REPORT TITLE:



DESCRIPTION:


 
a                                                     BED-22(99)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1025
HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO THE KAKAAKO HIGH TECHNOLOGY ZONE.



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

 1      SECTION 1.  The legislature finds that it is in the public
 
 2 interest to support high technology development in the State.  As
 
 3 one of the fastest growing industries in the nation, a viable and
 
 4 stable high technology industry would help to diversify the
 
 5 economy, bring new business into the State, and provide high
 
 6 quality jobs and job opportunities in the State.
 
 7      The legislature further finds that the Kakaako community
 
 8 development district on Oahu is an ideal location to encourage
 
 9 the development of high technology initiatives.  As a major
 
10 economic center, with a centralized location, close to both the
 
11 University of Hawaii and the economic and manufacturing areas of
 
12 the island, the Kakaako district would be conducive to providing
 
13 economic opportunities in high technology.  The legislature
 
14 recognizes that it would be highly advantageous to encourage the
 
15 development of high technology in the State by providing
 
16 assistance to high technology businesses that locate their
 
17 operations in high technology parks.
 
18      The purpose of this Act is to demonstrate Hawaii's
 
19 commitment to strengthening the development of its high
 

 
a                                                     BED-22(99)
Page 2                                                     1025
                                     H.B. NO.           
                                                        
                                                        

 
 1 technology industry by:
 
 2      (1)  Establishing a high technology park in the Kakaako
 
 3 community development district on Oahu; and
 
 4      (2)  Providing incentives to encourage high technology
 
 5 businesses to locate their operations in the high technology
 
 6 park.
 
 7      SECTION 2.  Chapter 206E, Hawaii Revised Statutes, is
 
 8 amended by adding a new part to be appropriately designated and
 
 9 to read as follows:
 
10            "PART   .  HIGH TECHNOLOGY INDUSTRIAL PARK
 
11      §206E-    Definitions.  As used in this part, unless the
 
12 context otherwise requires:
 
13      "High technology industrial park" means an industrial park
 
14 that has been developed to accommodate and support high
 
15 technology activities in the Kakaako community development
 
16 district under section 206E-32.
 
17      "Kakaako community development district" has the same
 
18 meaning as in section 206E-32.
 
19      "Qualified high technology business" means:
 
20      (1)  A business employing or owning capital or property, or
 
21           maintaining an office in this State; and
 
22      (2)  (A)  That has qualified research expenses paid or
 

 
a                                                     BED-22(99)
 
Page 3                                                     1025
                                     H.B. NO.           
                                                        
                                                        

 
 1                incurred for research conducted in this State; or
 
 2           (B)  That receives income derived from qualified
 
 3                research expenses, provided that the income is
 
 4                received from products sold from, manufactured, or
 
 5                produced in the State; or services performed in
 
 6                the State.
 
 7      The term "qualified high technology business" does not
 
 8      include any trade or business involving the performance of
 
 9      services in the field of law, engineering, architecture,
 
10      accounting, actuarial science, performing arts, consulting,
 
11      athletics, financial services, brokerage services, or any
 
12      trade or business where the principal asset of the trade or
 
13      business is the reputation or skill of one or more of its
 
14      employees; any banking, insurance, financing, leasing,
 
15      rental, investing, or similar business; any farming
 
16      business, including the business of raising or harvesting
 
17      trees; any business involving the production or extraction
 
18      of products of a character with respect to which a deduction
 
19      is allowable under section 611, 613, or 613A of the Internal
 
20      Revenue Code; any business operating a hotel, motel,
 
21      restaurant, or similar business; any trade or business
 
22      involving a hospital, a private office of a licensed health
 

 
a                                                     BED-22(99)
 
Page 4                                                     1025
                                     H.B. NO.           
                                                        
                                                        

 
 1      care professional, a group practice of licensed health care
 
 2      professionals, or nursing home.
 
 3      "Qualified research expenses" means:
 
 4      (1)  Research
 
 5           (A)  With respect to which expenditures may be treated
 
 6                as expenses under Internal Revenue Code section
 
 7                174;
 
 8           (B)  Which is undertaken for the purpose of discovering
 
 9                information
 
10                (i)  Which is technological in nature; and
 
11               (ii)  The application of which is intended to be
 
12                     useful in the development of a new or
 
13                     improved business component of the taxpayer;
 
14                     and
 
15           (C)  Substantially all of the activities of which
 
16                constitute elements of a process of
 
17                experimentation for a purpose described in
 
18                paragraph (3).
 
19           Such term does not include any activity described in
 
20           paragraph (4).
 
21      (2)  Tests to be applied separately to each business
 
22           component.
 

 
a                                                     BED-22(99)
 
Page 5                                                     1025
                                     H.B. NO.           
                                                        
                                                        

 
 1           (A)  Paragraph (1) shall be applied separately with
 
 2                respect to each business component of the
 
 3                taxpayer.
 
