STAND. COM. REP. NO. 1444-00

                                 Honolulu, Hawaii
                                                   , 2000

                                 RE: S.B. No. 2482
                                     S.D. 1
                                     H.D. 1




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

Sir:

     Your Committee on Finance, to which was referred S.B. No.
2482, S.D. 1, H.D. 1, entitled: 

     "A BILL FOR AN ACT RELATING TO TECHNOLOGY BUSINESS
     TAXATION,"

begs leave to report as follows:

     The purpose of this bill is to support the development of
the biotechnology industry in Hawaii by:

     (1)  Allowing biotechnology companies to sell their unused
          net operating loss carryover and unused tax credits to
          other qualified biotechnology companies;

     (2)  Extending the capital loss carryforward to fifteen
          years for biotechnology companies;

     (3)  Strengthening the high technology business incentives
          provided in Act 178, Session Laws of Hawaii 1999, for
          high technology business;

     (4)  Inserting the amounts of $1 with regard to the limit of
          the net operating loss carryovers and tax credits that
          a qualified biotechnology company may sell; and

     (5)  Changing the applicability of the bill to taxable years
          beginning after December 31, 2010.


 
 
                                 STAND. COM. REP. NO. 1444-00
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     The Department of Business, Economic Development, and
Tourism testified in support of the intent of the measure. The
Department of Taxation testified in support of the administration
sponsored provisions of the bill relating to performing arts,
trade secrets, allocation of partnership credits and research and
development credits. The Tax Foundation of Hawaii and a concerned
individual commented on the measure.

     Your Committee finds that high technology businesses
targeted by the tax provisions of this measure are those that
engage in activities that advance the state of the art in this
industry.  These activities include computer software design and
development, which involve the delivery of full lifecycle
software development projects (from analysis through
implementation, or subcontracted services thereunder), and using
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.
     
     Software programming intended to qualify under this measure
includes innovative technology applications such as:

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

     (2)  Web-based client data collections system;

     (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; 

     (6)  Large scale relational databases;

     (7)  Web-based stock exchange; and

     (8)  Creation of development tools.

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

     Your Committee notes the following possible definition for
"qualified research" should be considered by the conference
committee appointed to this measure:


 
                                 STAND. COM. REP. NO. 1444-00
                                 Page 3

 
     "Qualified research" means:

     (1)  The same as in section 41(d) of the Internal Revenue
          Code; or

     (2)  Delivering full lifecycle software development projects
          using 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.

     As affirmed by the record of votes of the members of your
Committee on Finance that is attached to this report, your
Committee is in accord with the intent and purpose of S.B. No.
2482, S.D. 1, H.D. 1, and recommends that it pass Third Reading.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Finance,



                                   ______________________________
                                   DWIGHT Y. TAKAMINE, Chair