Report Title:

Important Agricultural Land Agricultural Business Tax Credit

 

Description:

Establishes the Important Agricultural Land Agricultural Business Tax Credit.

 


THE SENATE

S.B. NO.

1220

TWENTY-FOURTH LEGISLATURE, 2007

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT


 

 

Relating to agricultural tax credits.

 

 

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

 


     SECTION 1.  In 1978, voters approved article XI, section 3, of the Constitution of the State of Hawaii.  This section laid out the framework for state policies to promote agriculture and conserve productive agricultural lands in the state.  Article XI, section 3, reads as follows:

"The State shall conserve and protect agricultural lands, promote diversified agriculture, increase agricultural self-sufficiency and assure the availability of agriculturally suitable lands.  The legislature shall provide standards and criteria to accomplish the foregoing.

Lands identified by the State as important agricultural lands needed to fulfill the purposes above shall not be reclassified by the State or rezoned by its political subdivisions without meeting the standards and criteria established by the legislature and approved by a two-thirds vote of the body responsible for the reclassification or rezoning action."

     To address the issue of important agricultural lands, Act 183, Session Laws of Hawaii, was enacted.  Act 183 establishes standards, criteria, and mechanisms to identify important agricultural lands and implement the intent and purpose of Article XI, section 3, of the State Constitution. 

     Act 183 also recognized that while the supply of lands suitable for agriculture is critical, the long-term viability of agriculture depends on other factors as well.  These factors include:

     (1)  Commodity prices;

     (2)  Availability of water and irrigation;

     (3)  Agricultural research and outreach;

     (4)  Application of production technologies;

     (5)  Marketing; and

     (6)  Availability and cost of transportation services.

     Tax incentives are a critical component of the long-term viability of agriculture on important agricultural lands in the state.  The legislature finds that is in the public interest to assist agricultural businesses who hold a majority of their lands in important agricultural lands through incentives such as income tax credits.

     The purpose of this Act is to further the implementation of Act 183 by:

     (1)  Establishing the important agricultural land agricultural business tax credit to assist agricultural businesses that own, hold, or use a majority of their lands as important agricultural lands; and

     (2)  Declaring that the substance of this Act establishes incentives and protections for important agricultural lands as contemplated by section 9 of Act 183, which effectuates the land use commission's authorization to designate lands as important agricultural lands and adopt maps therefor pursuant to section 205-49d, Hawaii Revised Statutes.

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

     "§235-     Important agricultural land agricultural business tax credit.  (a)  There shall be allowed to each taxpayer subject to the taxes imposed by this chapter an income tax credit, which 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.

     (b)  The amount of the credit shall be one hundred per cent of the qualified agricultural costs incurred in Hawaii and paid for by an agricultural business during the taxable year; provided that this amount shall be reduced pursuant to subsection (c).  No other credit may be claimed under this chapter for the qualified agricultural costs for which a credit is claimed under this section for the taxable year.

     (c)  The amount of the qualified agricultural costs eligible to be claimed under this section shall be reduced by the amount of funds received by an agricultural business during the taxable year from the irrigation repair and maintenance special fund under section 167-24.

     (d)  The cost upon which the tax credit is computed shall be determined at the entity level.  In the case of a partnership, S corporation, estate, trust, or other pass through entity, the allowable tax credit may be claimed by the partners, shareholders, beneficiaries, or members.

     If a deduction is taken under section 179 (with respect to election to expense depreciable business assets) of the Internal Revenue Code, no tax credit shall be allowed for that portion of the qualified agricultural cost for which the deduction is taken.

     The basis of eligible property for depreciation or accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed.  In the alternative, the taxpayer shall treat the amount of the credit allowable and claimed as a taxable income item for the taxable year in which it is properly recognized under the method of accounting used to compute taxable income. 

     No deduction shall be allowed for that portion of otherwise deductible, non-capital qualified agricultural costs for which a credit is claimed under this section.

     (e)  If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted.  All claims for a tax credit under this section, including amended claims, shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit is claimed.  Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

     (f)  The director of taxation shall prepare any forms that 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. 

     (g)  The agribusiness development corporation, in consultation with the department of taxation, shall:

     (1)  Pre-qualify, pre-approve, monitor, and evaluate any taxpayer applying for or using the tax credit;

     (2)  Monitor and evaluate the effectiveness of the tax credit.

On an annual basis, the agribusiness development corporation shall submit a report evaluating the effectiveness of the tax credit.  The report shall include but not be limited to findings and recommendations to improve the effectiveness of the tax credit to further encourage the development of agricultural businesses that own, hold, or use important agricultural lands.

     (h)  The tax credit allowed under this section shall be available for taxable years beginning after December 31, 2006.

     (i)  As used in this section:

     "Agricultural business" means any taxpayer with a commercial agricultural, silvicultural, or aquacultural facility or operation, including:

     (1)  The care and production of livestock and livestock products, poultry and poultry products, apiary products, and plant and animal production for nonfood uses;

     (2)  The planting, cultivating, harvesting, and processing of crops; and

     (3)  The farming or ranching of any plant or animal species in a controlled salt, brackish, or freshwater environment;

provided that it maintains its principal place of business in the state and holds, owns, or uses a majority of its lands, excluding lands classified as conservation lands, as important agricultural lands.

     "Important agricultural lands" means lands identified and designated as important agricultural lands pursuant to part III of chapter 205.

     "Net income tax liability" means income tax liability reduced by all other credits allowed under this chapter.

     "Qualified agricultural costs" means expenditures in Hawaii for:

     (1)  The plans, design, engineering, construction, renovation, repair, maintenance, and equipment for:

(A)  Roads or utilities serving lands used by an agricultural business for agricultural purposes;

(B)  Agricultural processing facilities that process crops or livestock;

(C)  Water wells, reservoirs, dams, water storage facilities, water pipelines, ditches, or irrigation systems for which the majority of the lands serviced by its water are important agricultural lands; and

(D)  Agricultural housing specifically for laborers of an agricultural business;

     (2)  Feasibility studies, regulatory processing, and legal and accounting services related to the items in paragraph (1);

     (3)  Equipment used to cultivate, grow, harvest, or process agricultural products by an agricultural business; and

     (4)  Research and development of agricultural products, processes, techniques, or equipment intended to promote the diversification or long-term viability of an agricultural business."

     SECTION 3.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect on July 1, 2007.

 

INTRODUCED BY:

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