Report Title:

Agricultural Business Tax Credit; Important Agricultural Lands

 

Description:

Establishes the important agricultural lands agricultural business tax credit. (SB1221 HD2)

 


THE SENATE

S.B. NO.

1221

TWENTY-FOURTH LEGISLATURE, 2007

S.D. 2

STATE OF HAWAII

H.D. 2

 

 

 

 

 

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. 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 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 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 establishing the important agricultural land agricultural business tax credit to assist agricultural businesses in cases where more than fifty per cent of the lands the business owns, leases, or uses, excluding lands classified as conservation lands, 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 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 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, distribution and share of the credit shall be determined pursuant to section 235-110.7(a).

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.

No deduction 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 agribusiness development corporation, in consultation with the department, shall determine what information is necessary on an annual basis to conduct a quantitative and qualitative assessment of the outcomes of the tax credit under this section. Every qualified taxpayer, no later than the last day of the taxable year following the close of the taxpayer's taxable year in which qualified agricultural costs were expended, shall submit a written, certified statement to the agribusiness development corporation in the form specified by the agribusiness development corporation providing this information to the agribusiness development corporation. Any taxpayer failing to submit this information to the agribusiness development corporation in the manner prescribed by the agribusiness development corporation prior to the last day of the taxable year following the close of the taxpayer's taxable year in which qualified agricultural costs were expended 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.

On an annual basis, the agribusiness development corporation, in consultation with the department, shall submit a report to the governor and legislature 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 the taxpayer maintains its principal place of business in the state and more than fifty per cent of the land the taxpayer owns, leases, or uses, excluding lands classified as conservation lands, is 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 made by an agricultural business for:

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

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

(B) Agricultural processing facilities in Hawaii that process crops or livestock from the agricultural business;

(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 the agricultural business;

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

(3) 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 sum of $ or so much thereof as may be necessary for fiscal year 2008-2009 to the department of taxation for the costs of administering the important agricultural land agricultural business tax credit.

The sums appropriated shall be expended by the department of taxation to administer the important agricultural land agricultural business tax credit.

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 20072008 and the sum of $ or so much thereof as may be necessary for fiscal year 2008-2009 to the department of agriculture to administer the important agricultural land agricultural business tax credit.

The sums appropriated shall be expended by the department of agriculture to administer the important agricultural land agricultural business tax credit.

SECTION 5. New statutory material is underscored.

SECTION 6. This Act shall take effect on July 1, 2020.