CONFERENCE COMMITTEE REP. NO. 144-04

Honolulu, Hawaii

, 2004

RE: H.B. No. 2396

H.D. 2

S.D. 2

C.D. 1

 

 

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Conference on the disagreeing vote of the House of Representatives to the amendments proposed by the Senate in H.B. No. 2396, H.D. 2, S.D. 2, entitled:

"A BILL FOR AN ACT RELATING TO CAPITAL INVESTMENTS,"

having met, and after full and free discussion, has agreed to recommend and does recommend to the respective Houses the final passage of this bill in an amended form.

The purpose of this bill is to continue to support the state's high technology industry by:

(1) Establishing the State Private Investment Fund (SPIF) within the Hawaii Strategic Development Corporation (HSDC) to provide additional financing tools to meet the growing needs of the high technology industry; and

(2) Extending and improving certain tax incentives developed for the high technology industry.

Your Committee finds that the high technology business in Hawaii is growing quickly and maturing into a promising and competitive industry. To continue growing and to ensure that these industries remain in Hawaii, new financing opportunities must be developed and implemented. The creation of SPIF will allow the State to enable these businesses to continue to grow.

Your Committee has amended the provisions relating to this new agency by placing a cap of $36,000,000 on the total amount of tax credits HSDC may transfer at a rate of no more than $12,000,000 per year.

Your Committee also finds that the changes to the high technology tax incentives will continue to foster the growth of these businesses, especially the small businesses just starting out.

The bill, as received, provided Department of Taxation (DOTAX) with guidance on how to evaluate the various claims for this credit by using the ratio of investment to tax credit claimed as an indication of which claims met the purpose of this tax credit. However, your Committee wants to clearly state that these ratios are only guidance and should not be used as a bright line test of credit approval. Rather, these ratios should be considered one factor among many in the evaluation of which credits should be allowed to be claimed.

Your Committee has amended this bill by, among other things:

(1) Amending the membership of the Board of Directors of the HSDC;

(2) Deleting the HSDC appropriations section;

(3) Extending for five years the technology infrastructure renovation tax credit, the high technology business investment tax credit, and the research activities tax credit;

(4) Establishing a new Tax Administration Special Fund and authorizing DOTAX to charge fees for providing comfort letters to businesses interested in the tax incentives, and for certifying credit amounts for the high technology business investment and the research activities tax credits to be deposited into this special fund;

(5) Providing reliability for comfort letters already sent by the DOTAX to high technology businesses and investors;

(6) Amending the computer software component of the definition of "qualified research" in section 235-7.3, Hawaii Revised Statutes, which excludes from income taxation various high technology related royalties. The new definition relates to the ultimate use of the software and the control that the business retains over the software;

(7) Establishing reporting requirements for those claiming a qualified high technology business tax credit or a research activities tax credit to provide more public information about the use of these credits; and

(8) Limiting the use of the research activities tax credit to qualified high technology businesses.

As affirmed by the record of votes of the managers of your Committee on Conference that is attached to this report, your Committee on Conference is in accord with the intent and purpose of H.B. No. 2396, H.D. 2, S.D. 2, as amended herein, and recommends that it pass Final Reading in the form attached hereto as H.B. No. 2396, H.D. 2, S.D. 2, C.D. 1.

Respectfully submitted on behalf of the managers:

ON THE PART OF THE SENATE

ON THE PART OF THE HOUSE

____________________________

DAVID Y. IGE, Co-Chair

____________________________

BRIAN SCHATZ, Co-Chair

____________________________

CAROL FUKUNAGA, Co-Chair

____________________________

DWIGHT Y. TAKAMINE, Co-Chair

____________________________

BRIAN T. TANIGUCHI, Co-Chair