STAND

STAND. COM. REP. NO. 439-04

Honolulu, Hawaii

, 2004

RE: H.B. No. 2396

H.D. 1

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Economic Development and Business Concerns, to which was referred H.B. No. 2396 entitled:

"A BILL FOR AN ACT RELATING TO CAPITAL INVESTMENTS,"

begs leave to report as follows:

The purpose of this bill is to further efforts that encourage the development and growth of new technology-intensive businesses by, among other things:

(1) Establishing a business-research institute tax credit;

(2) Clarifying the existing High Technology Business Investment Tax Credit;

(3) Extending the Technology Infrastructure Renovation Tax Credit;

(4) Establishing a refundable tax credit for scientific research by qualified research and development companies;

(5) Creating the Hawaii Private Investment Fund (HPIF) Program to increase the availability of equity and debt capital for emerging, expanding, and restructuring enterprises in Hawaii;

(6) Requiring taxpayers who claim a tax credit for research activities to submit a written, certified statement to the Director of Business, Economic Development, and Tourism identifying qualified expenditures and the amount of tax credits;

(7) Establishing record-keeping requirements and procedures for the Department of Business, Economic Development, and Tourism (DBEDT);

(8) Removing the provision that Act 221, Session Laws of Hawaii 201 (Act 221) be liberally construed; and

(9) Appropriating funds from the Hawaii Strategic Development Corporation revolving fund for the 2004-2005 fiscal year to operate the HPIF Program.

DBEDT, Department of Taxation, Department of Agriculture, Maui County Farm Bureau, and CTA testified in support of this bill. The University of Hawaii, Hawaii Venture Capital Association, and Hawaii Technology Trade Association supported this measure with amendments. Hawaii Business Roundtable, Hawaii Agriculture Research Center, and The Chamber of Commerce of Hawaii supported the intent of this bill. PacifiCap Group, LLC, and Tax Foundation of Hawaii offered comments.

Your Committee recognizes the importance of supporting entrepreneurial programs through tax credit incentives.

It also recognizes that details of HPIF could not be finalized while this bill was before your Committee due to the lack of data on the rate of return on programs similar to HPIF, such as that of Oklahoma and the Hawaii Strategic Development Corporation.

Your Committee respectfully requests your Committee on Finance to consider the language that allows companies to qualify for the High Technology Business Investment Tax Credit to be guidelines for the Department of Taxation (DoTax) to follow, because specifying types of companies would enable attempts to maneuver around the law.

Your Committee has amended this bill by:

(1) Establishing a new board of directors to govern HPIF;

(2) Requiring that any tax credits under HPIF shall be treated as a payment or prepayment towards the taxpayer's tax liability;

(3) Requiring the auditing of books and records of HPIF every five years;

(4) Requiring disclosure to DBEDT of the name of the taxpayer qualified to receive a business-research institute tax credit, qualifying costs or expenditures amounts, and nature and amount of credit received, but not confidential or proprietary information;

(5) Establishing that there exists a presumption that a transaction satisfies the doctrine of economic substance and business purpose if the High Technology Business Investment Tax Credit has an investment tax credit ratio of 2 or less of credit for every dollar invested;

(6) Changing the effective date of the High Technology Business Investment Tax Credit to June 30, 2005;

(7) Limiting the tax credit for qualified research and development companies to qualified high technology businesses as defined in the section relating to the High Technology Business Investment Tax Credit;

(8) Adding language giving DoTax latitude to qualify companies for tax credits pursuant to Act 221; and

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

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 H.B. No. 2396, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 2396, 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,

		____________________________ BRIAN SCHATZ, Chair