HB1631 HD2

SECTION 1. The legislature finds that it is difficult to evaluate whether the high-technology business investment tax credit and the tax credit for increasing high-technology research activities, first enacted in Act 178, Session Laws of Hawaii 1999, as amended, have been successful. Although these credits have poured millions of dollars into the state's economy, accurate information with respect to the efficacy of these credits appears lacking. Reports by the department of taxation and the department of business, economic development, and tourism on the effectiveness of the credits were confusing and inconsistent. All parties agree that a better evaluation of Act 178 high-technology credits is needed.

The purpose of this Act is to measure the effectiveness of Act 178 high-technology business investment and research activities credits by requiring:

(1) Qualified high technology businesses claiming the credits to submit employment information to the department of taxation;

(2) The department of taxation to annually report this information in aggregate form to the legislature; and

(3) The department of taxation to use the information to study the effectiveness of the tax credits and report the department's findings to the legislature.

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

"§235- High technology; other reporting requirements. (a) A qualified high technology business claiming a tax credit under section 235-110.9 or 235-110.91, or receiving an investment for which the credit under section 235-110.9 may be claimed, shall complete and file a complete annual survey with the director of taxation on forms prepared and prescribed by the department. The annual survey shall be filed before March 31 of each year following the year in which:

(1) An investment in a qualified high technology business was made; or

(2) Qualified research and development activity was conducted.

The department may adjust the due date of the annual survey by rule.

(b) The annual survey shall include the following information for the time period or periods specified by the department:

(1) The taxpayer's net income tax liability;

(2) Whether the credit was assigned under section 235-110.9 or 235-110.91 and who assigned the credit; and

(3) Information about the employment positions in the qualified high technology business in the state, including:

(A) The total number of positions;

(B) The number of these positions filled by Hawaii residents;

(D) The number of new positions filled by Hawaii residents;

(E) Full-time, part-time, and temporary positions as a per cent of total employment;

(F) Of the total number of positions, the number of positions falling within the following wage bands:

(i) Less than $30,000;

(ii) $30,000 or greater, but less than $60,000; or

(iii) $60,000 or greater; provided that a wage band containing fewer than three individuals may be combined with another wage band;

and

(G) For each of the wage bands in subparagraph (F), the number of positions that have employer-provided medical, dental, and retirement benefits.

The department may request additional information necessary to measure the results of the tax credit program, to be submitted at the same time as the survey. In preparing the survey the department shall ensure that qualified high technology businesses are not subject to duplicative reporting requirements. The department shall define "full-time position", "part-time position", "temporary position", and "new position" by rule.

(c) If a qualified high technology business fails to file a complete annual survey under this section with the department by the due date or any extension thereof, the qualified high technology business otherwise entitled to the tax credit shall be assessed a penalty of $1,000 per month for each month the annual survey is not filed, up to a maximum of three months. If a complete annual survey has not been filed three months after the due date or any extension thereof, the qualified high technology business otherwise entitled to the tax credit shall not be eligible to claim or assign the credit under section 235-110.9 or 235-110.91, as the case may be, for the taxable year prior to the year in which the person failed to timely file a complete annual survey.

(d) The department shall use information collected under this section or collected under other reporting requirements of the department and therefore excluded from the annual survey required under this section as duplicative, to prepare summary descriptive statistics by category. No fewer than three taxpayers shall be included in any category. The department shall also identify each qualified high technology business receiving credits under section 235-110.9 or 235-110.91. The department shall report the information required under this subsection to the legislature by September 1 each year.

(e) The department shall use the information collected under this section to study the effectiveness of the tax credits under sections 235-110.9 and 235-110.91. The department shall measure the effect of the tax credits on job creation, the number of jobs created in the state, company growth, the diversification of the state's economy, the movement of firms, the introduction of new products, growth in research and development investment, the consolidation of firms operating in the state, and other factors as the department determines. The department shall report the results of its study to the legislature by December 1, , and December 1, .

(f) The reporting requirements under this section shall only be applicable to qualified high technology businesses and shall not apply to individual investors.

(g) The department shall adopt rules pursuant to chapter 91 to implement this section."

