Report Title:

Medical Enterprise Zones; Pilot Project in West Maui

 

Description:

Establishes medical enterprise zones in the State to encourage the development of medical and research services. Creates a 7-year pilot medical enterprise zone in West Maui. (HB553 HD1)

 


HOUSE OF REPRESENTATIVES

H.B. NO.

553

TWENTY-FIFTH LEGISLATURE, 2009

H.D. 1

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT


 

 

RELATING TO MEDICAL ENTERPRISE ZONES.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


SECTION 1. The legislature finds that many factors, including demographics, education, lukewarm business and tax environments, and Hawaii's unique and geographically isolated location have contributed significantly to a chronic shortage of medical and research facilities and health care professionals in the state.

The legislature further finds that the establishment of medical enterprise zones in the state that provide a range of county and state incentives will assist in stimulating the creation of integrated campuses that will attract a critical nucleus of medical and research facilities and create a large number of highly skilled jobs in the medical and research fields, including biotechnology, biomedicine, and pharmaceutical research and development.

Accordingly, the purpose of this Act is to encourage the establishment of modern medical and research facilities within the state and attract highly skilled general and specialized medical, research, and health care professionals to work in Hawaii by establishing a medical enterprise zone program that initially consists of a single pilot medical enterprise zone in west Maui. Limiting potential investments in a medical enterprise zone to west Maui will minimize the impact on the State and will allow the State to evaluate the zone's impact without negatively affecting income streams.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

MEDICAL ENTERPRISE ZONES

   -1 Definitions. As used in this chapter:

"Department" means the department of business, economic development, and tourism.

"Establishment" means a single physical location where medical or research services are provided in a medical or research facility. A qualified business may include one or more establishments, any number of which may be in a medical enterprise zone.

"Full-time employee" means any employee for whom the employer is legally required to provide employee fringe benefits.

"Medical enterprise zone" means any area in the State declared by the department to be eligible for the benefits of this chapter.

"Medical or research facility" includes:

(1) Acute critical access hospitals;

(2) Long-term care facilities;

(3) Medical research facilities that perform primarily research and development activities relating to the medical sciences, pharmaceutical development, or medical treatment modalities for specific human diseases or disorders and may include biomedical research facilities;

(4) Offices of physicians, dentists, nurses, clinical specialists, other medical or research professionals, or other practitioners of the healing arts either in private practice or within organized ambulatory health care facilities; and

(5) Any other facility as determined by the department.

"Qualified business" means any medical or research facility that is:

(1) Authorized to do business in this State; and

(2) Is located within the medical enterprise zone.

"Taxes due the State" means income taxes due under chapter 235.

   -2 Administration. The department shall administer this chapter and have the power and duty to:

(1) Monitor the implementation and operation of this chapter;

(2) Conduct a continuing evaluation program of the medical enterprise zones;

(3) Assist the counties in obtaining the reduction of rules within medical enterprise zones;

(4) Submit annual reports evaluating the effectiveness of the program and any recommendations for legislation to the legislature and the governor;

(5) Administer and enforce the rules adopted by the department; and

(6) Administer this chapter in such a manner that the areas designated as medical enterprise zones will most benefit the areas and the State.

   -3 Medical enterprise zone designation; approval. (a) Within thirty days of the receipt, from the governing body of any county in the state, of a description of the proposed location in the state as a medical enterprise zone and a general statement identifying proposed county incentives to complement any state and federal incentives, the department shall designate the proposed area as a medical enterprise zone.

(b) The department shall secure any additional information that the department deems necessary and, within sixty days of the date of designation pursuant to subsection (a), shall approve the establishment of the medical enterprise zone for a period of seven years.

   -4 Government assistance; prohibition. There shall be no duplication of existing state tax incentives to qualified businesses that locate in a medical enterprise zone.

