Provides tax credit to encourage development of fuel handling facilities on neighbor islands; provides temporary waiver of wharfage fees for qualified fuel handling facility.

A BILL FOR AN ACT

SECTION 1. During the regular session of 2002, the legislature took affirmative action to address what it found to be uncompetitive market conditions in the sale of gasoline, leading to uncompetitive consumer prices for this essential energy resource. In Act 77, Session Laws of Hawaii 2002, the legislature imposed maximum pre-tax wholesale and retail price limits on regular unleaded gasoline to be sold in the State on a self-service basis, and took several other actions to attempt to address issues of gasoline market competitiveness. The price limits were to become effective on July 1, 2004.

However, in 2004, aiming to enhance consumer welfare by fostering the opportunity for wholesale prices that reflect and correlate with competitive market conditions, the legislature enacted Act 242, Session Laws of Hawaii 2004. Act 242 amended Act 77 by deleting the maximum pre-tax retail gasoline price control, and imposed price controls at the wholesale level on all grades of gasoline.

The legislature found that neighbor island markets, like Lanai, Molokai, and Hana, experience relatively high gasoline prices, because of their small size, isolated nature and, thus, unusual market character. Accordingly, these markets' capacities to support a diversity of retail and wholesale competitors are severely constrained because of low overall demand relative to larger markets and extremely limited opportunity for higher sales volumes.

In addition, in some neighbor island markets, especially Maui and the west side of the island of Hawaii, the legislature finds there exist serious inadequacies of petroleum fuels handling infrastructure facilities, such as terminals, storage, distribution, and dispensing facilities that directly contribute to uncompetitive conditions in these wholesale petroleum markets. On Maui, potential wholesale gasoline competitors are unable to obtain access to harbor-side petroleum terminal facilities that are controlled by incumbent competing terminal operators.

In the west Hawaii market, inadequate petroleum infrastructure not only constrains wholesale gasoline market competition, it adds to the price of fuel for electricity production and other fuels as well. The vast majority of these fuels have to be transported by tanker trucks from harbor-side terminal facilities in Hilo, adding significantly to transport costs of products that must first be barged from Oahu.

If these infrastructure "bottlenecks" are opened, it could open market access to wholesale competitors and increase competition in these wholesale gasoline markets. In west Hawaii, expanding harbor-side petroleum fuels handling infrastructure facilities and developing adequate distribution systems that could alleviate the need to truck fuel from east Hawaii would also significantly reduce attendant safety and environmental risks. These solutions can lead to lower gasoline prices for Maui and west Hawaii retail gasoline dealers at wholesale and consumers at retail, as well as decreasing other energy costs.

In a market economy, when too few suppliers control access to markets and other structural problems present clear, identifiable barriers to entry into a market by potential competitors, the legislature finds the preferred method for government to facilitate increased competition is to stimulate market forces to lower those barriers. These supply bottlenecks can be alleviated and competition increased if other companies were convinced to enter the market by investing in additional competitive infrastructure.

The legislature finds that consumers of petroleum-based energy and retail gasoline dealers on the neighbor islands are especially in need of assistance due to the added transportation costs and lack of adequate petroleum fuels handling infrastructure facilities on the neighbor islands. To further ensure that these special conditions and problems with which consumers of petroleum-based energy on the neighbor islands are confronted are properly addressed, the legislature finds that immediate, affirmative actions are imperative.

The legislature finds that timely and effective implementation of these affirmative actions will require the coordination, cooperation, and support of multiple agencies at multiple levels of government, as well as the private sector. The director of the department of business, economic development, and tourism is the State's business advocate and the state energy resources coordinator and, as such, is the appropriate state official to facilitate the overall effort, with implementation of specific, relevant incentives programs

within the appropriate purview of the director of taxation and director of transportation, respectively.

As stated in Act 242, the legislature would have preferred a structural solution to promote a competitive wholesale market instead of imposing limits on gasoline prices, but no one offered such a structural solution. This Act is intended to bring about such a structural solution and promote a competitive environment.

Therefore, the purposes of this Act are to:

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235-   Fuel handling infrastructure facilities construction tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter, chapter 237, and chapter 243 an income tax credit that shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter, chapter 237, and chapter 243 for the taxable year in which the credit is properly claimed.

The amount of the credit shall be one hundred per cent of the qualified expenditure incurred in the construction of a qualified fuel handling facility, but shall not include the construction costs for which another credit was claimed under this chapter for the taxable year.

In the case of a partnership, S corporation, estate, trust, or any developer of a qualified fuel handling facility, 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. Distribution and share of credit shall be determined pursuant to section 235-110.7(a).

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) The credit allowed under this section shall be claimed against the net tax liability imposed by this chapter, chapter 237, and chapter 243, for the taxable year.

(c) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of credit over liability shall be carried over until exhausted. All 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.

(d) The director of taxation shall prepare any forms that may be necessary to claim a credit under this section. The director may also require the taxpayer to furnish information to ascertain the validity of the claim for credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.

(e) The tax credit allowed under this section shall be available for taxable years beginning after December 31, 2006, and shall be available until the total entitlement of such credits has been exhausted.

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

(g) If at the close of any taxable year in the twelve year period after the year of placing the qualified fuel handling facility into service, the:

The amount of the recaptured tax credit determined under this section shall be added to the taxpayer's tax liability for the taxable year in which the recapture occurs.

