S.B. NO.



S.D. 2


H.D. 1














     SECTION 1.  The legislature finds that there is a great need for Hawaii to develop and support manufacturing in the State.  Hawaii imports over ninety per cent of the products consumed each year.  At the same time, there is a great demand outside the State for products that are made in Hawaii.

     The purpose of this Act is to promote manufacturing in Hawaii by establishing a temporary income tax credit for taxpayers who incur expenses for manufacturing products in Hawaii.

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

     "§235-    Manufacturing tax credit.  (a)  There shall be allowed to each taxpayer subject to the tax imposed by this chapter, a manufacturing 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 tax credit allowed under subsection (a) shall be       per cent of the qualified manufacturing costs incurred during the taxable year; provided that:

     (1)  The total credit claimed per taxpayer shall not exceed $        ;

     (2)  The qualified manufacturing costs qualify for a deduction under section 167 (with respect to depreciation) of the Internal Revenue Code, as amended; and

     (3)  The qualified manufacturing costs do not include any costs related to the production of electricity.

     In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for qualified manufacturing costs incurred by the entity for the taxable year.  The cost upon which the tax credit is calculated shall be determined at the entity level.  Distribution and share of credit shall be determined by rule.

     If a deduction is taken under section 179 (with respect to election to expense certain depreciable business assets) of the Internal Revenue Code of 1986, as amended, no tax credit shall be allowed for those costs for which the deduction is taken.

     The basis for eligible property for depreciation or accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of the credit allowable and claimed.

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

     (d)  The director of taxation:

     (1)  Shall prepare any forms that may be necessary to claim a credit under this section;

     (2)  May require the taxpayer to furnish additional information to ascertain the validity of the claim for credit made under this section; and

     (3)  May adopt rules pursuant to chapter 91 to effectuate this section.

     (e)  The department of business, economic development, and tourism shall, for each taxpayer claiming a credit under this section:

     (1)  Maintain records of the total amount of qualified manufacturing costs claimed;

     (2)  Obtain information on self-verified qualified manufacturing costs claimed;

     (3)  Total all qualified manufacturing costs claimed; and

     (4)  Certify the total amount of the tax credit for each taxable year.

     Upon each certification, the department of business, economic development, and tourism shall issue a certificate to the taxpayer verifying the qualified manufacturing costs and the credit amount certified for each taxable year.

     The taxpayer shall file the certificate with the taxpayer's tax return with the department of taxation.  Notwithstanding the department of business, economic development, and tourism's certification authority under this section, the director of taxation may audit and adjust the certification to conform to the facts.

     (f)  As used in this section:

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

     "Qualified manufacturing costs" means expenditures for:

     (1)  Costs incurred to purchase equipment to be used by the taxpayer in manufacturing tangible personal property in the State and that is placed in service within one year after the date of purchase; provided that the credit under this section has not been previously claimed by any taxpayer in this State on such equipment; and

     (2)  Reasonable and necessary costs incurred to train employees to manufacture tangible personal property in the State; provided that tangible personal property shall not include professional and personal services."

     SECTION 3.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect upon its approval and shall apply to taxable years beginning after December 31, 2015; provided that this Act shall be repealed on January 1, 2023.



Report Title:

Manufacturing; Income Tax Credit



Establishes an income tax credit for taxpayers who incur certain expenses for manufacturing products in Hawaii.  Applies to taxable years beginning after December 31, 2015.  Sunsets January 1, 2023.  (SB1001 HD1)  



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