REPORT TITLE: 
Software corporations tax.


DESCRIPTION:
Exempts sales and service income of software companies that are
domestic corporations from state corporate income tax.


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
HOUSE OF REPRESENTATIVES                H.B. NO.436        
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                     A BILL FOR AN ACT

RELATING TO SOFTWARE COMPANIES INCORPORATED IN HAWAII.



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

 1      SECTION 1.  One of the fastest growing industries worldwide
 
 2 is the software development industry.  Microsoft is a prime
 
 3 example of this phenomenon.
 
 4      Software development is a key component of the world's
 
 5 technological advances.  Everyday appliances like televisions,
 
 6 toasters, and common appliances have microprocessors in them.
 
 7 Even our cellular phones take over a thousand lines of code to
 
 8 operate.
 
 9      Significant contributors to software development have moved
 
10 to Hawaii, including Uniden, Square USA, and Buzzeo.  This
 
11 indicates that Hawaii may be well-suited as an operation base as
 
12 high tech industries have grown and manufacturing has become very
 
13 competitive.  Factories have moved from county to country based
 
14 on pennies per part.  Hawaii's location and distance from major
 
15 manufacturers may place us at a disadvantage in manufacturing,
 
16 but not in software development where the products are considered
 
17 intellectual property, and there are no shipping costs.  This
 
18 boom in telecommunications can place Hawaii in the mainstream of
 
19 intellectual property development.
 

 
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 1      This clean, high-paying and highly-educated industry would
 
 2 be a tremendous addition to our community.  The competition for
 
 3 software engineers is fierce, and there is a worldwide shortage
 
 4 in this area.  Hawaii's high quality of life gives the State a
 
 5 competitive advantage for those recruiting in software for
 
 6 software development.
 
 7      The purpose of this Act is to support and promote the
 
 8 software industry in Hawaii by offering a tax incentive in the
 
 9 form of an exemption from corporate income tax.  
 
10      SECTION 2.  Section 235-71, Hawaii Revised Statutes, is
 
11 amended to read as follows:
 
12      "§235-71  Tax on corporations; rates; credit of shareholder
 
13 of regulated investment company.(a)  [A] Except as provided by
 
14 subsection (f), a tax at the rates herein provided shall be
 
15 assessed, levied, collected, and paid for each taxable year on
 
16 the taxable income of every corporation, including a corporation
 
17 carrying on business in partnership, except that in the case of a
 
18 regulated investment company the tax is as provided by subsection
 
19 (b) and further that in the case of a real estate investment
 
20 trust as defined in section 856 of the Internal Revenue Code of
 
21 1954 the tax is as provided in subsection (d).  "Corporation"
 
22 includes any professional corporation incorporated pursuant to
 
23 chapter 415A.
 

 
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                                     H.B. NO.436        
                                                        
                                                        

 
 1      The tax on all taxable income shall be at the rate of 4.4
 
 2 per cent if the taxable income is not over $25,000, 5.4 per cent
 
 3 if over $25,000 but not over $100,000, and on all over $100,000,
 
 4 6.4 per cent.
 
 5      (b)  In the case of a regulated investment company there is
 
 6 imposed on the taxable income, computed as provided in sections
 
 7 852 and 855 of the Internal Revenue Code but with the changes and
 
 8 adjustments made by this chapter (without prejudice to the
 
 9 generality of the foregoing, the deduction for dividends paid is
 
10 limited to such amount of dividends as is attributable to income
 
11 taxable under this chapter), a tax consisting in the sum of the
 
12 following:  4.4 per cent if the taxable income is not over
 
13 $25,000, 5.4 per cent if over $25,000 but not over $100,000, and
 
14 on all over $100,000, 6.4 per cent.
 
15      (c)  In the case of a shareholder of a regulated investment
 
16 company there is hereby allowed a credit in the amount of the tax
 
17 imposed on the amount of capital gains which by section
 
18 852(b)(3)(D) of the Internal Revenue Code is required to be
 
19 included in the shareholder's return and on which there has been
 
20 paid to the State by the regulated investment company the tax at
 
21 the rate imposed by subsection (b); the amount of this credit may
 
22 be applied or refunded as provided in section 235-110.
 

 
 
 
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                                     H.B. NO.436        
                                                        
                                                        

 
 1      (d)  In the case of a real estate investment trust there is
 
 2 imposed on the taxable income, computed as provided in sections
 
 3 857 and 858 of the Internal Revenue Code but with the changes and
 
 4 adjustments made by this chapter (without prejudice to the
 
 5 generality of the foregoing, the deduction for dividends paid is
 
 6 limited to such amount of dividends as is attributable to income
 
 7 taxable under this chapter), a tax consisting in the sum of the
 
 8 following:  4.4 per cent if the taxable income is not over
 
 9 $25,000, 5.4 per cent if over $25,000 but not over $100,000, and
 
10 on all over $100,000, 6.4 per cent.  In addition to any other
 
11 penalty provided by law any real estate investment trust whose
 
12 tax liability for any taxable year is deemed to be increased
 
13 pursuant to section 859(b)(2)(A) or 860(c)(1)(A) after December
 
14 31, 1978, (relating to interest and additions to tax determined
 
15 with respect to the amount of the deduction for deficiency
 
16 dividends allowed) of the Internal Revenue Code shall pay a
 
17 penalty in an amount equal to the amount of interest for which
 
18 such trust is liable that is attributable solely to such
 
19 increase.  The penalty payable under this subsection with respect
 
20 to any determination shall not exceed one-half of the amount of
 
21 the deduction allowed by section 859(a), or 860(a) after
 
22 December 31, 1978, of the Internal Revenue Code for such taxable
 
23 year.
 

 
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 1      (e)  Any corporation acting as a business entity in more
 
 2 than one state and which is required by this chapter to file a
 
 3 return and whose only activities in this State consist of sales
 
 4 and which does not own or rent real estate or tangible personal
 
 5 property and whose annual gross sales in or into this State
 
 6 during the tax year are not in excess of $100,000 may elect to
 
 7 report and pay a tax of .5 per cent of such annual gross sales.
 
 8      (f)  Any company incorporated under the laws of this State
 
 9 and physically located in the State that primarily writes,
 
10 designs, repairs, produces, or modifies software shall be exempt
 
11 from the tax imposed by section 235-71 on all income derived from
 
12 the sale or service of software."
 
13      SECTION 3.  Statutory material to be repealed is bracketed.
 
14 New statutory material is underscored.
 
15      SECTION 4.  This Act shall take effect upon its approval.
 
16 
 
17                         INTRODUCED BY:___________________________