HB1639 SD3

PART I

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 initial 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 agribusiness 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 agribusiness.

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.

"Agribusiness" means a business licensed for the production, processing, and sale of products from the cultivation of crops, propagation of fish or game, or raising of livestock."

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 initial 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 income and general excise taxation.

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

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 income and general excise taxation.

PART II

SECTION 5. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Important agricultural lands tax credit. (a) There shall be allowed to each taxpayer, subject to the taxes imposed by this chapter, an important agricultural lands real property tax credit that 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.

(b) The amount of the credit shall be equal to one hundred per cent of the actual amount of county real property taxes paid by the taxpayer during the taxable year in which real property tax was assessed on lands identified and designated as important agricultural lands pursuant to part III, chapter 205.

In the case of a partnership, S corporation, estate, or trust, the amount upon which the credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined by rule.

(c) The tax credit shall be allowed only for the entity incurring the actual cost of the real property tax. If the real property tax is part of the lease rent and not otherwise specified in the lease agreement, the lessor shall provide the lessee with the amount of the real property tax included as part of the lease rent upon request.

(d) The total aggregate tax credits claimed by all taxpayers pursuant to this section for each taxable year shall not exceed $10,000,000.

(e) If the classification of the important agricultural lands subject to the credit is redesignated, the credit shall no longer be available.

(f) If the credit under this section exceeds the taxpayer's tax payments due for the taxable year, the excess of the credits over tax payments due shall be refunded to the taxpayer; provided that the credit properly claimed by the taxpayer who has no income tax liability shall be paid to the taxpayer; and provided further that no refunds or payments on account of the credits allowed by this section shall be made for amounts less than $1.

All claims for a 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 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 by rule pursuant to chapter 91.

(h) The tax credit allowed under this section shall be available for taxable years beginning after December 31, 2007, and shall not be available for taxable years beginning after December 31, 2027.

(i) Taxpayers claiming the credit under this section shall provide prescribed information to the department of agriculture on an annual basis, upon request, that will enable a quantitative and qualitative assessment of the impact of the tax credit to be determined. The assessment shall be available to the public.

The department of agriculture shall determine on an annual basis if the important agricultural land subject to the credit is in productive agricultural use based on a ten year farm plan submitted to and approved by the department."

SECTION 6. 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 same sum 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 full impact of the important agricultural lands tax credit.

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

PART III

SECTION 7. Chapter 205, part III, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§205- Important agricultural land; residential housing. A landowner of lands qualifying under section 205-44 may develop, construct, and maintain residential dwelling units for farmers, employees, and their families; provided that:

(1) The farmers' dwelling units shall be used exclusively by farmers and their immediate family members who actively and currently farm on the designated important agricultural land upon which the dwelling is situated; provided that the immediate family members of a farmer may live in separate dwelling units situated on the same designated land as the farmer's family's dwelling unit;

(2) The employee dwelling units shall be used exclusively by employees and their immediate family members who actively and currently work on the designated important agricultural land upon which the dwelling is situated; provided that the immediate family members of the employee shall not live in separate dwelling units and shall live with the employee;

(3) The total land area upon which the combined total of farmer and employee dwelling units and all appurtenances are situated shall not occupy more than twenty per cent of the total important agricultural land area controlled by the farmer or the employee's employer;

(4) The farmers' and employee dwelling units meet all applicable building code requirements;

(5) Notwithstanding section 205-4.5(a)(12), the landowner shall not plan or develop a residential subdivision on the designated important agricultural land; and

(6) The plans for farmers' and employee dwelling units shall be supported by agricultural plans that are approved by the department of agriculture."

PART IV

SECTION 8. Section 205-5, Hawaii Revised Statutes, is amended to read as follows:

"§205-5 Zoning. (a) Except as herein provided, the powers granted to counties under section 46-4 shall govern the zoning within the districts, other than in conservation districts. Conservation districts shall be governed by the department of land and natural resources pursuant to chapter 183C.

(b) Within agricultural districts, uses compatible to the activities described in section 205‑2 as determined by the commission shall be permitted; provided that accessory agricultural uses and services described in sections 205‑2 and 205‑4.5 may be further defined by each county by zoning ordinance. Each county shall adopt ordinances setting forth procedures and requirements, including provisions for enforcement, penalties, and administrative oversight, for the review and permitting of agricultural tourism uses and activities as an accessory use on a working farm, or farming operation as defined in section 165‑2; provided that agricultural tourism activities shall not be permissible in the absence of a bona fide farming operation. Ordinances shall include but not be limited to:

(1) Requirements for access to a farm, including road width, road surface, and parking;

(2) Requirements and restrictions for accessory facilities connected with the farming operation, including gift shops and restaurants; provided that overnight accommodations shall not be permitted;

(3) Activities that may be offered by the farming operation for visitors;

(4) Days and hours of operation; and

(5) Automatic termination of the accessory use upon the cessation of the farming operation.

Each county may require an environmental assessment under chapter 343 as a condition to any agricultural tourism use and activity. Other uses may be allowed by special permits issued pursuant to this chapter. The minimum lot size in agricultural districts shall be determined by each county by zoning ordinance, subdivision ordinance, or other lawful means; provided that the minimum lot size for any agricultural use shall not be less than one acre, except as provided herein. If the county finds that unreasonable economic hardship to the owner or lessee of land cannot otherwise be prevented or where land utilization is improved, the county may allow lot sizes of less than the minimum lot size as specified by law for lots created by a consolidation of existing lots within an agricultural district and the resubdivision thereof; provided that the consolidation and resubdivision do not result in an increase in the number of lots over the number existing prior to consolidation; and provided further that in no event shall a lot which is equal to or exceeds the minimum lot size of one acre be less than that minimum after the consolidation and resubdivision action. The county may also allow lot sizes of less than the minimum lot size as specified by law for lots created or used for plantation community subdivisions as defined in section 205‑4.5(a)(12), for public, private, and quasi-public utility purposes, and for lots resulting from the subdivision of abandoned roadways and railroad easements.

(c) The minimum lot size on designated important agricultural lands shall be acres; provided that if a lot on designated important agricultural lands is less than acres, one farm dwelling shall be permitted on that lot.

[~~(c)~~] (d) Unless authorized by special permit issued pursuant to this chapter, only the following uses shall be permitted within rural districts:

(1) Low density residential uses;

(2) Agricultural uses;

(3) Golf courses, golf driving ranges, and golf-related facilities; and

(4) Public, quasi-public, and public utility facilities.

In addition, the minimum lot size for any low density residential use shall be one-half acre and there shall be but one dwelling house per one-half acre, except as provided for in section 205-2."

PART V

SECTION 9. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 10. This Act shall take effect on July 1, 2020; provided that sections 1 and 5 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. 3