Enterprise zone program
Allow farmers who suffer economic losses from force majeure events to drop out of the enterprise zone program for the period of the loss and gain a month-for-month extension of their overall 84-month enterprise zone eligibility. Clarifies that tax credits taken in the enterprise zone program cannot be duplicated in other tax incentive programs.
TWENTY-FOURTH LEGISLATURE, 2007
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO STATE ENTERPRISE ZONES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that agriculture in Hawaii is a vital component of Hawaii's economy. It provides the State with export products, a diversity of employment opportunities, a stage for tourism, and an opportunity for land and water stewardship. The legislature also finds that to encourage further economic development in economically distressed rural areas, agriculture must be given the chance to prosper, especially small family farms. While thousands of acres of agricultural land lie idle, new and existing agricultural ventures must be encouraged to expand and develop. More incentives must be provided to give agricultural entrepreneurs the opportunity to build long-lasting businesses in Hawaii.
The legislature further finds that the state enterprise zone program is one method that provides business incentives to encourage agricultural activity. However, employment requirements to qualify for this program discourage many agricultural businesses, especially smaller farms, from applying or qualifying. While agricultural businesses are confronted by challenges similar to those faced by other small businesses, agricultural businesses labor under unique circumstances that compound the complexity of building a successful business. Agricultural employment is dependent on local and global markets, seasonal crops, labor availability, and weather conditions. It is very difficult for smaller agricultural businesses to meet the existing employment requirements of the state enterprise zone program. Therefore, the legislature recognizes that action needs to be taken to allow more agricultural businesses the opportunity to participate in the state enterprise zone program.
The purpose of this Act is to address the unique circumstances of agricultural businesses under the enterprise zone program by:
(1) Establishing that agricultural businesses shall remain eligible for tax incentives in the event of force majeure events, which affect their operations;
(2) Allowing agricultural businesses to meet annual gross revenue requirements if the businesses are unable to meet annual full-time employee requirements;
(3) Clarifying the definition of "full-time employee" by including leased employees and employees under a joint employer relationship; and
(4) Clarifying that the taxpayer claiming a tax credit or exemption under chapter 209E, Hawaii Revised Statutes, may not claim any other tax credit or exemption, under any other law, that is identical to the claimed tax credit or tax exemption.
SECTION 2. Chapter 209E, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:
"§209E- Agricultural business; extension of tax incentives. The department shall extend all tax incentives provided under this chapter to existing qualified agricultural businesses for no more than the number of months of a force majeure event that affected their operations.
§209E- Force majeure event; agricultural businesses. If an agricultural business is:
(1) Wholly or partially prevented from maintaining eligibility requirements under section 209E-9; or
(2) Interrupted, by reason of or through any force majeure event, then the agricultural business shall not be disqualified under this chapter. The agricultural business shall remain eligible for all tax incentives under this chapter during any period caused by a force majeure event, and the seven-year eligibility period shall be extended by the number of months of the force majeure event. The agricultural business shall be as prompt and diligent as practicable in providing the department with notice of a force majeure event or of any situation that may lead to a force majeure event."
SECTION 3. Section 209E-1, Hawaii Revised Statutes, is amended to read as follows:
Purpose. It is declared that the health, safety, and welfare of the people
of this State are dependent upon the continual encouragement, development,
growth, and expansion of the private sector[ ,] and that there are
certain areas in the State that need the particular attention of government to
help attract private sector investment. Therefore, it is the purpose of this
chapter to stimulate business, agriculture, and industrial growth in
areas [ which] that would result in neighborhood revitalization of
those areas by means of regulatory flexibility and tax incentives."
SECTION 4. Section 209E-2, Hawaii Revised Statutes, is amended as follows:
(1) By adding three new definitions to be appropriately inserted and to read as follows:
"Agricultural business" means any corporation, partnership, or sole proprietorship authorized to do business in the State qualified under section 209E-9, subject to the state corporate or individual income tax under chapter 235, and engaged in producing those agricultural products pursuant to section 237-5 or processing agricultural products.
"Force majeure event" means an event, including damaging weather or natural disasters such as epidemic disease, pest outbreak, high wind, thunderstorm, hail storm, tornado, fire, flood, earthquake, lava flow or other volcanic activity, drought, tidal wave, hurricane, or without limiting or restricting the foregoing in any way, any event reasonably beyond the control of, and not attributable to neglect by, an agricultural business.
"Joint employer" means:
(1) Where there is an arrangement between the employers to share the employee's services, as for example, to interchange employees;
(2) Where one employer is acting directly or indirectly in the interest of the other employer or employers in relation to the employee; or
(3) Where the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.
"Leased employee" means an employee under a professional employment organization arrangement who is assigned to a client company on a substantially full-time basis for at least one year."
(2) By amending the definition of "full-time employee" to read as follows:
""Full-time employee" means any employee, including leased employees and employees under a joint employer relationship, for whom the employer is legally required to provide employee fringe benefits."
