Report Title:

High Technology Tax Incentives; Reports



Requires the department of taxation to report annually on qualified high technology businesses and related tax incentives to properly evaluate their effectiveness.



S.B. NO.













relating to high technology tax incentives.





SECTION 1. The legislature finds that pursuant to Act 221, Session Laws of Hawaii 2001 (Act 221), the legislature renewed its commitment to the growth and development of high technology businesses in Hawaii. Act 221 expanded additional tax incentives to qualified high technology businesses to provide a direct means of addressing the urgent need for venture financing for tech start-ups.

The legislature further finds that pursuant to section 232E-3, Hawaii Revised Statutes, the Tax Review Commission is tasked with conducting a systematic review of Hawaii's tax structure. Recently, in the 2005-2007 Report of the Tax Review Commission, the costs and benefits of the high technology business investment tax credit were addressed. The high technology business investment tax credit was established to stimulate investment in Hawaii technology companies and to hasten development of a local technology industry. Under the existing law, an investor is permitted to recover the total amount invested over a period of at least five years. The tax credit was established in 2001 and is currently set to sunset on December 31, 2010.

In its report, the commission stated that definitive results could not be calculated because of the inability to gather current data on the costs associated with the tax credit or the operations of qualified high technology businesses. Specifically, data after tax year 2003 was unavailable on the amount of the tax credits claimed and the employment statistics of qualified high technology businesses. It appears that the appropriate information is being filed with the department of taxation, but the department has not been able to issue the desired reports.

The legislature firmly reiterates its commitment to a diversified economy designed to provide residents with high paid quality jobs and a commensurate lifestyle. As pointed out by New York Times columnist Thomas Friedman, "[i]n a globally integrated economy, our workers will get paid a premium only if they or their firms offer a uniquely innovative product or service, which demands a skilled and creative labor force to conceive, design, market, and manufacture and a labor force that is constantly able to keep learning. We can't go on lagging other major economies in every math/science/reading test and every ranking of Internet penetration and think that we're going to field a work force able to command premium wages." (New York Times, December 12, 2006). Accordingly, the legislature believes that the department of taxation must work in conjunction with the State's efforts to upgrade Hawaii's workforce to include more highly-skilled, high-wage workers through the dissemination of pertinent information on the value of the high-tech tax incentives provided to qualified high technology businesses within the State.

The purpose of this Act is to provide greater transparency and effective evaluation of high-tech tax incentives by requiring the department of taxation to report on relevant information and data so that meaningful performance measurements of the effectiveness of the tax incentives can be accomplished. This will enhance legislative oversight by facilitating the proper evaluation of the true costs and benefits associated with the tax incentives and by determining the best means of ensuring that the tax incentives meet their intended objectives.

SECTION 2. Section 231-3.4, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The department of taxation shall publish reports on the following:

(1) Hawaii income patterns--individuals;

(2) Hawaii income patterns--corporations, proprietorships, and partnerships; and

(3) Tax credits.

In addition, the department of taxation shall prepare a report on information collected as of July 1, 2006, and thereafter, for the taxable years preceding July 1, 2006, and thereafter, pertaining to qualified high technology businesses and related tax incentives provided under sections 235‑7.3, 235-9.5, 235‑110.51, 235-110.9, and 235-110.91.

In preparing the report, the department of taxation shall publish summary descriptive statistics on the aforementioned sections; provided that no fewer than three taxpayers shall be included in any category. The department of taxation shall submit its annual report and summary statistics to the legislature and the public by September 1 of each year. The information published, as required by this section, shall be public.

The department of taxation shall make each of these reports available in both paper form and commonly accessible electronic forms for a reasonable fee."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2007.