   -5 Rules. The department, in consultation with the department of taxation, shall adopt rules pursuant to chapter 91 to implement this chapter, including rules relating to health, safety, building, planning, zoning, and land use that shall supersede all other inconsistent ordinances and rules relating to the use, zoning, planning, and development of land and construction in a medical enterprise zone. Rules adopted under this section shall follow existing law, rules, and ordinances as closely as is consistent with standards meeting minimum requirements of energy efficiency, health, and safety. The department may provide by rule that lands within a medical enterprise zone shall not be developed beyond existing uses or that improvements thereon shall not be demolished or substantially reconstructed or provide other restrictions on the use of the zone.

   -6 Eligibility; qualified business; sale of property or services. (a) Any medical or research facility may be eligible to be designated a qualified business for purposes of this chapter if:

(1) The medical or research facility:

(i) Begins the operation of a medical or research facility within a medical enterprise zone;

(ii) During each taxable year has at least       per cent of its medical enterprise zone establishment's gross receipts attributable to its operation within the medical enterprise zone;

(iii) Increases its average annual number of full-time medical or research professional employees by at least       per cent by the end of its first tax year of participation; and

(iv) During each subsequent taxable year at least maintains that higher level of employment for medical or research professional employees;

or

(2) The medical or research facility:

(i) Is actively engaged in the operation of a medical or research facility in an area immediately prior to the area being designated a medical or research enterprise zone;

(ii) Meets the requirements of paragraph (1)(ii); and

(iii) Increases its average annual number of full-time employees employed at the medical or research facility's establishment or establishments located within the medical enterprise zone by at least       per cent annually.

(c) After approval of the medical enterprise zone, each qualified business in the zone shall annually complete and submit to the department, on a form supplied by the department, the information necessary for the department to determine whether the medical or research facility qualifies or continues to qualify as a qualified business. If the department determines that the medical or research facility qualifies as a qualified business, the department shall approve the completed form and forward copies of the completed and approved form to the department of taxation and the governing body of the county.

(d) A completed form approved by the department, referred to in subsection (c), shall be prima facie evidence of the eligibility of a medical or research facility for the purposes of this section.

(e) Any operations or services provided by a medical or research facility outside of the medical enterprise zone shall not be included in the determination of gross receipts attributable to the active provision of services under subsection (a)(1)(ii).

   -7 State business tax credit. (a) The department shall certify annually to the department of taxation the applicability of the tax credit provided in this chapter for a qualified business against any income taxes imposed under title 14 that are due the State. The credit shall be:

(1) Eighty per cent of the tax due for the first taxable year that the business qualifies as a qualified business;

(2) Seventy per cent of the tax due for the second taxable year that the business qualifies as a qualified business;

(3) Sixty per cent of the tax due in the third taxable year that the business qualifies as a qualified business;

(4) Fifty per cent of the tax due in the fourth taxable year that the business qualifies as a qualified business;

(5) Forty per cent of the tax due in the fifth taxable year that the business qualifies as a qualified business;

(6) Thirty per cent of the tax due in the sixth taxable year that the business qualifies as a qualified business; and

(7) Twenty per cent of the tax due in the seventh year that the business qualifies as a qualified business.

Any tax credit not usable shall not be applied to future taxable years.

(b) When a partnership is eligible for a tax credit under this section, each partner shall be eligible for the tax credit provided for in this section on the partner's income tax return in proportion to the partner's income tax liability from the partnership. Any qualified business earning taxable income from the provision of the qualified business' services, both within and without the medical enterprise zone, shall allocate and apportion its taxable income attributable to that provision of services. Tax credits provided for in this section shall only apply to taxable income of a qualified business attributable to the services provided within the medical enterprise zone.

