TWENTY-SIXTH LEGISLATURE, 2011
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO HIGH TECHNOLOGY.
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 our 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 incorporating clean energy solutions, installing broadband networks, and using new devices and products in the service industries, such as healthcare 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 adapting 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 stimulus for 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 for the research and development companies that are still in the start-up and early stages, and is seen as helping to level the playing field of our high-cost State, as Hawaii companies compete against national and international rivals. It has also been useful in providing support for early-stage research and development companies that are not yet profitable, and have few sources of funding. Furthermore, the refundable element has helped to attract new technology companies to Hawaii.
The Legislature also finds that keeping the High Technology Development Corporation located at the site it currently occupies on property under the control of the University of Hawaii at Manoa will benefit the State as a whole and declares that requiring the University of Hawaii to lease its property to the High Technology Development Corporation is of statewide concern.
The purposes of this Act are to:
(1) 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; and
(2) Provide a venue for high technology businesses to develop and grow through the support of the High Technology Development Corporation by requiring the University of Hawaii at Manoa to lease property under their control to the High Technology Development Corporation for a term of not less than thirty-five years.
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, 2011, 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 [
(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)] (d) 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" means the same as in section 235-110.9.
"Qualified research" under section 41(d)(1) of the Internal Revenue Code shall not include research conducted outside of the State.
(g)] (e) 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)] (f) 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.
(g) A qualified high technology business that claims the 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. Failure to file the annual survey by the due date shall result in a fine of $1,000 per month.
A qualified high technology business may not file a return to claim a tax credit under this section until it has filed an annual survey with the department under this subsection.
(h) 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; and
(5) Filed intellectual property, including provisional patents, full patents, submitted, and patents issued or granted.
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.
The department shall allow the department of business, economic development, and tourism to access data collected under this section for the purposes of conducting economic impact analyses and producing legislative reports under subsection (j).
(i) 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 December 21 of each year.
(j) The department of business, economic development, and tourism 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 21 of each year.
(i)] (k) The director of
taxation may adopt any rules under chapter 91 and forms necessary to carry out
(j)] (l) This section shall not
apply to taxable years beginning after December 31, [ 2010.] 2015."
SECTION 3. (a) The Manoa Innovation Center, which is currently under the control of the University of Hawaii at Manoa, and serves as the site for the High Technology Development Corporation shall be leased to the High Technology Development Corporation for a term of not less than twenty years. The lease agreement shall include the following conditions:
(1) The High Technology Development Corporation shall be responsible for the annual maintenance and operating costs of the building and shall continue to pay for the costs attributed to the corporation based on current allocations of cost to square footage; and
(2) A written memorandum of understanding of the above conditions shall be executed between the University of Hawaii at Manoa and the High Technology Development Corporation prior to the expiration of its existing lease.
(b) The High Technology Development Corporation shall share the long-term use of the building without cost, apart from the costs under subsection (a)(1); provided that if the High Technology Development Corporation ceases to exist, the facility shall be returned to the University of Hawaii at Manoa.
SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 5. This Act shall take effect on July 1, 2112, and shall apply to taxable years beginning after December 31, 2010.
High Technology; Tax Credit for Research Activities
Repeals existing certification requirements and establishes reporting requirements to measure the effectiveness of the tax credit for research activities. Extends this tax credit for an additional five years. Requires the Manoa Innovation Center to be leased to the High Technology Development Center for twenty years. Effective July 1, 2112. (PROPOSED SB753 HD2)
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.