Provides tax credit to encourage development of fuel handling infrastructure facilities on neighbor islands; provides temporary waiver of wharfage fees for qualified fuel handling infrastructure facility. (SD1)

A BILL FOR AN ACT

SECTION 1. During the regular session of 2002, the legislature took affirmative action to address uncompetitive market conditions in the sale of gasoline that were 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 in an attempt to address the issue 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 by imposing 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 unusual market character. Accordingly, the markets' capacities to support a diversity of retail and wholesale competitors are severely constrained because of low overall demand relative to larger markets and an 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 are serious inadequacies in the petroleum fuels handling infrastructure facilities, such as terminals, storage, distribution, and dispensing facilities, that contribute to uncompetitive conditions in these wholesale petroleum markets. On Maui, potential wholesale gasoline competitors cannot obtain access to harbor-side petroleum terminal facilities that are controlled by incumbent competing terminal operators.

In the west Hawaii market, an inadequate petroleum infrastructure constrains wholesale gasoline market competition and adds to the price of fuels, including for electricity production. The vast majority of these fuels must be transported by tanker trucks from harbor-side terminal facilities in Hilo. This adds 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, the expansion of harbor-side petroleum fuels handling infrastructure facilities and the development of adequate distribution systems to alleviate the need to truck fuel from east Hawaii would 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 a decrease in other energy costs.

The legislature finds that, in a market economy, when too few suppliers control the access to a market and other structural problems present clear, identifiable barriers to entry into a market by potential competitors, the preferred method to facilitate increased competition is to stimulate market forces to lower the barriers. Supply bottlenecks can be alleviated and competition can be increased if other companies are convinced to enter the market. This can be achieved by investing in additional competitive infrastructure.

The legislature finds that consumers of petroleum-based energy and retail gasoline dealers on the neighbor islands need assistance due to the added transportation costs and the lack of adequate petroleum fuels handling infrastructure facilities. The legislature finds that immediate, affirmative actions are imperative to ensure that the problems confronting consumers of petroleum-based energy on the neighbor islands are properly addressed.

Timely and effective implementation of these affirmative actions requires the coordination, cooperation, and support of multiple agencies at multiple levels of government, as well as the private sector. The director of business, economic development, and tourism shall 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.

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. The purpose of this Act is to bring about a structural solution and to promote a competitive environment to benefit consumers by:

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 who makes a qualified expenditure and is subject to the taxes imposed by this chapter, chapter 237, and chapter 243 a tax credit that shall be deductible from the taxpayer's net tax liability, if any, imposed by this chapter, chapter 237, and chapter 243, respectively, for the taxable year in which the credit is properly claimed.

(b) The amount of the credit shall be one hundred per cent of the qualified expenditure incurred in the construction of a qualified fuel handling infrastructure facility, but shall not include the construction costs for which another credit was claimed under this chapter, chapter 237, or chapter 243 for the taxable year.

(c) In the case of a partnership, S corporation, estate, trust, or any developer of a qualified fuel handling infrastructure facility, the tax credit allowable shall be 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) and any rules adopted pursuant to that section.

(d) 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.

(e) 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.

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

(g) 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.

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

(i) If at the close of any taxable year in the twelve year period after the year of placing the qualified fuel handling infrastructure 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.

(j) The department of business, economic development, and tourism shall determine the certification criteria, including a requirement that the fuel handling infrastructure facility serve to further open markets to competition. Any material changes to the development plans or 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 infrastructure 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 infrastructure facility. Total credits that may be allocated by the department of business, economic development, and tourism under this section shall not exceed $           in any calendar year and may not exceed $           over the twelve year period from January 1, 2007, through December 31, 2018.

(k) As used in this section:

"Development plan" means a detailed factual presentation of the plans to construct the fuel handling infrastructure facility, including a detailed budget of qualified expenditures, architectural plans, and engineering plans. The development plan shall demonstrate how the fuel handling infrastructure facility will further open markets to competition.

"Fuel handling infrastructure facility" means a new fuel handling infrastructure facility that is 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, and that is used exclusively for the storage, loading and unloading, transportation by pipelines or other means of distributing and dispensing of petroleum fuel products in bulk quantities, other than by vehicles or waterborne vessels; provided that the taxpayer claiming the credit under this section shall not own, directly or indirectly, another fuel handling infrastructure facility on the same island, except on the island of Hawaii, where this restriction applies only to ownership of another fuel handling infrastructure facility in the west Hawaii market zone. If the facility is a storage facility, it shall have a minimum capacity of twenty-five thousand barrels. Minimum capacities for other fuel handling infrastructure 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.

"Indirect ownership" means ownership by a related entity that is greater than fifty per cent owned by the taxpayer. "Qualified expenditures" means any costs for plans, design, construction, or equipment permanently affixed to a building or structure, and acquisition of land used exclusively for the qualified fuel handling infrastructure facility.

"Qualified fuel handling infrastructure facility" means a fuel handling infrastructure facility whose development plans and projected qualified expenditures have been certified by the department of business, economic development, and tourism prior to the incurrence of any qualified expenditures in connection with the fuel handling infrastructure facility.

"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 infrastructure 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 infrastructure facilities competitiveness waiver of wharfage rates and charges. (a) There shall be allowed to each qualified fuel handling infrastructure 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.

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

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

(d) The time period of this temporary waiver shall be specific to the qualified fuel handling infrastructure facility and shall not exceed thirty-six months from the initial date of actual fuel handling operation of the facility as a qualified fuel handling infrastructure facility pursuant to section 235-   , irrespective of the date of certification or other time limits set forth for the purposes of section 235-   .

(e) The department of transportation shall be responsible for developing procedures to implement this section."

SECTION 4. The director of department of business, economic development, and tourism shall facilitate and coordinate the State's implementation of this Act, including the development of formal and informal procedures for efficient and effective coordination and collaboration with the department of taxation, the department of transportation, private industry, other relevant federal, state, and county agencies, and stakeholders. State agencies shall cooperate and provide support to effectuate the purposes of this Act.

SECTION 5. The director of business, economic development, and tourism shall submit a report not later than 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. The report shall include:

SECTION 6. New statutory material is underscored.

SECTION 7. This Act shall take effect on July 1, 2006; provided that the tax credit provided by the Act shall be available for tax years beginning after December 31, 2006, and before January 1, 2019; and provided further that any tax credit allowed shall be available until the total entitlement of the tax credit has been exhausted.