CONFERENCE COMMITTEE REPORT NO. 161

                            Honolulu, Hawaii
                                            , 2000

                            RE:   H.B. No. 2901
                                  H.D. 2
                                  S.D. 2
                                  C.D. 1




Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committee on Conference on the disagreeing vote of the
House of Representatives to the amendments proposed by the Senate
in H.B. No. 2901, H.D. 2, S.D. 2, entitled:

    "A BILL FOR AN ACT RELATING TO THE NEW ECONOMY,"

having met, and after full and free discussion, has agreed to
recommend and does recommend to the respective Houses the final
passage of this bill in an amended form.

     The purpose of this bill is to encourage the continued
growth and development of high technology businesses and
associate industries by:

     (1) Providing tax benefits to encourage and support high
         technology businesses;

     (2) Allowing the Board of Trustees of the Employees'
         Retirement System (ERS) to invest up to ten percent in
         venture capital for high technology businesses;


 
 
 
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     (3) Creating partnerships with the tourist industry to
         market and promote Hawaii's emerging technology
         industries and Hawaii as an ideal location to conduct e-
         business;

     (4) Creating the Hawaii Technology Investment Program for
         small individual investors; and

     (5) Creating the New Economy Trust Fund (Trust Fund) to
         support:

          (a)  Public education;

          (b)  Innovative projects that expand access to
               technology; and

          (c)  Workforce development initiatives emphasizing
               skills-building.

     In making amendments to this bill, it is your Committee on
Conference's intention that high technology businesses qualifying
for the tax provisions under Part I be businesses that engage in
activities that advance the state-of-the-art in the high
technology industry.  These businesses include:

     (1)  Computer software design and development that involve
          the delivery of full lifecycle software development
          products (from analysis through implementation); and

     (2)  The use of fourth generation software development tools
          or native programming languages to design and construct
          unique and specific code to create applications and
          design databases for sale or license.

     Your Committee on Conference intends the following software
programming to qualify under this bill, including innovative
technology applications, such as:

     (1)  Palm-top-based application to collect data during field
          inspections;

     (2)  Web-based client data collections systems;

     (3)  Health plan web-based interface application;

     (4)  Entertainment applications, such as computer-based
          games and digital media;

     (5)  Interactive web-based products and services;

 
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     (6)  Large-scale relational databases;

     (7)  Web-based stock exchange; and

     (8)  Creation of development tools.

     Activities that would not qualify under this standard
include computer repair, break and fix services, and
configuration of off-the-shelf software.

     Your Committee on Conference has amended this bill by, among
other things:

     (1)  Deleting provisions that:

          (a)  Allows the ERS Board of Trustees to invest ten
               percent of its alternative investment funds in
               qualified high technology businesses;

          (b)  Provides an income tax credit to promote
               investment in venture capital; and

          (c)  Establishes the New Economy Trust Fund;

     (2)  Clarifying provisions relating to the sale of unused
          net operating loss carryovers;

     (3)  Amending the definition section under the Income Tax
          Law to:  include the definition of "biotechnology",
          amend the definitions of "computer data" and
          "investment", and delete the definitions of "qualified
          high technology business" and "qualified research" for
          appropriate applicability to the law;

     (4)  Broadening the scope of services performed by qualified
          high technology businesses to include performing arts,
          thereby enabling businesses performing these services
          to qualify for the tax incentives under Part I of the
          bill, subject to certain requirements including fees
          and residuals from television and film products to be
          excluded from taxation;

     (5)  Specifying that qualified high technology businesses
          under the stock options exemption section conduct more
          than fifty percent of its activities in qualified
          research;

     (6)  Amending the High Technology Investment Tax Credit by
          deleting the option of obtaining a refund and changing

 
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          the one hundred percent requirement to seventy-five
          percent for conducting research and receiving gross
          income in the State;

     (7)  Expanding the types of individuals who may qualify for
          the stock option exemption, to include officers, or
          directors, or investors who qualify for the High
          Technology Business Investment Tax Credit;

     (8)  Deleting the limitation of research to Hawaii and
          instead requiring a business to have at least fifty
          percent of its activities in qualified research and
          providing that the business conducts more than seventy-
          five percent of its qualified research in the State;

     (9)  Stipulating that the Governor's Special Advisory
          Council for Technology Development (Council):

