seventy-five per cent of its qualified research in this State; or

(2) More than seventy-five per cent of its gross income is derived from qualified research; and provided further that this income is received from:

(A) Products sold from, manufactured in, or produced in this State; or

(B) Services performed in this State.

"Qualified research" means the same as defined in section 235-7.3.

(f) In the case of partnerships, limited liability partnerships, limited liability companies classified as partnerships, and S corporations, the credit available under this section may be claimed provided that all partners, members, or shareholders certify that, in any taxable year in which any partners, members, or shareholders claim a credit under this section, no other credits will be claimed under section 235-17 or 235-110.3.

[(f)] (g) This section shall not apply to taxable years beginning after December 31, 2005."

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

SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2002.

INTRODUCED BY:

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