SECTION 5. Section 209E-4, Hawaii Revised Statutes, is amended to read as follows:
"§209E-4 Enterprise zone designation. (a) The governing body of any county may apply in writing to the department to have an area declared to be an enterprise zone. The application shall include a description of the location of the area or areas in question, and a general statement identifying proposed local incentives to complement the state and any federal incentives.
(b) The governor, upon the recommendation of
the director, shall approve the designation of up to six areas in each county
as enterprise zones for a period of twenty years. Any [
such] area so
designated shall be located in one United States census tract or two or
more contiguous United States census tracts in accordance with the most recent
decennial United States Census. The census tract or tracts within which each
enterprise zone is located also shall meet at least one of the following
(1) Twenty-five per cent or more of the population have incomes below eighty per cent of the median family income of the county; or
(2) The unemployment rate is 1.5 times the state average.
(c) Notwithstanding subsection (b), census
tract #405 within the county of Kauai shall be eligible for designation as an
enterprise zone. The eligibility for designation shall remain in effect until January 1, 1997, unless the governor earlier determines that the eligibility is no
longer necessary. (d) Notwithstanding subsection (b) or (c),
only lands classified as agricultural in the Waialua district on Oahu, as
defined in section 4-1(3)(D), shall be designated an enterprise zone
on July 1, 1997, and the designation shall remain in effect until June 30,
SECTION 6. Section 209E-7, Hawaii Revised Statutes, is amended to read as follows:
Government assistance; prohibition. [ There shall be no duplication of
existing state tax incentives to qualified business firms which locate in an
enterprise zone.] If any tax credit or tax exemption is claimed under
this chapter, the taxpayer claiming that tax credit or tax exemption may not
claim any other tax credit or tax exemption, under any other law, that is
identical to the claimed tax credit or tax exemption."
SECTION 7. Section 209E-9, Hawaii Revised Statutes, is amended to read as follows:
"§209E-9 Eligibility; qualified
business; sale of property or services. (a) Any business [
may be eligible to be designated a qualified business for purposes of this
chapter if the business:
(1) Begins the operation of a trade or business within an enterprise zone;
(2) During each taxable year has at least fifty per cent of its enterprise zone establishment's gross receipts attributable to the active conduct of trade or business within the enterprise zone;
(3) Increases its average annual number of full-time employees by at least ten per cent by the end of its first tax year of participation; provided that if an agricultural business is unable to achieve the required increase in its average annual number of full-time employees, the requirement to increase employment shall be replaced by a requirement to increase its cumulative average annual gross revenues by at least two per cent by the end of the first tax year of participation; and
(4) During each subsequent taxable year, at
least maintains that higher level of employment[
.] or gross revenues
pursuant to paragraph (3).
(b) A business [
firm] also may be
eligible to be designated a qualified business for purposes of this chapter if
(1) Is actively engaged in the conduct of a trade or business in an area immediately prior to an area being designated an enterprise zone;
(2) Meets the requirements of subsection (a)(2); and
(3) Increases its average annual number of full-time
employees employed at the business' establishment or establishments located
within the enterprise zone by at least ten per cent annually[
provided that, if an agricultural business is unable to achieve the required
increase in its average annual number of full-time employees, the
requirement to increase employment shall be replaced by a requirement to
increase its cumulative average annual gross revenues by at least two per cent
by the end of the first tax year of participation.
(c) After designation as an enterprise zone,
each qualified business [
firm] in the zone shall submit annually to the
department an approved form supplied by the department that provides the
information necessary for the department to determine if the business [ firm]
qualifies as a qualified business. The approved form shall be submitted by
each business to the governing body of the county in which the enterprise zone
is located, then forwarded to the department by the governing body of the
(d) The form referred to in subsection (c) shall be prima facie evidence of the eligibility of a business for the purposes of this section.
(e) Tangible personal property shall be sold at an establishment of a qualified business within an enterprise zone and the transfer of title to the buyer of the tangible personal property shall take place in the same enterprise zone in which the tangible personal property is sold. Services shall be sold at an establishment of a qualified business engaged in a service business within an enterprise zone, and the services shall be delivered in the same enterprise zone in which they are sold. Any services rendered outside an enterprise zone shall not be deemed to be the services of a qualified business.
(f) For any fiscal year that includes September 11, 2001, a business may use its average annual number of full-time employees as of August 31, 2001--rather than its average annual number at the end of its fiscal year including September 11, 2001--if necessary to meet the requirements of subsection (a)(3) and (4) or (b)(3). A business may also use its average annual number of full-time employees at the end of its fiscal year that includes September 11, 2001, as its base number of full-time employees if necessary to meet the requirements of subsection (a)(3) and (4) or (b)(3) in future fiscal years."
SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 9. This Act shall take effect on July 1, 2007, except that sections 2, 4, and 7 shall apply to taxable years beginning after December 31, 2006.