REPORT TITLE:
Tax Credits; Felons


DESCRIPTION:
Tax credits for employers hiring recently released persons who
have been incarcerated for conviction of felonies.  (HB1222 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1222
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO TAXATION.



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

 1      SECTION 1.  The legislature finds that one of the biggest
 
 2 obstacles a paroled felon faces when trying to reintegrate into
 
 3 society is the reluctance of employers to the parolee.  Steady
 
 4 employment provides multiple benefits to any citizen, but for the
 
 5 parolee who does not want to remain a burden on the state, the
 
 6 path to employment is especially difficult.  Many parolees have
 
 7 marketable skills but are frequently not offered positions due to
 
 8 the stigma and apprehension many employers hold against ex-
 
 9 offenders.  Tax credits to employers hiring parolees have in the
 
10 past sometimes led to the parolee being terminated at the end of
 
11 a short period covered by the tax credit.  For this reason, the
 
12 legislature finds that spreading the tax credit over a period of
 
13 time, provides an employer with the incentive to retain the
 
14 parolee, enhancing the reintegration of the parolee.
 
15 Furthermore, if employers choose not to terminate the parolee
 
16 after a short time the impact on state tax revenue will be
 
17 minimized.
 
18      The purpose of this Act is to provide tax incentives for
 
19 employers who hire paroled felons or those in a work release
 
20 program.
 

 
Page 2                                                     1222
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended
 
 2 by adding a new section to be appropriately designated and to
 
 3 read as follows:
 
 4      "§235-    Credit for employment of parolees.  (a)  There
 
 5 shall be allowed to each taxpayer subject to the tax imposed by
 
 6 this chapter, a credit for employment of a qualified offender.
 
 7 The credit shall be deductible from the taxpayer's net income tax
 
 8 liability, if any, imposed by this chapter for the taxable year
 
 9 in which the credit is properly claimed.
 
10      (b)  The amount of the credit determined under this section
 
11 for the taxable year shall be:
 
12      (1)  For the first taxable year a qualified offender is
 
13           employed, five per cent of the qualified first-year
 
14           wages; and
 
15      (2)  For the second year a qualified offender is employed,
 
16           fifteen per cent of the qualified second-year wages.
 
17      (c)  The amount of the credit that may be taken under this
 
18 section for the first taxable year that a qualified offender is
 
19 employed shall not exceed $1,500.  For the second taxable year a
 
20 qualified offender is employed, the amount of the credit that can
 
21 be taken under this section shall not exceed $4,500.
 
22      (c)  For purposes of this section:
 
23      "Hiring date" means the day a qualified offender is employed
 
24 by the employer.
 

 
Page 3                                                     1222
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      "Qualified first-year wages" means, with respect to a
 
 2 qualified offender, qualified wages attributable to service
 
 3 rendered during the first twelve months from the hiring date.
 
 4      "Qualified offender" means a person incarcerated for any
 
 5 felony conviction who was released from incarceration within the
 
 6 twelve months preceding the hiring date.  "Qualified offender"
 
 7 includes those on work release.
 
 8      "Qualified second-year wages" means, with respect to a
 
 9 qualified offender, qualified wages attributable to service
 
10 rendered during the thirteenth to twenty-fourth months from the
 
11 hiring date.
 
12      "Qualified wages" means the wages paid or owed by the
 
13 employer during the taxable year to a qualified offender, and
 
14 more than one-half of the wages paid or owed to a qualified
 
15 offender is for services performed in a trade or business of the
 
16 employer.
 
17      "Wages" has the meaning given to terms by section 3306(b) of
 
18 the Internal Revenue Code (determined without regard to any
 
19 dollar limitation contained in the Internal Revenue Code
 
20 section).  "Wages" shall not include:
 
21      (1)  Amounts paid or owed by an employer for any period to a
 
22           qualified offender for whom the employer receives state
 
23           or federally-funded payments for on-the-job training of
 
24           the qualified offender for the period; and
 

 
Page 4                                                     1222
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (2)  If the principal place of employment is at a plant or
 
 2           facility, and there is a strike or lockout involving a
 
 3           qualified offender at the plant or facility, amounts
 
 4           paid or owed by the employer to the qualified offender
 
 5           for services which are the same as, or substantially
 
 6           similar to, those services performed by employees
 
 7           participating in, or affected by, the strike or lockout
 
 8           during the period of strike or lockout.
 