 4           (B)  The term "business component" means any product,
 
 5                process, computer software, technique, formula, or
 
 6                invention which is to be
 
 7                (i)  Held for sale, lease, or license; or
 
 8               (ii)  Used by the taxpayer in a trade or business
 
 9                     of the taxpayer.
 
10           (C)  Special rule for production processes.  Any plant
 
11                process, machinery, or technique for commercial
 
12                production of a business component shall be
 
13                treated as a separate business component (and not
 
14                as part of the business component being produced).
 
15      (3)  Purposes for which research may qualify for credit.
 
16           For purposes of paragraph (1)(C):
 
17           (A)  Research shall be treated as conducted for a
 
18                purpose described in this paragraph if it relates
 
19                to:
 
20                (i)  A new or improved function;
 
21               (ii)  Performance; or
 
22              (iii)  Reliability or quality.
 

 
a                                                     BED-22(99)
 
Page 6                                                     1025
                                     H.B. NO.           
                                                        
                                                        

 
 1           (B)  Certain purposes not qualified.  Research shall in
 
 2                no event be treated as conducted for a purpose
 
 3                described in this paragraph if it relates to
 
 4                style, taste, cosmetic, or seasonal design
 
 5                factors.
 
 6      (4)  Activities for which credit not allowed.
 
 7           "Qualified research expenses" shall not include the
 
 8           following:
 
 9           (A)  Any research conducted after the beginning of
 
10                commercial production of the business component;
 
11           (B)  Any research related to the adaptation of an
 
12                existing business component to a particular
 
13                customer's requirement or need;
 
14           (C)  Any research related to the reproduction of an
 
15                existing business component (in whole or in part)
 
16                from a physical examination of the business
 
17                component itself or from plans, blueprints,
 
18                detailed specifications, or publicly available
 
19                information with respect to such business
 
20                component;
 
21           (D)  Any efficiency survey; activity relating to
 
22                management function or technique; market research,
 

 
a                                                     BED-22(99)
 
Page 7                                                     1025
                                     H.B. NO.           
                                                        
                                                        

 
 1                testing, or development (including advertising or
 
 2                promotions); routine data collection; or routine
 
 3                or ordinary testing or inspection for quality
 
 4                control;
 
 5           (E)  Any research with respect to computer software
 
 6                which is developed by (or for the benefit of) the
 
 7                taxpayer primarily for internal use by the
 
 8                taxpayer, other than for use in
 
 9                (i)  An activity which constitutes qualified
 
10                     research (determined with regard to this
 
11                     subparagraph); or
 
12               (ii)  A production process with respect to which
 
13                     the requirements of paragraph (1) are met;
 
14           (F)  Any research conducted outside the State;
 
15           (G)  Any research in the social sciences, arts, or
 
16                humanities; and
 
17           (H)  Any research to the extent funded by any grant,
 
18                contract, or otherwise by another person (or
 
19                governmental entity).
 
20      §206E-     Kakaako high technology industrial park;
 
21 established.  The authority shall establish a Kakaako high
 
22 technology industrial park to develop and sustain Hawaii's high
 

 
a                                                     BED-22(99)
 
Page 8                                                     1025
                                     H.B. NO.           
                                                        
                                                        

 
 1 technology industry.
 
 2      §206E-  State income tax exemption.  (a)  The director of
 
 3 taxation shall certify that a qualified business in the high
 
 4 technology industrial park is exempt from the payment of income
 
 5 taxes on the income received by the qualified high technology
 
 6 business for a five year period.  The director, however, shall
 
 7 not certify any qualified business for a five year period if the
 
 8 first taxable year begins after December 31, 2004.
 
 9      §206E-  State general excise tax exemption.  (a)  The
 
10 director of taxation shall certify that a qualified business in
 
11 the high technology industrial park is exempt from the payment of
 
12 general excise taxes on the gross income or gross proceeds
 
13 received by the qualified high technology business for a five
 
14 year period.  The director, however, shall not certify any
 
15 qualified business for a five year period if the first taxable
 
16 year begins after December 31, 2004.
 
17      (b)  The gross income or gross proceeds received by a
 
18 contractor shall be exempt from the general excise tax for
 
19 construction within the Kakaako high technology industrial park
 
20 for a qualified high technology business that has been certified
 
21 by the director."
 
22      SECTION 3.  This Act, upon its approval, shall apply to
 

 
a                                                     BED-22(99)
 
Page 9                                                     1025
                                     H.B. NO.           
                                                        
                                                        

 
 1 taxable years beginning after December 31, 1999 and before
 
 2 January 1, 2009.
 
 3 
 
 4                           INTRODUCED BY:  _______________________
 

 
a                                                     BED-22(99)