S.B. NO.



S.D. 1
















SECTION 1. The legislature finds that tourism is Hawaii's principal industry, with visitor expenditures estimated to be over $15,000,000,000 in 2013, representing approximately twenty per cent of Hawaii's economy. Tourists' stays at hotels and resorts, shopping, recreational activities, and attendance at attractions and sporting events contribute significantly to Hawaii's tax base.

The legislature further finds that Hawaii's travel and tourism industry must continue to refresh its product offering to support and attract new and repeat travelers, compete with other global destinations, and distinguish Hawaii as a unique travel and tourist destination. Hawaii cannot continue to rely on aging hotel and resort infrastructure and hope for the best. Hawaii is at risk of losing its competitive edge in the travel and tourism industry to emerging tourist destinations that are competing for Hawaii's travel and tourism business. Traditional financing has failed to generate new construction and renovation work, and jobs are lacking.

The purpose of this Act is to provide an income tax credit for hotel construction and renovation for taxable years beginning on or after January 1, 2015, and ending on or before December 31, 2019.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"235-   Hotel construction and renovation tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter an income tax credit which 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.

(b) The amount of the credit shall be equal to ten per cent of the construction or renovation costs incurred by the taxpayer during the taxable year for each qualified hotel facility located in Hawaii, and shall not include the construction or renovation costs for which another credit was claimed under this chapter for the taxable year.

(c) In the case of a partnership, S corporation, estate, trust, association of apartment owners of a qualified hotel facility, time share owners association, or any developer of a time share project, the tax credit allowable is for construction or renovation costs incurred by the entity for the taxable year. The cost upon which the tax credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined pursuant to section 704(b) (with respect to partner's distributive share) of the Internal Revenue Code.

(d) If a deduction is taken under section 179 (with respect to election to expense depreciable business assets) of the Internal Revenue Code, no tax credit shall be allowed for that portion of the construction or renovation cost for which the deduction is taken.

The basis of eligible property for depreciation or accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed. In the alternative, the taxpayer shall treat the amount of the credit allowable and claimed as a taxable income item for the taxable year in which it is properly recognized under the method of accounting used to compute taxable income.

(e) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year. If the tax credit under this section exceeds the taxpayer's income liability, the excess of credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. All claims for a tax credit under this section, including amended claims, 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 comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(f) The director of taxation shall prepare any forms that may be necessary to claim a credit under this section. The director may also require the taxpayer to furnish information to ascertain the validity of the claim for credit made under this section and may adopt rules necessary to effectuate the purpose of this section pursuant to chapter 91.

(g) To qualify for the income tax credit, the taxpayer shall be in compliance with all applicable federal, state, and county statutes, rules, and regulations.

(h) As used in this section:

"Construction or renovation costs" means any costs incurred during the taxable year for plans, design, construction, and equipment related to new construction, alternations, or modifications to a qualified hotel facility.

"Net income tax liability" means income tax liability reduced by all other credits allowed under this chapter.

"Qualified hotel facility" means a hotel or hotel-condominium as defined in section 486K-1, and includes a time share facility or project.

"Taxpayer" means a taxpayer under this chapter, and includes:

(1) An association of apartment owners; or

(2) A time share owners association.

(i) The tax credit allowed under this section shall apply to taxable years beginning on or after January 1, 2015 and shall not apply to taxable years beginning after December 31, 2019."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.



Report Title:

Income Tax Credit; Hotel Construction and Renovation



Provides an income tax credit for hotel construction and renovation for taxable years beginning on or after January 1, 2015 and ending on or before December 31, 2019. (SD1)




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