HB1639 SD1

SECTION 1. Chapter 235, Hawaii Revised Statutes is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Rental income from agricultural leases on important agricultural lands excluded from gross income. (a) In addition to the exclusions in section 235-7, there shall be excluded from gross income, adjusted gross income, and taxable income, rental income, including lease rents, received by a taxpayer subject to the taxes imposed by this chapter that are derived from agricultural leases on lands identified and designated as important agricultural lands pursuant to part III, chapter 205, for the taxable year the rental income was realized; provided that:

(1) The minimum length of the lease term shall be:

(A) Twenty years; or

(B) Any other lease term length mutually agreeable to lessor and lessee, if the amount of the lease rent is set by an independent appraisal using the lower of the comparable value or agricultural capitalization appraisal methodologies;

and

(2) The lease is in effect and the lessee is continuously and substantially undertaking agricultural activity on the leased land, pursuant to chapter 205, as verified by the department of agriculture on a regular basis using a process determined by the department of agriculture; provided that the exclusion shall not apply if the lease is terminated or the department of agriculture determines that the leased land is not continuously and substantially being used for agricultural activity.

The taxpayer shall be eligible for the exclusion initially for up to twenty years; provided that the time period may be extended for every year the term of the lease is extended; provided further that the assignment of the original lease to another lessee shall be for the time period remaining on the original lease, unless the terms of the lease are renegotiated.

(b) Each taxpayer who claims the exclusion under this section shall annually provide any necessary information determined by and to the department of agriculture in the manner prescribed by the department of agriculture to enable an aggregated quantitative and qualitative assessment of the impact of the exclusion."

SECTION 2. Section 237-24.75, Hawaii Revised Statutes, is amended to read as follows:

"[[]§237-24.75[]] Additional exemptions. In addition to the amounts exempt under section 237-24, this chapter shall not apply to [~~amounts~~]:

(1) Amounts received as a beverage container deposit collected under chapter 342G, part VIII[.]; and

(2) Rental income, including lease rents, derived from agricultural leases on lands identified and designated as important agricultural lands pursuant to part III, chapter 205, for the taxable year the rental income was realized; provided that:

(A) The minimum length of the lease term shall be:

(i) Twenty years; or

(ii) Any other lease term length mutually agreeable to lessor and lessee, if the amount of the lease rent is set by an independent appraisal using the lower of the comparable value or agricultural capitalization appraisal methodologies;

(B) The lease is in effect and the lessee is continuously and substantially undertaking agricultural activity on the leased land, pursuant to chapter 205, as verified by the department of agriculture on a regular basis using a process determined by the department of agriculture; provided that the exemption shall not apply if the lease is terminated or the department of agriculture determines that the leased land is not continuously and substantially being used for agricultural activity; and

(C) The taxpayer shall be eligible for the exemption initially for up to twenty years and for every year the term of the lease is extended; provided further that the assignment of the original lease to another lessee shall be for the time period remaining on the original lease, unless the terms of the lease are renegotiated."

SECTION 3. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2007-2008 and the sum of $ or so much thereof as may be necessary for fiscal year 2008-2009 for the department of agriculture to collect and analyze data to make an aggregated quantitative and qualitative assessment of the impact of the exclusion of rental income from important agricultural lands from the income tax law.

The sums appropriated shall be expended by the department of agriculture for the purposes of this Act.

SECTION 4. The department of agriculture shall submit to the legislature an annual report, no later than twenty days prior to the convening of each regular session, beginning with the regular session of 2009, regarding the quantitative and qualitative assessment of the impact of the exclusion of rental income from important agricultural lands from the income tax law.

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect on July 1, 2020; provided that section 1 shall apply to taxable years beginning after December 31, 2008; and provided further that section 2 shall take effect on July 1, 2009, and shall apply to gross income or gross proceeds received after June 30, 2009.

HOUSE OF REPRESENTATIVES	H.B. NO.	1639
TWENTY-FOURTH LEGISLATURE, 2007		H.D. 2
STATE OF HAWAII		S.D. 1