REPORT TITLE:
Income Tax Credit, Ethanol


DESCRIPTION:
Provides an investment credit for investment in a qualifying
ethanol production facility.  (SB2221 HD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2221
THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 2000                                H.D. 2
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO ETHANOL.



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

 1      SECTION 1.  The legislature finds that ethanol can be
 
 2 produced from agricultural crops or its byproducts, municipal
 
 3 solid wastes, or other low or no value products.
 
 4      Ethanol can be mixed with gasoline up to a ten per cent
 
 5 blend without changing the performance or operating reliability
 
 6 of gasoline powered vehicles.  Ethanol may also be blended with
 
 7 diesel or waste cooking oils that are produced from crops to
 
 8 produce biodiesel as a replacement for diesel fuel.
 
 9      Further, in addition to traditional methods of producing
 
10 ethanol from molasses and sugar products, newly-developed
 
11 technology can also convert bagasse crop residues, newspaper,
 
12 municipal solid waste, and other underutilized materials to
 
13 ethanol.  As the cost of locating new landfills rises and
 
14 pollution is of greater concern, the conversion of these wastes
 
15 to ethanol can help reduce waste disposal problems.
 
16      The legislature finds that incentives are needed to
 
17 stimulate sector investments required to develop this industry.
 
18 Therefore, the purpose of this Act is to create an ethanol
 
19 investment credit to encourage private sector investment in
 
20 ethanol production facilities in the State of Hawaii.
 

 
Page 2                                                     2221
                                     S.B. NO.           S.D. 1
                                                        H.D. 2
                                                        

 
 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-      Ethanol investment credit.  (a)  There shall be
 
 5 allowed to each taxpayer subject to the taxes imposed by this
 
 6 chapter, an ethanol investment credit that shall be applied to
 
 7 the taxpayer's net income tax liability, if any, imposed by this
 
 8 chapter for the taxable year in which the credit is properly
 
 9 claimed.  The amount of the credit for the investment in a
 
10 qualifying ethanol production facility that is in production on
 
11 or before
 
12     1, 200 , shall be the sum of:
 
13      (1)      per cent of the first $5,000,000 invested in a
 
14           qualifying ethanol production facility, exclusive of
 
15           land costs, which facility has a monthly average
 
16           production rate of no less than    gallons for the
 
17           taxable year; and
 
18      (2)      per cent of the amount exceeding $5,000,000
 
19           invested in a qualifying ethanol production facility,
 
20           exclusive of land costs, which facility has a monthly
 
21           average production rate of no less than    gallons for
 
22           the taxable year.
 

 
 
 
Page 3                                                     2221
                                     S.B. NO.           S.D. 1
                                                        H.D. 2
                                                        

 
 1      The maximum amount of the credit allowed under paragraphs
 
 2 (1) and (2) shall be $     .
 
 3      (b)  Each taxpayer shall be eligible to claim the maximum
 
 4 annual credit allowable as set forth in subsection (a) for the
 
 5 credit period.
 
 6      (c)  If the tax credit under this section exceeds the
 
 7 taxpayer's income tax liability, the excess of credit over
 
 8 liability shall be refunded to the taxpayer; provided that no
 
 9 refunds or payments on account of the tax credit allowed by this
 
10 section shall be made for amounts less than $1.  All claims for a
 
11 credit under this section shall be properly filed on or before
 
12 the end of the twelfth month following the close of the taxable
 
13 year for which the credit may be claimed.  Failure to comply with
 
14 the foregoing provision shall constitute a waiver of the right to
 
15 claim the credit.
 
16      (d)  If a qualifying ethanol production facility or an
 
17 interest therein is acquired by a taxpayer prior to the
 
18 expiration of the credit period, the credit allowable under
 
19 subsection (b) for any period after the acquisition shall be
 
20 equal to the maximum annual credit allowable and credit period
 
21 that would have been allowable under subsection (b) to the prior
 
22 owner had the owner not disposed of the interest.  If an interest
 
23 is disposed of during any year for which the credit is allowable
 

 
Page 4                                                     2221
                                     S.B. NO.           S.D. 1
                                                        H.D. 2
                                                        

 
 1 under subsection (b), the credit shall be allowable between the
 
 2 parties on the basis of the number of days during the year the
 
 3 interest was held by each.  In no case shall the credit allowed
 
 4 under subsection (a) be allowed after the expiration of the
 
 5 credit period.
 
 6      (e)  The director of taxation shall prepare forms as may be
 
 7 necessary to claim a credit under this section.  The director may
 
 8 also require the taxpayer to furnish information to ascertain the
 
 9 validity of the claim for credit made under this section and may
 
10 adopt rules necessary to effectuate the purposes of this section
 
11 pursuant to chapter 91.
 
12      (f)  As used in this section:
 
13      "Credit period" means a maximum period of ten years
 
14 beginning from the first taxable year in which the credit is
 
15 properly claimed.
 
16      "Investment" means a nonrefundable expenditure directly
 
17 related to the construction of any qualifying ethanol production
 
18 facility.  "Investment" includes any investment for which the
 
19 taxpayer is at risk, as that term is used in section 465 of the
 
20 Internal Revenue Code (with respect to deductions limited to
 
21 amount at risk).
 
22      "Maximum annual credit allowable" means     per cent of the
 
23 total credit allowed under subsection (a) claimed against the
 

 
Page 5                                                     2221
                                     S.B. NO.           S.D. 1
                                                        H.D. 2
                                                        

 
 1 taxpayer's net income tax liability for any taxable year;
 
 2 provided that the qualifying ethanol production facility operated
 
 3 in such taxable year at a level of production of at least
 
 4 seventy-five per cent of its nameplate capacity on an annualized
 
 5 basis.
 
 6      "Net income tax liability" means net income tax liability
 
 7 reduced by all other credits allowed under this chapter.
 
 8      "Qualifying ethanol production" means ethanol produced from
 
 9 renewable, organic feedstock, or waste material, including
 
10 municipal solid waste.  All qualifying ethanol production shall
 
11 be fermented, distilled, and dehydrated at the facility.
 
12      "Qualifying ethanol production facility" means a facility
 
13 located in Hawaii that produces motor fuel grade ethanol meeting
 
14 the minimum specifications of the American Society of Testing and
 
15 Materials Standard D-4806, as amended."
 
16      SECTION 3.  New statutory material is underscored.
 
17      SECTION 4.  This Act, upon its approval, shall apply to
 
18 taxable years beginning after December 31, 2000.