Creates a general excise tax credit for construction of affordable housing.

A BILL FOR AN ACT

SECTION 1. Hawaii is suffering from an acute shortage of affordable housing. The current supply of affordable rental and for sale housing is insufficient throughout the State. The state housing and community development corporation of Hawaii has estimated that there is a need for 30,000 units, comprised of both rental and for sale properties, to address this shortage.

The purpose of this Act is to create an incentive for the construction of affordable housing units in Hawaii through a general excise tax credit.

SECTION 2. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§237-   Affordable housing tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter an affordable housing tax credit that shall be available to reduce the taxpayer's general excise tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed.

The amount of the credit shall be four per cent of the construction costs incurred during the taxable year for each qualified affordable housing unit located in Hawaii, up to a maximum allowed credit of $        .

In the case of a partnership, S corporation, estate, trust, or association of apartment owners, the tax credit allowable is for construction costs incurred by the entity for the taxable year. The cost upon which the tax credit is computed shall be determined at the entity level.

If a deduction is taken under section 179 (with respect to election to expense-depreciable business assets) of the Internal Revenue Code, no tax credit shall be allowed for that portion of the construction cost for which the deduction is taken.

The basis of eligible property for depreciation or accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed. In the alternative, the taxpayer shall treat the amount of the credit allowable and claimed as a taxable income item for the taxable year in which it is properly recognized under the method of accounting used to compute taxable income.

(b) If the tax credit under this section exceeds the taxpayer's general excise tax liability, the excess of tax credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. Every claim, including amended claims, for a tax credit under this section shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(c) To qualify for the affordable housing tax credit, the taxpayer shall be in compliance with all applicable federal, state, and county statutes, rules, and regulations.

(d) The tax credit allowed under this section shall be available for the qualified affordable housing units that exceed the minimum number of units required by the U.S. Department of Housing and Urban Development.

(e) As used in this section:

"Construction costs" means any costs incurred after December 31, 2006 for plans, design, construction, and equipment related to new construction, alterations, or modifications to residential real property.

"Qualified affordable housing unit" means a housing unit sold or rented at an amount that is affordable to persons within an income level not exceeding eighty per cent of the area median income group for each county as determined by the U.S. Department of Housing and Urban Development.

(f) The director of taxation shall prepare such forms as may be necessary to claim a credit under this section, may require proof of the claim for the tax credit, and may adopt rules pursuant to chapter 91 necessary to carry out this section."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2006.