SECTION 3. Section 235-110.9, Hawaii Revised Statutes, is amended as follows:

1. By amending subsection (b) to read:

"(b) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year. For the purpose of this section, "net income tax liability" means net income tax liability reduced by all other credits allowed under this chapter. By claiming the credit, a qualified high technology business consents to the public disclosure of the taxpayer's name and the taxpayer's status as a claimant of the credit under this section."

2. By amending subsections (e) and (f) to read:

"(e) Every taxpayer, before March 31 of each year in which an investment in a qualified high technology business was made in the previous taxable year, shall submit a written, certified statement to the director of taxation identifying:

(1) Qualified investments, if any, expended in the previous taxable year; and

(2) The amount of tax credits claimed pursuant to this section, if any, in the previous taxable year.

Every qualified high technology business that claims a credit or receives an investment for which a credit may be claimed under this section shall also submit the annual survey required by section 235- to the director of taxation.

(f) The department shall:

(1) Maintain records of the names and addresses of the taxpayers claiming the credits under this section and the total amount of the qualified investment costs upon which the tax credit is based;

(2) Verify the nature and amount of the qualifying investments;

(3) Total all qualifying and cumulative investments that the department certifies; and

(4) Certify the amount of the tax credit for each taxable year and cumulative amount of the tax credit.

Upon each determination made under this subsection, the department shall issue a certificate to the taxpayer verifying information submitted to the department, including qualifying investment amounts, the credit amount certified for each taxable year, [~~and~~] the cumulative amount of the tax credit during the credit period[.], and any survey required under section 235- . The taxpayer shall file the certificate with the taxpayer's tax return with the department.

The director of taxation may assess and collect a fee to offset the costs of certifying tax credits claims under this section. All fees collected under this section shall be deposited into the tax administration special fund established under section 235-20.5."

SECTION 4. Section 235-110.91, Hawaii Revised Statutes, is amended by amending subsections (c) to (e) to read as follows:

"(c) There shall be allowed to each qualified high technology business subject to the tax imposed by this chapter an income tax credit for qualified research activities equal to the credit for research activities provided by section 41 of the Internal Revenue Code and as modified by this section. The credit shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed. By claiming the credit, the taxpayer consents to the public disclosure of the taxpayer's name and the taxpayer's status as a claimant of the credit under this section."

(d) Every qualified high technology business, before March 31 of each year in which qualified research and development activity was conducted in the previous taxable year, shall submit a written, certified statement to the director of taxation identifying:

(1) Qualified expenditures, if any, expended in the previous taxable year; and

(2) The amount of tax credits claimed pursuant to this section, if any, in the previous taxable year.

Every qualified high technology business shall also submit the annual survey required by section 235- to the director of taxation.

(e) The department shall:

(1) Maintain records of the names and addresses of the taxpayers claiming the credits under this section and the total amount of the qualified research and development activity costs upon which the tax credit is based;

(2) Verify the nature and amount of the qualifying costs or expenditures;

(3) Total all qualifying and cumulative costs or expenditures that the department certifies; and

(4) Certify the amount of the tax credit for each taxable year and cumulative amount of the tax credit.

Upon each determination made under this subsection, the department shall issue a certificate to the taxpayer verifying information submitted to the department, including the qualifying costs or expenditure amounts, the credit amount certified for each taxable year, [~~and~~] the cumulative amount of the tax credit during the credit period[.], and the survey required under section 235- . The taxpayer shall file the certificate with the taxpayer's tax return with the department."

SECTION 5. The department of taxation shall prepare and submit a report to the legislature by October 31, 2007, summarizing data submitted by qualified high technology businesses in form N-317 for all previous years available. The report shall include but not be limited to summary descriptive statistics regarding the nature of qualified research activities, job creation, and salaries paid by high technology businesses.

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act shall take effect upon its approval and shall apply to taxable years beginning after December 31, 2006.

HOUSE OF REPRESENTATIVES	H.B. NO.	1631
TWENTY-FOURTH LEGISLATURE, 2007		H.D. 2
STATE OF HAWAII