         (a)  Is not subject to the requirements under section
              26-34, HRS, regarding the selection and terms of
              members of boards and commissions;

         (b)  Develop, establish, and implement ethics and
              conflict of interest guidelines for its members;
              and

         (c)  Is exempt from the financial disclosure
              requirements under section 84-17, HRS, provided
              that the Council members are not otherwise subject
              to subsection 84-17(c)(9), HRS;

    (10) Broadening the business area in which the Hawaii Tourism
         Authority may enter into contracts and agreements;

    (11) Granting increased autonomy and authority to the High
         Technology Development Corporation (HTDC) over its
         personnel and fiscal matters by broadening its powers,
         and creating the Hawaii Technology Loan Revolving Fund;

    (12) Allowing for a member of the Boards of HTDC, the Hawaii
         Strategic Development Corporation, and the Natural
         Energy Laboratory of Hawaii Authority to sit on one
         another's boards;

    (13) Establishing the Hawaii Technology Investment Program
         (Program) to allow individual investors to contribute to
         the Program to invest venture capital in businesses in
         Hawaii;


 
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    (14) Deleting the appropriation relating to funds out of the
         New Economy Trust Fund;

    (15) Removing the provision requiring the Governor's Special
         Advisor for Technology Development to submit a report to
         the Legislature on the initiatives and actions taken in
         response to the bill;

    (16) Inserting the appropriation sum of $200,000 for fiscal
         year 2000-2001 for HTDC;

    (17) Including an appropriation of $800,000 for fiscal year
         2000-2001 for the expansion of the Department of
         Education's E-Academies and the Laptops for Learning
         Program;

    (18) Indicating legislative intent that the amendments to
         Part I of the bill be liberally construed, and in this
         regard, give latitude to the Department of Taxation
         (DOTAX) to interpret those amendments in light of
         current industry standards;

    (19) Specifying that amendments made in Part I of the bill
         shall not be construed to disqualify any taxpayer who
         has received a favorable written determination from
         DOTAX under the original provisions of those sections as
         enacted by Act 178, Session Laws of Hawaii 1999 (SLH
         1999); and

    (20) Making technical, nonsubstantive amendments for clarity,
         consistency, and style.

     Your Committee on Conference has deleted the ten percent
venture capital investment requirement imposed on the ERS and the
definitions regarding venture capital investment to enable the
ERS Board of Trustees to use greater prudence in making such
investments, in their informed opinion, that are appropriate to
invest funds of the ERS.  A provision regarding the evaluation of
venture capital investments was added to require the ERS Board to
consider the impact on job creation in the State and the state
economy.  It is not your Committee on Conference's intent that
the ERS Board make seed money investments in this area.  Instead,
your Committee intends that the ERS make investments in companies
that show or will show a positive return on investment.

     Your Committee on Conference believes that the amendments in
this bill will enable the State to strengthen its high technology
industry, and are reflective of the progress made in this area as
a result of the enactment of Act 178, SLH 1999.  Your Committee

 
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finds that the package of incentives in this bill improves upon
existing law.  Amendments to the HTDC Law will greatly enhance
HTDC's ability to lead Hawaii into the New Economy.  This, in
turn, will diversify Hawaii's economy and benefit the citizens of
Hawaii.

     As affirmed by the record of votes of the managers of your
Committee on Conference that is attached to this report, your
Committee on Conference is in accord with the intent and purpose
of H.B. No. 2901, H.D. 2, S.D. 2, as amended herein, and
recommends that it pass Final Reading in the form attached hereto
as H.B. No. 2901, H.D. 2, S.D. 2, C.D. 1.

                                   Respectfully submitted on
                                   behalf of the managers:        

ON THE PART OF THE SENATE          ON THE PART OF THE HOUSE



_______________________________    _______________________________
DAVID Y. IGE, Co-Chair             ROBERT N. HERKES, Co-Chair



_______________________________    _______________________________
CAROL FUKUNAGA, Co-Chair           DAVID MORIHARA, Co-Chair



_______________________________    _______________________________
ANDREW LEVIN, Co-Chair             TERRY NUI YOSHINAGA, Co-Chair



_______________________________    _______________________________
BRIAN T. TANIGUCHI, Co-Chair       DWIGHT Y. TAKAMINE, Co-Chair



_______________________________
LORRAINE R. INOUYE, Co-Chair