(c) In addition to any other tax credit authorized under this section, a qualified business shall be entitled to a tax credit against any taxes due the State in an amount equal to a percentage of unemployment taxes paid pursuant to chapter 383. The amount of the credit shall be equal to:

(1) Eighty per cent of the unemployment taxes paid for during the first taxable year that the business qualifies as a qualified business;

(2) Seventy per cent of the unemployment taxes paid for the second year that the business qualifies as a qualified business;

(3) Sixty per cent of the unemployment taxes paid for the third year that the business qualifies as a qualified business;

(4) Fifty per cent of the unemployment taxes paid for the fourth year that the business qualifies as a qualified business;

(5) Forty per cent of the unemployment taxes paid for the fifth year that the business qualifies as a qualified business;

(6) Thirty per cent of the unemployment taxes paid for the sixth year that the business qualifies as a qualified business; and

(7) Twenty per cent of the unemployment taxes paid for the seventh year that the business qualifies as a qualified business.

(d) Tax credits provided for in subsection (c) shall only apply to the unemployment tax paid on employees employed at the qualified business' establishment or establishments located within the medical enterprise zone. Any tax credit not usable shall not be applied to future tax years.

   -8 State general excise and use tax exemptions. The department shall certify annually to the department of taxation that any qualified business is exempt from the payment of general excise taxes on the gross proceeds from the provision of medical or research services. The department shall also certify annually to the department of taxation that any qualified business is exempt from the use tax for purchases by the qualified business. The gross proceeds received by a contractor licensed under chapter 444 shall be exempt from the general excise tax for construction within a medical enterprise zone performed for a qualified business within a medical enterprise zone. The exemption shall extend for a period not to exceed seven years after the effective date of this Act.

   -9 Local incentives. (a) A county may propose local incentives, including:

(1) Reduction of permit fees;

(2) Reduction of user fees; and

(3) Reduction of real property taxes.

(b) A county may also propose measures for regulatory flexibility including:

(1) Special zoning districts;

(2) Permit process reform;

(3) Exemptions from local ordinances; and

(4) Other public incentives proposed in the locality's application, which shall be binding upon the locality upon designation of the medical enterprise zone.

   -10 Termination of medical enterprise zone. Upon designation of the area as a medical enterprise zone, the proposals for regulatory flexibility, tax incentives, and other public incentives specified in this chapter shall be binding upon the governing body of the county for a period of seven years. If the governing body of the county is unable or unwilling to provide any of the incentives set forth in section    ‑9 or other incentives acceptable to the department, and the department has not adopted rules pursuant to section    ‑5 that supersede inconsistent ordinances and rules relating to the use, zoning, planning, and development of land and construction in a medical enterprise zone, then the medical enterprise zone shall terminate. Qualified businesses located in the medical enterprise zone shall be eligible to receive the state tax incentives provided by this chapter even though the zone designation has terminated. No medical or research facility may become a qualified business after the date of zone termination.

   -11 Designation of pilot medical enterprise zone in west Maui. The governing body of the county of Maui, pursuant to section    ‑3, shall transmit to the director of health no later than November 30, 2009, a description of a proposed location in west Maui as a pilot medical enterprise zone. The director of health, pursuant to section    ‑3, shall designate the proposed area as a medical enterprise zone for a period of seven years."

SECTION 3. The department of business, economic development, and tourism, in consultation with the department of taxation, shall submit a written report to the legislature by December 31 of each year, beginning in 2010, regarding the implementation of the pilot medical enterprise zone in west Maui, including an evaluation of the success or failure of the pilot medical enterprise zone to fulfill its intended purpose.

SECTION 4. It is the intent of this Act not to jeopardize the receipt of any federal aid nor to impair the obligation of the State or any agency thereof to the holders of any bond issued by the State or by any such agency, and to the extent, and only to the extent, necessary to effectuate this intent, the governor may modify the strict provisions of this Act, but shall promptly report any such modification with reasons therefor to the legislature at its next session thereafter for review by the legislature.

SECTION 5. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 6. If any provision of this Act, or the application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the Act, which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 7. This Act shall take effect on July 1, 2112, and shall be repealed on February 28, 2017.