STAND. COM. REP. 3051
Honolulu, Hawaii
, 2004
RE: H.B. No. 2396
H.D. 2
S.D. 1
Honorable Robert Bunda
President of the Senate
Twenty-Second State Legislature
Regular Session of 2004
State of Hawaii
Sir:
Your Committees on Science, Arts, and Technology and Economic Development, to which was referred H.B. No. 2396, H.D. 2, entitled:
"A BILL FOR AN ACT RELATING TO CAPITAL INVESTMENTS,"
beg leave to report as follows:
The purpose of this measure is to further efforts that encourage the development and growth of new technology-intensive businesses.
The measure accomplishes this by, among other things:
(1) Establishing a business-research institute tax credit;
(2) Clarifying the existing high technology business investment tax credit (tax credit) by establishing that a presumption exists that a transaction satisfies the doctrine of economic substance and business purpose if the tax credit has an investment tax credit ratio of 2.0 or less of credit for every dollar invested;
(3) Extending the technology infrastructure renovation tax credit;
(4) Establishing a nonrefundable tax credit for scientific research by qualified research and development companies that are limited to qualified high technology businesses as defined in the section relating to the Tax Credit;
(5) Creating the Hawaii private investment fund (fund) 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;
(8) Giving the Department of Taxation latitude to qualify companies for tax credits pursuant to Act 221, Session Laws of Hawaii 2001; and
(9) Appropriating funds from the Hawaii strategic development corporation revolving fund for the 2005-2006 fiscal year to operate the fund program.
Testimony in support of the measure was received from the Department of Business, Economic Development, and Tourism, the Department of Agriculture, the Dean of the University of Hawaii John A. Burns School of Medicine, the Chamber of Commerce of Hawaii, the Hawaii Business Roundtable, the Oceanic Institute, and the League of Women Voters. The Department of Taxation, the Interim Vice President of Research for the University of Hawaii, the Hawaii Technology Trade Association, the Waikiki Improvement Association, Hoana Medical, the PacifiCap Group, the Hawaii Venture Capital Association, and two individuals testified in support of the measure with various amendments. The Screen Actors Guild, Hawaii Branch, the International Alliance of Theatrical and Stage Employees, Local 665, and the American Federation of Musicians, Local 667, opposed the measure's passage. The Office of Information Practices and the Tax Foundation of Hawaii submitted comments.
Your Committees note the concerns that have been voiced over alleged abuse of the so-called "Act 221" high technology tax credits. The Director of Taxation has recently stated that the Department of Taxation estimates that approximately twenty per cent of Act 221 tax credits granted may qualify as criminal abuse of the tax credits. Your Committees believe this assertion to be an enforcement issue and that the Department of Taxation already has the authority and the human resources to investigate and prosecute criminal abuses of the tax credits. However, your Committees also believe that there is room to improve the tax credits by targeting the tax credits and making the tax credit laws more readily enforceable.
In light of this belief, your Committees have amended the measure by deleting its substance and inserting therefor an amended version of S.B. No. 3024, S.D. 2. Although substantially similar to the measure as received by your Committees, with regard to the private investment portion, the amended measure:
(1) Deletes the findings and purpose section contained in the House Draft 2 version;
(2) Resituates the Hawaii private investment fund and its attendant enabling proposed statutes from Chapter 211F, Hawaii Revised Statutes, and places the proposed language in a new chapter to be determined by the Revisor of Statutes;
(3) Renames the Hawaii private investment fund, the state private investment fund, both of which are modeled after a similar and highly successful Oklahoma model, to stimulate increased venture capital investment;
(4) Places the responsibility of administering the state private investment fund with the Hawaii Strategic Development Corporation, rather than establishing an autonomous board of directors as proposed under the House Draft 2 version;
(5) Removes the requirement that the Auditor audit the state private investment fund every five years; and
(6) Renames the Hawaii private investment revolving fund, the Hawaii capital formation revolving fund.
With respect to the income tax credits portion, the amended measure:
(1) Deletes the section that established a tax credit for Hawaii business-research institutes;
(2) Adds a section to the measure that creates a new section in Chapter 235, Hawaii Revised Statutes, relating to state income tax laws, that directs the Department of Taxation to liberally construe high technology-related tax credits (sections 235-7.3, 235-9.5, 235-110.51, 235-110.9, 235-110.91, and 235-111.5)
(3) Expands, clarifies, and strengthens the House Draft 2's concepts of:
(A) Liberally construing the high technology business investment tax credit statute;
(B) Utilizing the doctrine of economic substance and business purpose; and
(C) Establishing tax credit ratios;
by lowering the tax credit ratio threshold requirements, applying the foregoing concepts to all high technology-related tax credits, and clarifying that investments that are the result of the reorganizing or restructuring of an existing business do not qualify for the tax credits;
(4) Deletes the perpetual appropriation of funds from the Hawaii strategic development corporation revolving fund to the Hawaii private investment fund (section 10 of the House Draft 2) and replaces it with a single year appropriation out of the Hawaii strategic development corporation revolving fund for the state private investment fund;
(5) Deletes the House Draft 2 amendment that would have made the technology infrastructure renovation tax credit permanent, but increases the amount of the tax credit from four to ten per cent, to be available until December 31, 2007;
(6) Deletes the House Draft 2's amendments to the definition of "technology-enabled infrastructure", as contained in the technology infrastructure renovation tax credit statute;
(7) Requires taxpayers claiming a high technology business investment tax credit to file certain information with the Department of Business, Economic Development, and Tourism and for the department to issue certificates to complying taxpayers in order for them to qualify for the tax credit;
(8) Establishes that the information required under paragraph (6) shall be a public document;
(9) Reinstates the existing statutory language in the research activities tax credit (section 235-110.91, Hawaii Revised Statutes) that was to be deleted under the House Draft 2 and places a cap of $4,000,000 on the amount a corporation or an associated or consolidated group of corporations can claim in a year;
(10) Amends the manner in which the repeal of the sunset of the Hawaii strategic development corporation revolving fund, scheduled for July 1, 2004, is achieved; and
(11) Makes housekeeping amendments to Acts 197 and 221, Session Laws of Hawaii 2000, to remove language that has been placed in statutes by this measure.
Your Committees have also amended the effective date section of the measure to reflect the changes made and by making numerous technical, nonsubstantive amendments for the purposes of clarity and style.
Your Committees will continue to work with the Administration and all interested parties and believe that the amended measure maintains the spirit and intent of providing high technology businesses with access to venture capital while addressing the enforcement concerns of the Department of Taxation.
As affirmed by the records of votes of the members of your Committees on Science, Arts, and Technology and Economic Development that are attached to this report, your Committees are in accord with the intent and purpose of H.B. No. 2396, H.D. 2, as amended herein, and recommend that it pass Second Reading in the form attached hereto as H.B. No. 2396, H.D. 2, S.D. 1, and be referred to the Committee on Ways and Means.
Respectfully submitted on behalf of the members of the Committees on Science, Arts, and Technology and Economic Development,
|
____________________________ CAROL FUKUNAGA, Chair |
____________________________ DAVID Y. IGE, Chair |
|