Authorizes $120,000,000 in tax credits to the Hawaii strategic development corporation for the purposes of Act 215, SLH 2004. Enables tax credits issued by the corporation to be used to offset taxes incurred under the State's insurance code. Expands the corporation's annual reporting requirements. (SD1)

A BILL FOR AN ACT

SECTION 1. The legislature finds that Act 215, Session Laws of Hawaii 2004 (Act 215), serves an important public purpose by answering Hawaii's need for more venture capital. There is a critical shortage of seed and venture capital resources in Hawaii, and such a shortage is impairing the growth of commerce in the State. The availability of venture equity capital must be increased if Hawaii is to support its emerging high technology enterprises and allow them to expand, relocate to the State, and restructure.

Act 215, codified as chapter 211G, Hawaii Revised Statutes, provides a significant advance in capital formation for Hawaii's emerging technology firms and other fledgling, expansion-oriented companies. The contingent tax credits in Act 215 will be used by the Hawaii strategic development corporation to secure corporation loans to be invested in venture capital funds. By increasing return-driven, venture capital investments in emerging enterprises, Act 215 will help to diversify the State's economic base and will also benefit Hawaii's local venture capital companies by helping them build strong track records, enabling them to attract additional capital.

The purpose of this Act is to increase the availability of venture capital in Hawaii by authorizing:

SECTION 2. Section 211G-1, Hawaii Revised Statutes, is amended by amending the definitions of "tax credits" and "taxpayer" to read as follows:

""Tax credits" means tax credits issued or transferred pursuant to this chapter and available against liabilities imposed by chapter 235 [or], 241[.], or 431.

"Taxpayer" means a person subject to a tax imposed by chapter 235 [or], 241[.], or 431."

SECTION 3. Section 211G-12, Hawaii Revised Statutes is amended as follows:

1. By amending subsection (a) to read:

"(a) The State shall issue tax credits to the corporation that may be transferred or otherwise used to reduce the tax liability of any taxpayer pursuant to chapter 235 [or], 241[.], or 431. The total amount of tax credits that may be issued[,] and [which] that may be transferred pursuant to this chapter by the corporation is [$36,000,000.] $120,000,000. Upon compliance with subsection (b), the credits shall be freely transferable by the corporation to transferees and by transferees to subsequent transferees; however, the tax credits so transferred by the corporation shall not be exercisable before July 1, 2005, nor after July 1, 2030. The corporation shall not transfer tax credits except in conjunction with a legitimate call on a corporation guarantee. The corporation shall immediately notify the president of the senate, the speaker of the house of representatives, and the governor in writing if any tax credit is transferred by the corporation in conjunction with a legitimate call on a corporation guarantee; provided that the corporation shall not be required to make that notification for transfers to subsequent transferees."

2. By amending subsection (c) to read:

"(c) The corporation shall determine the amount of individual tax credits to be transferred pursuant to this chapter and may negotiate for the sale of those credits subject only to the limits imposed by this chapter. The corporation shall limit the transfer of tax credits that may be claimed and used to reduce the tax otherwise imposed by chapter 235 [or], 241, or 431 for one fiscal year (including any tax credits that are carried over by a taxpayer from a prior fiscal year and used to reduce taxes otherwise imposed in the current fiscal year, as permitted in subsection (g)) to not more than an aggregate total of [$12,000,000] $20,000,000 per fiscal year. The board shall clearly indicate on the face of the certificate or other document transferring the tax credit the principal amount of the tax credit and the taxable year or years for which the credit may be claimed."

3. By amending subsections (f) and (g) to read:

"(f) The tax credits issued or transferred pursuant to this chapter, upon election by the taxpayer at time of use, shall be treated as a payment or prepayment in lieu of taxes imposed under chapter 235 [or], 241[.], or 431. Tax credits used pursuant to this chapter shall be claimed as a payment of tax or estimated tax for the purposes of chapter 235 [or], 241[.], or 431.

(g) If the tax credits under this section exceed the taxpayer's income tax liability under chapter 235 [or], 241, or 431 for any taxable year, or for any other reason is not claimed by a taxpayer in whole or in part in any taxable year, the excess of the tax credit over liability, or the amount of the unclaimed tax credit, as the case may be, may be carried over and used as a credit against the taxpayer's income tax liability in any subsequent year until exhausted, subject to:

SECTION 4. Section 211G-15, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The corporation shall publish a separate annual report, in conjunction with its annual audit, and present the report to the governor, the senate president, and the speaker of the house. The annual report shall review the mission of the board and programs implemented according to the objective measures set forth in the corporation's business plan[.] and include detailed information regarding the corporation's disbursement of funds and the issuance, transfer, and administration of any tax credits authorized under this chapter. The corporation shall distribute this annual report by any means that will make it available to the financial community."

SECTION 5. The corporation is issued tax credits in the amount of $120,000,000, and is authorized to freely transfer those credits pursuant to section 211G-12, Hawaii Revised Statutes, to carry out the provisions of this Act.

The corporation shall limit the transfer of tax credits that may be claimed and used to reduce the tax otherwise imposed by chapter 235, 241, or 431 for one fiscal year (including any tax credits that are carried over by a taxpayer from a prior fiscal year and used to reduce taxes otherwise imposed in the current fiscal year, as permitted in section 211G-12(g), Hawaii Revised Statutes), to not more than an aggregate total of $20,000,000 per fiscal year.

SECTION 6. The corporation is authorized to extend financial guarantees pursuant to section 211G-13, Hawaii Revised Statutes; provided that as a condition precedent to its extension of each financial guarantee, the corporation shall establish and maintain a reasonable reserve with respect to its contingent liability as guarantor. The reasonable reserve shall be established and maintained for the duration of each financial guarantee.

SECTION 7. The corporation is authorized to incur indebtedness in the amount of $120,000,000, or whatsoever amount of credits is issued to the corporation pursuant to section 211G-14, Hawaii Revised Statutes, to carry out the provisions of this Act.

SECTION 8. There is appropriated out of the capital formation revolving fund the sum of $ , or so much thereof as may be necessary for fiscal year 2005-2006, to be expended by the Hawaii strategic development corporation in carrying out the purposes of chapter 211G, Hawaii Revised Statutes.

SECTION 9. This Act shall take effect on July 1, 2099.