 9      (d)  The following wages paid to a qualified offender are
 
10 ineligible to be claimed by the employer for this credit:
 
11      (1)  No wages shall be taken into account under this section
 
12           with respect to a qualified offender who:
 
13           (A)  Bears any of the relationships described in
 
14                section 152(a)(1) to (8) of the Internal Revenue
 
15                Code to the taxpayer or, if the taxpayer is a
 
16                corporation, to an individual who owns, directly
 
17                or indirectly, more than fifty per cent in value
 
18                of the outstanding stock of the corporation
 
19                (determined with the application of section 267(c)
 
20                of the Internal Revenue Code);
 
21           (B)  If the taxpayer is an estate or trust, is a
 
22                grantor, beneficiary, or fiduciary of the estate
 
23                or trust, or is an individual who bears any of the
 

 
Page 5                                                     1222
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                relationships described in section 152(a)(1) to
 
 2                (8) of the Internal Revenue Code to a grantor,
 
 3                beneficiary, or fiduciary of the estate or trust;
 
 4                or
 
 5           (C)  Is a dependent (described in section 152(a)(9) of
 
 6                the Internal Revenue Code) of the taxpayer or, if
 
 7                the taxpayer is a corporation, of an individual
 
 8                described in subparagraph (A) or, if the taxpayer
 
 9                is an estate or trust, of a grantor, beneficiary,
 
10                or fiduciary of the estate or trust.
 
11      (2)  No wages shall be taken into account under this section
 
12           with respect to a qualified offender unless the
 
13           qualified offender either:
 
14           (A)  Is employed by the employer at least ninety days;
 
15                or
 
16           (B)  Has completed at least one hundred twenty hours of
 
17                services performed for the employer.
 
18      (e)  An employer claiming tax credits under this section
 
19 shall obtain written certification from the Hawaii paroling
 
20 authority or the department of public safety, as appropriate,
 
21 that the qualified offender was released or on work release, in
 
22 fact, from incarceration within the twelve months immediately
 
23 preceding employment by the employer.
 

 
Page 6                                                     1222
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (f)  In the case of a successor employer referred to in
 
 2 section 3306(b)(1) of the Internal Revenue Code, the
 
 3 determination of the amount of the tax credit allowable under
 
 4 this section with respect to wages paid by the successor employer
 
 5 shall be made in the same manner as if the wages were paid by the
 
 6 predecessor employer referred to in the section.
 
 7      (g)  No credit shall be determined under this section with
 
 8 respect to wages paid by an employer to a qualified offender for
 
 9 services performed by the qualified offender for another person
 
10 unless the amount reasonably expected to be received by the
 
11 employer for the services from the other person exceeds the wages
 
12 paid by the employer to the qualified offender for those
 
13 services.
 
14      (h)  The credit allowed under this section shall be claimed
 
15 against net income tax liability for the taxable year.  A tax
 
16 credit under this section that exceeds the taxpayer's income tax
 
17 liability may be used as a credit against the taxpayer's income
 
18 tax liability in subsequent years until exhausted.
 
19      (i)  All claims for tax credits under this section,
 
20 including any amended claims, shall be filed on or before the end
 
21 of the twelfth month following the close of the taxable year for
 
22 which the credits may be claimed.  Failure to comply with the
 
23 foregoing provision shall constitute a waiver of the right to
 
24 claim the credit.
 

 
Page 7                                                     1222
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (j)  No deduction shall be allowed for that portion of the
 
 2 wages or salaries paid or incurred for the taxable year that is
 
 3 equal to the amount of the credit determined under this section.
 
 4      (k)  The director of taxation may adopt any rules under
 
 5 chapter 91 and forms necessary to carry out this section."
 
 6      SECTION 3.  Chapter 353, Hawaii Revised Statutes, is amended
 
 7 by adding a new section to Part II to be appropriately designated
 
 8 and to read as follows:
 
 9      "§353-    Certification of parole for employment tax credit.
 
10 The Hawaii paroling authority shall provide, upon request by an
 
11 employer pursuant to section 235-  (e), a written certification
 
12 of the parole status of the person for whom the employer submits
 
13 the request."
 
14      SECTION 4.  New statutory material is underscored.
 
15      SECTION 5.  This Act shall take effect upon its approval;
 
16 provided that section 2 shall apply to taxable years beginning
 
17 after December 31, 1998.