HOUSE OF REPRESENTATIVES
TWENTY-SIXTH LEGISLATURE, 2011
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO TAX CREDITS.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. Research and development is the core of innovation. Without innovation, there is no technology industry and the subsequent growth of our economy is stunted with no new products, services, or processes. Research and development is the critical first step in the product development cycle. During the research and development stage, ideas and theories are tested to determine feasibility. Due to the increasingly interconnected and competitive global economy, fostering and encouraging innovation is essential to a comprehensive economic strategy for the State. The key to developing more jobs and more prosperity will be to create and deploy new products, services, and processes.
Innovation is essential for creating new jobs in high technology and traditional sectors. In recent years, innovation has led to new jobs in many different sectors as diverse as defense or dual‑use, software and information technology, life sciences and biotechnology, and clean energy. At the same time, innovations ripple through the economy, creating jobs for workers building advanced infrastructure (clean energy solutions), installing broadband networks, and utilizing new devices and products in the service industries, such as health care and tourism.
Innovation is also critical for sustaining the vitality and resilience of our economy. Future challenges (natural or man-made) are impossible to predict. However, it is certain that an economy better able to respond to such events by adopting innovative solutions and re-deploying old activities, jobs, and industries will be less susceptible to adversity.
Innovation is the key to remaining competitive globally, new and better jobs, and a resilient economy. The legislature recognizes this and supports research and development as the stimulant to our innovation economy.
The current law parallels, with enhancements tailored to Hawaii's unique position, the Internal Revenue Code, providing support for scientific experimentation through a tax credit at twenty per cent of the cost of the qualified research. The program cost to the State has averaged about $11,000,000 per year over the last nine years, and in 2006, provided funding to over four hundred companies. This tax credit has been a great source of support for local companies, especially to the research and development companies that are still in the start-up or early growth stage, and is seen as helping to level the playing field of our high-cost State, as Hawaii companies compete with national and international competition. It has also been useful in providing support for research and development companies that are in the early growth stage and not yet profitable, and have few sources of funding. Further, the refundable element of the tax credit is helping to attract new technology companies to Hawaii.
The purpose of this Act is to extend the income tax credit for qualified research activities for an additional five years and to add extensive reporting requirements related to the tax credit.
SECTION 2. Section 235-110.91, Hawaii Revised Statutes, is amended to read as follows:
"§235-110.91 Tax credit for research
activities. (a) Section 41 (with respect to the credit for increasing
research activities) and section 280C(c) (with respect to certain expenses for
which the credit for increasing research activities are allowable) of the
Internal Revenue Code shall be operative for the purposes of this chapter as
provided in this section; except that references to the base amount shall not
apply and credit for all qualified research expenses may be taken without
regard to the amount of expenses for previous years. If section 41 of the
Internal Revenue Code is repealed or terminated prior to January 1, [
2017, its provisions shall remain in effect for purposes of the income
tax law of the State as modified by this section, as provided for in subsection
[ (j).] (n).
(b) All references to Internal Revenue Code sections within sections 41 and 280C(c) of the Internal Revenue Code shall be operative for purposes of this section.
(c) There shall be allowed to each qualified high technology business subject to the tax imposed by this chapter an income tax credit for qualified research activities equal to the credit for research activities provided by section 41 of the Internal Revenue Code and as modified by this section. The credit 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.
(d) Every qualified high technology business, before March 31 of each year in which qualified research and development activity was conducted in the previous taxable year, shall submit a written, certified statement to the director of taxation identifying:
(1) Qualified expenditures, if any, expended in the previous taxable year; and
(2) The amount of tax credits claimed pursuant to this section, if any, in the previous taxable year.
(e) The department shall:
(1) Maintain records of the names and addresses of the taxpayers claiming the credits under this section and the total amount of the qualified research and development activity costs upon which the tax credit is based;
(2) Verify the nature and amount of the qualifying costs or expenditures;
(3) Total all qualifying and cumulative costs or expenditures that the department certifies; and
(4) Certify the amount of the tax credit for each taxable year and cumulative amount of the tax credit.
Upon each determination made under this subsection, the department shall issue a certificate to the taxpayer verifying information submitted to the department, including the qualifying costs or expenditure amounts, the credit amount certified for each taxable year, and the cumulative amount of the tax credit during the credit period. The taxpayer shall file the certificate with the taxpayer's tax return with the department.
The director of taxation may assess and collect a fee to offset the costs of certifying tax credit claims under this section. All fees collected under this section shall be deposited into the tax administration special fund established under section 235-20.5.
(f) As used in this section:
"Basic research" under section
41(e) of the Internal Revenue Code shall not include research conducted outside
of the State.]
"Qualified high technology business"
the same as in section 235-110.9.] a business employing or
owning capital or property, or maintaining an office, in this State; provided
that more than fifty per cent of its total business activities are qualified
research and more than fifty per cent of its qualified research is in this
"Qualified research" [
the same as in section 41(d)(1) of the Internal Revenue Code [ shall not
include research conducted outside of the State].
(g) If the tax credit for qualified research activities claimed by a taxpayer exceeds the amount of income tax payment due from the taxpayer, the excess of the tax credit over payments due shall be refunded to the taxpayer; provided that no refund on account of the tax credit allowed by this section shall be made for amounts less than $1.
(h) All claims for a tax credit under this section shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to properly claim the credit shall constitute a waiver of the right to claim the credit.
(i) A qualified high technology business that claims a tax credit under this section shall complete and file with the director of taxation through the department website, an annual survey on electronic forms prepared and prescribed by the department. The annual survey shall be filed before June 30 of each calendar year following the calendar year in which the credit may be claimed under this section. The department may adjust the due date of the annual survey by rule.
A qualified high technology business that claims a tax credit under this section and wilfully fails to file the survey by the due date shall be assessed a fine of not more than $1,000 for each month of failure to file.
(j) The annual survey shall include the following information for the time period or periods specified by the department:
(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(c);
(2) Qualified expenditures, if any, expended in the previous taxable year;
(3) Revenue and expense data;
(4) Hawaii employment and wage data, including the numbers of full- and part-time employees retained, new jobs, temporary positions, external services procured by the business, and payroll taxes;
(5) Filed intellectual property, including invention disclosures, provisional patents, and patents issued or granted; and
(6) Federal and state income tax returns and documents related to deductions for tax credits for research activities.
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.
(k) 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. The department shall also identify each qualified high technology business that is the beneficiary of tax credits claimed under this section. The department shall report the information required under this subsection to the legislature by September 1 of each year.
(l) The department shall use the information collected to study the effectiveness of the tax credit under this section. The department shall report on the amount of tax credits claimed and total taxes paid by qualified high technology businesses, the number of qualified high technology businesses in each industry sector, jobs created, external services and materials procured by the businesses, 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.
(i)] (m) The director of
taxation may adopt any rules under chapter 91 and forms necessary to carry out
(j)] (n) This section shall not
apply to taxable years beginning after December 31, [ 2010.] 2016."
SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 4. This Act shall take effect on July 1, 2012, and apply to taxable years beginning after December 31, 2011.
Taxation; Technology; Tax Credit for Research Activities
Defines "qualified high technology business" to mean a business employing or owning capital or property, or maintaining an office, in this State; provided that more than fifty per cent of its total business activities are qualified research and more than fifty per cent of its qualified research is in this State; adds reporting requirements to measure the effectiveness of the tax credit for research activities; establishes a fine for failure to file the survey information in the reporting requirements; includes federal and state income tax returns and documents related to deductions for tax credits for research activities to be filed as part of the survey; extends the tax credit through 2016; applies to tax years beginning after 12/31/2011. (SD1)
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.