Report Title:

Clinical Trials; Tax Credit

 

Description:

Provides for an income tax credit amounting to fifteen per cent of qualified clinical trials incurred, in any county of Hawaii with a population over 700,000, and twenty per cent in any county with a population under 700,000.  Establishes criteria to qualify for the tax credit.  Caps credit at $8,000,000 per clinical trial.

 


HOUSE OF REPRESENTATIVES

H.B. NO.

3254

TWENTY-FOURTH LEGISLATURE, 2008

 

STATE OF HAWAII

 

 

 

 

 

A BILL FOR AN ACT

 

 

relating to life sciences.

 

 

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

 


     SECTION 1.  The legislature finds that the life sciences industry plays a significant role in the diversification and therefore, the sustainability of Hawaii's economy.  Ground-breaking medical studies have already been conducted in Hawaii by the Cancer Research Center and Pacific Health Research Institute.

     Hawaii's unique location and ethnic diversity provide indispensable advantages to companies conducting clinical trials.  Life sciences companies that conduct these trials often create more and higher paying jobs that will help to keep our local talent employed in the State.  In addition, conducting these trials in Hawaii will put our State on the cutting edge of drug development, bringing in research funding from Asia and North America.

     Providing a specific tax boost would particularly help Hawaii companies that are pioneering pharmaceutical and other health products at a time that they are entering phases three and four of their clinical trials.

     The purpose of this Act is to advance the important specialization components of the Hawaii life sciences road map by providing a tax incentive for life sciences companies to conduct clinical trials in Hawaii.

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

     "§235-    Clinical trials; income tax credit.  (a)  Any law to the contrary notwithstanding, there shall be allowed to each taxpayer subject to the taxes imposed by this chapter, an income 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 credit is properly claimed.  The amount of the credit shall be:

     (1)  Fifteen per cent of the qualified clinical trial costs incurred by a qualified clinical trial in any county of the State with a population of over seven hundred thousand; or

     (2)  Twenty per cent of the qualified clinical trial costs incurred by a qualified clinical trial in any county of the State with a population of seven hundred thousand or less.

A qualified clinical trial occurring in more than one county may prorate its expenditures based upon the amounts spent in each county; provided that the population bases differ enough to change the percentage of tax credit.

     In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for qualified clinical trial costs incurred by the entity for the taxable year.  The cost upon which the tax credit is computed shall be determined at the entity level.  Distribution and share of credit shall be determined by rule.

     If a deduction is taken under section 179 (with respect to election to expense depreciable business assets) of the Internal Revenue Code of 1986, as amended, no tax credit shall be allowed for those costs for which the deduction is taken.

The basis for eligible property for depreciation of accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed.

     (b)  The credit allowed under this section shall be claimed against the net income tax liability for the taxable year.  For the purposes 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, the excess of credits over liability shall be refunded to the taxpayer; provided that no refunds or payment on account of the tax credits allowed by this section shall be made for amounts less than $1.  All claims, including any amended claims, for tax credits 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)  To qualify for this tax credit, a clinical trial shall:

     (1)  Meet the definition of a qualified clinical trial specified in subsection (l);

     (2)  Have qualified clinical trial costs totaling at least $200,000;

     (3)  Provide evidence of reasonable efforts to hire local researchers and staff; and

     (4)  Provide evidence of financial or in-kind contributions or educational or workforce development efforts, in partnership with related trade and business development organizations, educational institutions, or both, toward the furtherance of the local science, technology and health industry.

     (e)  On or after July 1, 2008, no qualified clinical trial cost that has been financed by investments for which a credit was claimed by any taxpayer pursuant to section 235-110.9 shall be eligible for credits under this section.

     (f)  To receive the tax credit, the taxpayer shall first pre-qualify the clinical trial for the credit by registering with the department of taxation.  Failure to comply with this provision may constitute a waiver of the right to claim the credit.

     (g)  The director of taxation shall prepare forms as may be necessary to claim a credit under this section.  The director may also require the taxpayer to furnish information to ascertain the validity of the claim for credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.

     (h)  Every taxpayer claiming a tax credit under this section for a qualified clinical trial, no later than ninety days following the end of each taxable year in which qualified clinical trial costs were expended, shall submit a written, sworn statement to the department of taxation, identifying:

     (1)  All qualified clinical trial costs as provided by subsection (a), if any, incurred in the previous taxable year;

     (2)  The amount of tax credits claimed pursuant to this section, if any, in the previous taxable year; and

     (3)  The number of total hires versus the number of local hires by category (i.e., department) and by county.

     (i)  The department of taxation shall:

     (1)  Maintain records of the names of the taxpayers and qualified clinical trials thereof claiming the tax credits under subsection (a);

     (2)  Obtain and total the aggregate amounts of all qualified clinical trial costs per qualified clinical trial and per qualified clinical trial per taxable year; and

     (3)  Provide a letter to the director of taxation specifying the amount of the tax credit per qualified clinical trial for each taxable year that a tax credit is claimed and the cumulative amount of the tax credit for all years claimed.

Upon each determination required under this subsection, the department of taxation shall issue a letter to the taxpayer, regarding the qualified clinical trial, specifying the qualified clinical trial costs and the tax credit amount qualified for in each taxable year a tax credit is claimed.  The taxpayer for each qualified clinical trial shall file the letter with the taxpayer's tax return for the qualified clinical trial to the department of taxation.  The director of taxation may audit and adjust the tax credit amount to conform to the information filed by the taxpayer.

     (j)  Total tax credits claimed per qualified clinical trial shall not exceed $8,000,000.

     (k)  Qualified clinical trials shall comply with subsections (d), (e), (f), and (h).

     (l)  For the purposes of this section:

     "Qualified Clinical trials" means a research study, conducted within the State, to answer specific questions about vaccines, new therapies or new ways of using known treatments to determine whether new drugs or treatments are both safe and effective.

     "Qualified clinical trial costs" means the costs incurred by a qualified clinical trial within the State that are subject to the general excise tax under chapter 237 or income tax under this chapter and that have not been financed by any investments for which a credit was or will be claimed pursuant to section 235-110.9.  Qualified clinical trial costs include but are not limited to:

     (1)  Costs associated with planning, designing, executing, and analyzing a qualified clinical trial;

     (2)  Data, blood, and tissue sampling and analysis, statistical analysis;

     (3)  Hospital, physician, and nursing costs;

     (4)  Wages or salaries of researchers and staff;

     (5)  Costs of imaging and related technical services;

     (6)  Costs associated with clinical trial participants;

     (7)  Rentals and fees for use of local facilities and research laboratories; and

     (8)  Other direct clinical trial costs specified by the department in consultation with the department of taxation."

     SECTION 3.  New statutory material is underscored.


     SECTION 4.  This Act, upon its approval, shall apply to taxable years beginning after December 31, 2007.

 

INTRODUCED BY:

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