High Technology Tax Incentives; Study
Authorizes DOTax to study and evaluate the economic impact of existing and proposed State tax incentives. Authorizes DOTax to collect and evaluate information from January 1, 2002, as part of its annual survey of businesses that have benefited from various high technology tax incentives. Requires DOTax to report annually to the Legislature, until 2012, on its findings of the economic impact of the tax incentives. Appropriates funds. (Proposed HD)
HOUSE OF REPRESENTATIVES
TWENTY-FOURTH LEGISLATURE, 2008
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO TAXATION.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature has recognized the importance of promoting innovation and research-based activities with the enactment of several path-breaking tax credits and programs to promote growth in technology and other innovation-related sectors. Likewise, the legislature has sought to encourage a range of industries and activities judged to be of value in creating a higher-wage and more knowledge-intensive economy in Hawaii.
It is important that the effectiveness of these efforts and incentives be evaluated. It is also of utmost importance to maintain taxpayer confidentiality. As a self-reporting, self-assessing tax system, tax collections in Hawaii depend on taxpayer confidentiality to ensure full compliance.
To assure accountability in the disposition of public funds, the State must balance taxpayer confidentiality with the other interests of the public.
The purpose of this Act is to improve the State's ability to measure and evaluate the impact of various tax incentives on Hawaii's economy. This Act:
(1) Authorizes the department of taxation to evaluate and analyze existing and proposed tax incentives; and
(2) Directs the department of taxation to study the economic impact of:
(A) The high technology business investment tax credit;
(B) The tax credit for research activities;
(C) The technology infrastructure renovation tax credit; and
(D) Tax incentives relating to stock options from qualified high technology businesses.
SECTION 2. Chapter 231, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§231- Tax incentive analysis and evaluation. For purposes of determining the economic impact and evaluating existing and proposed tax incentives provided under this title, the department may:
(1) Contract with technical experts at the national and international level who are knowledgeable in the field of technology and research investment to evaluate existing and proposed tax incentives in Hawaii;
(2) Establish a working group of industry, tax, and economic development experts in Hawaii to identify and develop a set of standards, benchmarks, and data elements for the evaluation and quantification of the economic effects of existing and proposed tax incentives in Hawaii;
(3) Coordinate and receive relevant information from other state agencies, including the department of labor and industrial relations and the department of business, economic development, and tourism, to develop benchmarks and evaluation methodologies to determine the measurement data that will need to be analyzed;
(4) Review taxpayer returns to collect and analyze aggregate data on the impact of tax incentives; and
(5) Update the department's analysis of tax incentives to assist bodies such as the tax review commission and the council on revenues to better perform their responsibilities."
SECTION 3. Section 235-20.5, Hawaii Revised Statutes, is amended to read as follows:
"§235-20.5 Tax administration special
fund; established. There is established a tax administration special fund,
into which shall be deposited fees collected under sections 235-20, 235-110.9,
and 235-110.91, and penalties collected under section 2 of Act 206, [
Laws of Hawaii 2007[ ]]. The moneys in the fund shall be expended by
the department to offset the costs associated with:
(1) Issuing comfort letters; and
(2) Administering the tax credit under [
sections 235-110.9[ ,] and 235-110.91, including issuing
certificates ; and
certificates under section 235-110.91].
(3) Conducting economic research and analysis of the effect of the State's tax laws"
SECTION 4. Act 206, Session Laws of Hawaii 2007, is amended as follows:
1. By amending subsection (b) of section 2 to read:
annual survey shall include the following information for the time period or
periods specified by the department[
:], which shall include the
period from and after January 1, 2002:
(1) Identification of the industry sector or sectors in which the qualified high technology business conducts business, as set forth in paragraphs (2) to (8) of the definition of "qualified research" in section 235-7.3, Hawaii Revised Statutes;
(2) Investment credit data, including the
amount of investments received by the qualified high technology business [
the reporting calendar year];
(3) Revenue and expense data; and
(4) Hawaii employment and wage data, including the numbers of full and part-time employees retained, new jobs, and temporary positions.
The department shall request information in each of these categories sufficient to measure the effectiveness of the tax credit. The department may request any additional information necessary to measure the effectiveness of the tax credit such as information related to patents. In preparing the survey and requesting any additional information, the department shall ensure that qualified high technology businesses are not subject to duplicative reporting requirements."
