Agricultural business investment tax credit.
Establishes the agricultural business investment tax credit.
TWENTY-FOURTH LEGISLATURE, 2007
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO AGRICULTURAL TAXATION.
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, which sets out the framework for state policies to promote agriculture and the conservation of 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.”
Thus, during the 2005 legislature, Act 183 was signed into law. Act 183 provides standards, criteria, and mechanisms to fulfill the intent and purpose of article XI, section 3, of the Constitution of the State of Hawaii and enables the implementation of the constitutional mandate as set forth above.
Act 183 also recognized that while land is the basic resource for agriculture and the supply of lands suitable for agriculture is an irreplaceable resource, the long-term viability of agriculture also depends on factors that affect the profitability of agriculture, such as:
(1) Commodity prices;
(2) Availability of water for irrigation;
(3) Agricultural research and outreach;
(4) Application of production technologies;
(5) Marketing; and
(6) Availability and cost of transportation services.
Hawaii’s agricultural producers face operating costs that increasingly threaten the viability of their agricultural operations and the sustainability of agriculture in Hawaii. The legislature further finds that opportunities should be made for farmers and landowners with the ability to promote the long-term viability of agricultural use of lands.
Therefore, the intent of this Act is to provide for the development of incentives for agricultural viability in Hawaii, particularly for agricultural businesses that farm important agricultural lands and for landowners of important agricultural lands. This incentive mechanism would be designed to promote the retention of important agricultural lands for viable agricultural use over the long term.
The purpose of this Act is to further implement Act 183 and provide for an important agricultural lands agricultural business investment tax credit.
SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
“§235- Agricultural business investment tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter an agricultural 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 qualified expenses were incurred and the following four years; provided the credit is properly claimed. The tax credit for single or multiple agricultural business investments made by the taxpayer shall be as follows:
(1) In the year the agricultural business investment is made, fifty per cent of the qualified expenses up to a maximum of $1,250,000;
(2) In the first year following the year in which the agricultural business investment was made, twenty per cent of the qualified expenses up to a maximum of $500,000;
(3) In the second year following the year in which the agricultural business investment was made, ten per cent of the qualified expenses up to a maximum of $250,000;
(4) In the third year following the year in which the agricultural business investment was made, ten per cent of the qualified expenses up to a maximum of $250,000; and
(5) In the fourth year following the year in which the agricultural business investment was made, ten per cent of the qualified expenses up to a maximum of $250,000.
(b) The credit allowed under this section may be claimed against the net income tax liability for the taxable year.
(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) This tax credit shall apply to agricultural business investments made by the agricultural business, as well as by entities or individuals investing capital in the agricultural business from other sources.
(e) 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 agricultural business;
(2) The business or an interest in the business has been sold by the taxpayer investing in the qualified agricultural business; or
(3) The taxpayer has withdrawn the taxpayer's agricultural business investment wholly or partially from the qualified agricultural business,
a portion of the credit claimed under this section shall be recaptured. The recapture amount shall be 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 agricultural business investment in the particular qualified agricultural 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 agricultural 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.
(f) Every taxpayer who made an agricultural business investment, before March 31 following the year in which the agricultural business investment was made, shall submit a written, certified statement to the director of taxation identifying:
(1) Agricultural business investments, if any, expended in the previous taxable year; and
(2) The amount of tax credits claimed pursuant to this section, if any, in the previous taxable year.
(g) The department shall:
(1) Maintain records of the names and addresses of the taxpayers claiming the credits under this section and the total amount of the agricultural business investment costs upon which the tax credit is based;
(2) Verify the nature and amount of the agricultural business investments;
(3) Total all cumulative agricultural business investments that the department certifies; and
(4) Certify the amount of the tax credit for each taxable year and cumulative amount of the tax credit.
Upon each determination made under this subsection and with the assistance of the agribusiness development corporation, the department shall issue a certificate to the taxpayer verifying information submitted to the department, including agricultural business investment amounts, the credit amount certified for each taxable year, and the cumulative amount of the tax credit during the credit period. The taxpayer shall file the certificate with the taxpayer's tax return with the department.
The director of taxation may assess and collect a fee from taxpayers claiming a credit pursuant to this section to offset the costs of certifying tax credit claims under this section. All fees collected under this section shall be deposited into the tax administration special fund established under section 235-20.5.
(h) The agribusiness development corporation shall determine what information is necessary on an annual basis to enable a quantitative and qualitative assessment of the outcomes of the tax credit to be determined. Every taxpayer claiming the agricultural business investment tax credit shall submit this information to the agribusiness development corporation. Any taxpayer failing to do so shall not be eligible to receive the tax credit.
(i) The tax credit allowed under this section shall be available for taxable years beginning after December 31, , and shall not be available for taxable years beginning after December 31, .
(j) 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.
(k) As used in this section:
“Agricultural business investment” means a nonrefundable monetary investment in a qualified agricultural business that is used for qualified expenses. The nonrefundable investment shall be entirely at risk of loss where repayment depends upon the success of the qualified agricultural business. If the money invested is to be repaid to the taxpayer, no repayment except for dividends or interest shall be made for at least one year from the date the investment is made. The annual amount of any dividend and interest payment to the taxpayer shall not exceed twelve per cent of the amount of the investment.
“Important agricultural land” means land identified and designated as important agricultural land pursuant to part III of chapter 205.
“Net income tax liability” means net income tax liability reduced by all other credits allowed under this chapter.
"Qualified agricultural business" means a business actively engaged in commercial agriculture, silviculture, or aquaculture as determined by the agribusiness development corporation, with a portion of the lands used in the business identified and designated as important agricultural lands.
“Qualified expenses” means expenditures made by a qualified agricultural business, including expenditures for:
(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."
SECTION 3. The agribusiness development corporation, in consultation with the department of taxation, shall pre-qualify, pre-approve, monitor, and evaluate any taxpayer applying for or who has used the agricultural business investment tax credit. The agribusiness development corporation, in consultation with the department of taxation, shall also monitor and evaluate the effectiveness of the agricultural business investment tax credit.
SECTION. 4. The agribusiness development corporation shall report to the legislature on an annual basis no later than twenty days prior to the beginning of each regular session, its evaluation and effectiveness of the tax credit. The report shall also include the corporation's findings and recommendations to improve the effectiveness of the tax credit to further encourage the development of agricultural businesses situated on lands designated as important agricultural lands.
SECTION 5. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2007-2008 and the sum of $ or so much thereof as may be necessary for fiscal year 2008-2009 to the agribusiness development corporation for the costs of collecting and analyzing data related to the use of the agricultural business investment tax credit.
The sums appropriated shall be expended by the department of agriculture.
SECTION 6. New statutory material is underscored.
SECTION 7. This Act shall take effect on July 1, 2007.