(h) As used in this section:

"Development plan" means a detailed factual presentation of the plans to construct the fuel handling facility, including but not limited to a detailed budget of qualified expenditures, architectural plans, engineering plans, and other relevant documents. The development plan must demonstrate how the fuel handling facility will further open markets to competition.

"Fuel handling facility" means a new fuel handling facility located in any county with a population of three hundred thousand or less, and in the case of Hawaii county, located only in the "west Hawaii market zone", as defined in this section, used exclusively for the storage, loading and unloading, transportation by other than vehicle or waterborne vessel; i.e., pipelines, distribution, and dispensing of petroleum fuel products in bulk quantities; provided that the taxpayer claiming the credit under this section does not own, directly or indirectly, another fuel handling facility on the same island, except on the island of Hawaii, where this restriction applies only to ownership of another fuel handling facility in the west Hawaii market zone. Indirect ownership means ownership by a related entity that is more than fifty per cent owned, directly or indirectly, by the taxpayer. If the facility is a storage facility, it must have a minimum capacity of twenty-five thousand barrels. Minimum capacities for other fuel handling facilities shall be established by the department of business, economic development, and tourism, at its discretion, by its review and certification of the development plan, based on standard units of measure to be determined by the department.

"Qualified expenditures" means any costs for plans, design, construction, and equipment permanently affixed to a building or structure, and acquisition of land used exclusively for the qualified fuel handling facility.

"Qualified fuel handling facility" means a fuel handling facility to the extent the development plans and projected qualified expenditures of the fuel handling facility have been certified by the department of business, economic development, and tourism prior to incurring any qualified expenditures in connection with the fuel handling facility. Among other certification criteria that shall be determined by the department of business, economic development, and tourism, the department shall require that the fuel handling facility will serve to further open markets to competition to meet this definition. Any material changes to the development plans and projected qualified expenditures shall be recertified by the department of business, economic development, and tourism prior to a taxpayer claiming any credits under this section for qualified expenditures with respect to such material changes. Certification of a qualified fuel handling facility by the department of business, economic development, and tourism shall result in an allocation of credits under this section for all projected qualified expenditures in connection with the fuel handling facility. Total credits that may be allocated by the department of business, economic development, and tourism under this section may not exceed $           in any calendar year and may not exceed $           over the twelve year period from January 1, 2007, through December 31, 2018.

"Recapture per cent" means a fraction, the numerator of which equals the number of years remaining in the twelve year period after the fuel handling facility was placed in service and the denominator of which equals ten.

"West Hawaii market zone" means the districts of north Kohala, south Kohala, north Kona, south Kona, and Kau on the island of Hawaii."

SECTION 3. Chapter 266, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§266-   Qualified fuel handling facilities competitiveness waiver of wharfage rates and charges. (a) There shall be allowed to each qualified fuel handling facility, as defined in section 235-  , a temporary waiver of all state wharfage rates and charges for which it would otherwise be obligated to pay for petroleum fuels passing through pipelines, tanks, loading, unloading or dispensing facilities, or other fuel handling infrastructure facilities. These state wharfage rates and charges are fixed and regulated by applicable state rules, adopted pursuant to chapter 91, to effectuate the purposes of section 266-2.

(b) This temporary waiver of state wharfage rates and charges shall apply only to petroleum fuels passing through such pipelines, tanks, loading, unloading or dispensing facilities, or other fuel handling infrastructure facilities that have been certified as a qualified fuel handling facility pursuant to section 235-  , or fuels passing directly into a qualified fuel handling facility from a waterborne vessel or harbor-side facility as the fuel is delivered from its point of origin from another island within the State. The waiver shall not apply to fuel passing out of a qualified fuel handling facility if the fuel is destined for delivery to another island within the State in which development of qualified fuel handling facilities have not been authorized pursuant to section 235-  .

(c) The waiver of wharfage rates and charges for a qualified fuel handling facility shall amount to one hundred per cent of the amount owed for any amount of fuel passing through the qualified fuel handling facility and delivered, as in subsection (a) above.

(d) The time period of this temporary waiver shall be specific to the qualified fuel handling facility itself, and shall be for a maximum period of thirty-six months from the date of initial actual fuel handling operations of the facility as a qualified fuel handling facility pursuant to section 235-  , irrespective of the date of certification as such, or other time limits set forth for the purposes of section 235-  .

(e) The director of the department of transportation shall be responsible to develop procedures to implement and effectuate the purposes of this section."

SECTION 4. The director of department of business, economic development, and tourism, in the director's role as both Hawaii's chief business advocate and the state energy resources coordinator, shall be responsible to facilitate and coordinate the State's efforts to implement and effectuate the purposes of this Act. Accordingly, the director of business, economic development, and tourism, supported by required department staff, shall develop and establish formal and informal procedures and mechanisms for efficient and effective coordination and collaboration with, and among, the department of taxation and the department of transportation, industry, other relevant federal, state, and county government agencies and stakeholders for this purpose. State agencies named herein and those involved at the request of the director of department of business, economic development, and tourism shall cooperate and provide support to the fullest possible extent to effectuate the purposes of this Act.

SECTION 5. The director of business, economic development, and tourism shall submit a report twenty days prior to the convening of the Regular Session of 2007 and each regular session thereafter that the tax credit established by this Act remains in effect, containing the following information:

SECTION 6. New statutory material is underscored.

SECTION 7. This Act shall take effect on July 1, 2006.