Report Title:

Small Business Investment and Improvements Tax Credit


Establishes an investment and improvements income tax credit for qualifying small businesses.


S.B. NO.









relating to taxation.



SECTION 1. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"235- Small business investment and improvements tax credit. (a) Section 41 (with respect to the credit for increasing research activities) and section 280C(c) (with respect to certain expenses for which the credit for increasing research activities are allowable) of the Internal Revenue Code shall be operative for the purposes of this chapter as provided in this section; except that references to the base amount shall not apply and credit for all qualified investment and improvement expenses may be taken without regard to the amount of expenses for previous years.

If section 41 of the Internal Revenue Code is repealed or terminated prior to the effective date of this section, its provisions shall remain in effect for purposes of the income tax law of the State as modified by this section, as provided for in subsection (h).

(b) All references to Internal Revenue Code sections within sections 41 and 280C(c) of the Internal Revenue Code shall be operative for purposes of this section.

(c) There shall be allowed to each small business taxpayer subject to the taxes imposed by this chapter, an income tax credit equal to ten per cent of qualifying costs incurred and paid by the eligible taxpayer during the taxable year for qualified investment and improvement activities. The credit shall be deductible from the taxpayer's gross income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed.

(d) As used in this section:

"Small business" means a corporation, partnership, sole proprietorship, or other legal entity that:

(1) Is independently owned and operated;

(2) Employs no more than twenty-five full-time employees; and

(3) Earns not more than $5,000,000 in annual gross income in the year that the tax credit provided under this section is claimed.

(e) If the tax credit for qualified investment and improvement activities claimed by a taxpayer exceeds the amount of income tax payment due from the taxpayer, the excess of the tax credit over payments due shall be refunded to the taxpayer; provided that no refund on account of the tax credit allowed by this section shall be made for amounts less than $1.

(f) All 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 claim the credit properly shall constitute a waiver of the right to claim the credit. A claim for credit under this section shall preclude a claim for credit under section 235-110.91 based upon the same costs and expenses.

(g) The director of taxation may adopt rules under chapter 91 necessary to carry out this section. The director shall prepare any forms that may be necessary to claim a credit under this section and may require the taxpayer to furnish information necessary to ascertain the validity of the claim for credit made under this section.

(h) This section shall apply to taxable years beginning after December 31, 2003."

SECTION 2. New statutory material is underscored.

SECTION 3. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2003.