SB648 HD1 HSCR1093

STAND. COM. REP. NO.1093

Honolulu, Hawaii

, 2001

RE: S.B. No. 648

S.D. 2

H.D. 1

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Economic Development and Business Concerns, to which was referred S.B. No. 648, S.D. 2, entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

The purpose of this bill is to further encourage the development of the high technology industry in the State of Hawaii by providing additional tax incentives and amending the current incentives.

Specifically, this bill provides incentives including:

(1) An income tax credit equal to the tax benefit of any unused net operating loss (NOL) of a qualified high technology business (QHTB) instead of the current authorization to sell unused net operating loss carryover;

(2) A technology infrastructure renovation and construction income tax credit;

(3) An income tax credit and a franchise tax credit for worthless debts of QHTBs;

(4) Exemption from the general excise tax for internet service providers;

(5) Exemption from the public service company tax for provision of internet access;

(6) A franchise tax credit for research activities;

(7) A capital goods excise tax credit to be claimed against the insurance tax for tangible personal property;

(8) Deductibility of expenses for royalties and other income notwithstanding the federal requirements with respect to expenses and interest relating to tax-exempt income;

(9) Inclusion of incubator services as a QHTB;

(10) Inclusion of a number of business as QHTBs which had previously been excluded – these include athletics, consulting, financial services, and many others;

(11) Inclusion of sensor and optic technologies, ocean sciences, astronomy and nonfossil fuel energy related technology as qualified research;

(12) Expanded stock option provisions;

(13) A greatly expanded QHTB investment tax credit; and

(14) An expanded tax credit for research activities.

The Building Industry Association, Hawaii Electricians Enhancement Program Fund, Hawaii Opportunities Group, LLC, Square USA, Inc., Hawaii Technology Trade Association, Hawaii Venture Capital Association, Hawaii Construction Industry Association, BusinessWest Accelerator, and a concerned citizen testified in support of this bill.

The Special Advisor for Technology Development of the Office of the Governor, the Department of Taxation, and the Department of Business, Economic Development, and Tourism testified in support of the intent of this bill. The Tax Foundation of Hawaii submitted comments on this bill.

Your Committee finds that Hawaii's continued economic growth in the 21^st Century will be dependent on how well we use science and technology to increase our productivity and become a major player of technological innovation in the Asia-Pacific region. This bill will provide incentives to set Hawaii apart as a tech-friendly place to do business for both technical and non-technical businesses.

Upon further consideration, your Committee has amended this bill by:

(1) Deleting the tax credit for net operating losses and reinstating the authorization to sell unused net operating loss carryover;

(2) Deleting the sections creating credits for worthless debts of qualified high technology businesses;

(3) Deleting the provision for an infrastructure construction income tax credit in the section including the renovation credit and replacing the construction credit with a new section for a general excise tax exemption for QHTB office buildings; and deleting certain other tax provisions for the renovation credit;

(4) Deletes the deductibility provision for expenses for royalties;

(5) Deletes incubator services provisions;

(6) Making other minor amendments to encourage high technology businesses; and

(7) Making technical, nonsubstantive amendments for purposes of clarity, style and consistency.

As affirmed by the record of votes of the members of your Committee on Economic Development and Business Concerns that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 648, S.D. 2, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 648, S.D. 2, H.D. 1, and be referred to the Committee on Finance.

Respectfully submitted on behalf of the members of the Committee on Economic Development and Business Concerns,

		____________________________ LEI AHU ISA, Chair