2. By amending subsections (d) and (e) of section 2 to read:
"(d) The department shall use information collected under this section and through other reporting requirements of the department to prepare summary descriptive statistics by category. The information shall be reported at the aggregate level to prevent compromising identities of qualified high technology business investors or other confidential information.
shall also identify each qualified high technology business that is the
beneficiary of investments under section 235-110.9, Hawaii Revised Statutes. The department shall report the information required
under this subsection to the legislature [
by September 1 of each year.] at
least twenty days prior to the convening of each regular session of the
(e) The department shall use the information
collected under this section to study the effectiveness of the credit under
section 235-110.9, Hawaii Revised Statutes. The department shall report on the
amount of investment made into qualified high technology businesses, the number
of qualified high technology businesses in each industry sector, jobs created,
compensation levels, qualified research activities, and other factors as the
department determines. [
The department shall report the results of its study
to the legislature by December 1 of each year.]"
SECTION 5. Act 206, Session Laws of Hawaii 2007, is amended by amending section 8 to read as follows:
"SECTION 8. This Act shall take effect on
July 1, 2007[
, and shall apply to investments received by a qualified high
technology business after June 30, 2007]; provided that this Act shall be
repealed on January 1, [ 2011,] 2012, and sections 235-20.5 and 235-110.9(b),
Hawaii Revised Statutes, shall be reenacted in the form in which they read on
the day before [ the effective date of this Act.] June 20, 2007."
SECTION 6. The department of taxation shall study the economic impact of the tax credits and other tax incentives provided under sections 235-9.5, 235-110.51, 235-110.9, and 235-110.91, Hawaii Revised Statutes, on Hawaii's economy, and evaluate their effectiveness. The department shall report its findings to the legislature no later than twenty days prior to the convening of each regular session of the legislature.
For the purpose of evaluating the credits and incentives provided under sections 235-9.5, 235-110.51, 235-110.9, and 235-110.91, Hawaii Revised Statutes, the department of taxation shall, to the extent possible, collect and evaluate information from January 1, 2002. The department may also:
(1) Exercise its powers under section 231- ;
(2) Use the information collected and analyses conducted under Act 206, Session Laws of Hawaii 2007; and
(3) Review the returns of companies that:
A) Receive, or whose investors receive, credits pursuant to sections 235-110.51, 235-110.9, and 235-110.91, Hawaii Revised Statutes; or
(B) Benefit, or whose investors benefit, from stock options whose income or capital gains are excluded from taxation under section 235-9.5, Hawaii Revised Statutes;
for the purposes of aggregating the data to determine their impact. Such data may be sub-aggregated into industry sectors to delineate and differentiate between short-term and longer-term economic effects.
SECTION 7. Nothing contained in this Act shall be interpreted as waiving any liability, as provided by other operative law, for the confidentiality and safeguarding of taxpayer information.
SECTION 8. There is appropriated out of the tax administration special fund the sum of $60,000 or so much thereof as may be necessary for fiscal year 2008-2009 for one full time equivalent (1.0 FTE) economist position.
SECTION 9. Section 235-17, Hawaii Revised Statutes, is amended by amending subsection (e) to read as follows:
"(e) Claims for credit under this section shall be subject to the following limitations:
(1) On or after July 1, 2006, no qualified production cost that has been financed by investments for which a credit was claimed by any taxpayer pursuant to section 235-110.9 is eligible for credits under this section.
(2) After June 30, 2008, no taxpayer shall be eligible to claim the tax credit under this section for qualified productions that are financed, in whole or in part, by investments for which a credit has been claimed by the taxpayer as a qualified high technology business under section 235-110.9. If a claim for credit is made under this section after June 30, 2008, the taxpayer shall no longer qualify for the credit under section 235-110.9 and any credit that has been claimed under that section shall be subject to recapture under section 235-110.9(i)."
SECTION 10. Statutory material to be repealed is bracketed and stricken. New material is underscored.
SECTION 11. This Act shall take effect on July 1, 2020; provided that sections 3, 4, and 6 shall be repealed on January 1, 2012, and section 235-20.5, Hawaii Revised Statutes, shall be reenacted in the form in which it read on June 20, 2007.