Agricultural Business Tax Credit; Important Agricultural Lands
Establishes the important agricultural lands agricultural business tax credit. (SB1221 HD1)
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."
To address the issue of important agricultural lands, Act 183, Session Laws of Hawaii 2005 (Act 183), 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 Hawaii State Constitution.
Act 183 also recognized that while the supply of lands suitable for agriculture is critical, the long-term viability of agriculture also depends on other factors. These factors include:
(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.
Tax incentives are a critical component of the long-term viability of agriculture on important agricultural lands in the state. The legislature finds that it is in the public's interest to provide incentives such as income tax credits to assist agricultural businesses when the majority of the lands owned, leased, or used by the business are important agricultural lands.
The purpose of this Act is to further the implementation of Act 183, Session Laws of Hawaii 2005, by establishing the important agricultural land agricultural business tax credit to assist agricultural businesses when the majority of the lands owned, leased, or used by the businesses are important agricultural lands.
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 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. The tax credit shall be as follows:
(1) In the year the qualified agricultural costs are incurred, twenty-five per cent of the qualified agricultural costs up to a maximum of ;
(2) In the first year following the year in which the qualified agricultural costs are incurred, fifteen per cent of the qualified agricultural costs up to a maximum of ; and
(3) In the second year following the year in which the qualified agricultural costs are incurred, ten per cent of the qualified agricultural costs up to a maximum of .
(b) The amount of the credit shall be per cent of the qualified agricultural costs incurred 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 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.
No credit shall be allowed for those 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 department of agriculture, in consultation with the department of taxation, shall determine the types of information that are necessary on an annual basis to allow a quantitative and qualitative assessment of the outcomes of the tax credit to be made. Every taxpayer, no later than the last day of the taxable year following the close of the taxpayer's taxable year in which qualified costs were incurred, shall submit a written, certified statement to the department of agriculture as prescribed by the department of agriculture.
Any taxpayer failing to submit information to the department of agriculture under this subsection shall not be eligible to receive the tax credit, and any credit already claimed for that taxable year shall be recaptured in total. The amount of the recaptured tax credit shall be added to the taxpayer's tax liability for the taxable year in which the recapture occurs.
Notwithstanding any law to the contrary, a statement submitted under this subsection shall be a public document.
(h) On an annual basis, the department of agriculture in consultation with the department of taxation 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.
(i) The tax credit allowed under this section shall be available for taxable years beginning after December 31, 2006.
(j) 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 more than fifty per cent of the land the agricultural business owns, leases, or uses, excluding land classified as conservation land, is important agricultural land.
"Important agricultural lands" means lands identified and designated as important agricultural lands pursuant to chapter 205, part III.
"Net income tax liability" means income tax liability reduced by all other credits allowed under this chapter.
"Qualified agricultural costs" means expenditures for:
(1) The plans, design, engineering, construction, renovation, repair, maintenance, and equipment for:
(A) Roads or utilities serving lands in the state used by the agricultural business for agricultural purposes;
(B) Agricultural processing facilities in the state that process crops or livestock from an agricultural business;
(C) Water wells, reservoirs, dams, water storage facilities, water pipelines, ditches, or irrigation systems in the state which provide water for lands, the majority of which are important agricultural lands; and
(D) Agricultural housing in the state specifically for laborers of the agricultural business;
(2) Equipment used by the agricultural business to cultivate, grow, harvest, or process agricultural products."
SECTION 3. 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 same sum, or so much thereof as may be necessary for fiscal year 2008-2009, to the department of taxation for the costs to administer the important agricultural land agricultural business tax credit.
The sums appropriated shall be expended by the department of taxation for the purposes of this Act.
SECTION 4. 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 same sum, or so much thereof as may be necessary for fiscal year 2008-2009, to the department of agriculture for the costs to administer the important agricultural land agricultural business tax credit.
The sums appropriated shall be expended by the department of agriculture for the purposes of this Act.
SECTION 5. New statutory material is underscored.
SECTION 6. This Act, upon its approval, shall apply to taxable years beginning after December 31, ; provided that sections 3 and 4 shall take effect on July 1, .