STAND

STAND. COM. REP. NO. 554

Honolulu, Hawaii

, 2005

RE: H.B. No. 994

H.D. 1

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committees on Water, Land, & Ocean Resources and Tourism & Culture, to which was referred H.B. No. 994 entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

beg leave to report as follows:

The purpose of this bill is to stimulate economic activity and improve Hawaii's recreational infrastructure by establishing a Motor Sports Recreation, Public Safety Training, Educational, and Medical Facility (Facility) Investment tax credit (Tax Credit) for qualified investments in the Facility at Kalaeloa. Specifically, this bill, among other things:

(1) Establishes the Tax Credit as equal to the qualified investments made by a taxpayer for any one or more years in the three consecutive years after December 31, 2004, and before January 1, 2008;

(2) Makes the Tax Credit claimable for the taxable years commencing January 1, 2009, through December 31, 2013;

(3) Caps the Tax Credit at $50,000,000 in the aggregate for all qualified taxpayers, provided that a maximum of $10,000,000 may be used in any one taxable year; and

(4) Voids the Tax Credit when investments and projects no longer qualify for the Tax Credit.

The Honolulu Police Department, Hawaii Motorsports Center, Race Events Hawaii, LLC, Pacific Karting Club, Hawaii Automobile Dealers' Association, Hawaii Motorcycle Dealers Association, Hawaii Road Race Association, Jr. Dragster's of Hawaii, and numerous concerned citizens supported this measure. A concerned citizen supported the intent of this bill. The Department of Business, Economic Development, and Tourism (DBEDT), Department of Taxation, and The Chamber of Commerce of Hawaii opposed this bill. The Tax Foundation of Hawaii offered comments.

Upon careful deliberation, your Committees have amended this measure by:

(1) Changing the time period in which the qualified investments may be made to the three consecutive years beginning after June 30, 2005;

(2) Clarifying that the total tax credit claimed shall not exceed $50,000,000 in the aggregate for all qualified taxpayers for all five years;

(3) Limiting the amount of the Tax Credit that may be used in any one taxable year to the amount of general excise tax (GET) and transient accommodations tax (TAT) generated in that year by the construction and operation of the Facility;

(4) Allowing the Tax Credit to be claimed beyond December 31, 2013, if the amount of GET and TAT collections generated by the Facility is less than $10,000,000 in any given year;

(5) Clarifying the void provisions by establishing that if at any time during the five-year period in which the Tax Credit may be claimed the investment no longer meets the definition of "qualified investment" due to certain causes, no tax credit may be claimed for the investment;

(6) Clarifying the void provisions by establishing that if at any time during the five-year period in which the Tax Credit may be claimed the project no longer qualifies as a "qualified project", no tax credit may be claimed for investments in the project;

(7) Requiring DBEDT to calculate the amount of Tax Credit allowed in any one year by using existing models to determine the amount of GET and TAT earned as a percentage of construction, commerce, and visitor counts directly generated by the construction and operation of the Facility; and

(8) Making technical, nonsubstantive amendments for style, clarity, and consistency.

Your Committees' chairs and members who support the establishment of the Tax Credit strongly believe that the Facility will become a world-class facility that the people of Hawaii may take pride in. The Facility should drive economic growth, providing measurable dollar benefits several times that of the Tax Credit amount. The Facility will not only provide a popular spectator venue, but will also provide a necessary outlet for racing enthusiasts who may otherwise use Hawaii's streets and highways. Without the Tax Credit, there will be no investments, no Facility, and no economic nor recreational benefits for the people of Hawaii.

Although your Committees have made several amendments to improve the bill, one area of concern that remains is the extended time taxpayers have to claim the Tax Credit when GET and TAT collections generated by the Facility are less than $10,000,000 in a given year. Your Committees respectfully request that your Committee on Finance incorporate an amendment to this measure to limit the extension of time for taxpayers under these circumstances to claim the Tax Credit to December 31, 2018, which is five years past December 31, 2013.

As affirmed by the records of votes of the members of your Committees on Water, Land, & Ocean Resources and Tourism & Culture that are attached to this report, your Committees are in accord with the intent and purpose of H.B. No. 994, as amended herein, and recommend that it pass Second Reading in the form attached hereto as H.B. No. 994, H.D. 1, and be referred to the Committee on Finance.

Respectfully submitted on behalf of the members of the Committees on Water, Land, & Ocean Resources and Tourism & Culture,

____________________________ JERRY L. CHANG, Chair		____________________________ EZRA R. KANOHO, Chair