HB2821

SECTION 1. In 1978, voters approved article XI, section 3, of the Constitution of the State of Hawaii, which set out the framework for state policies to promote agriculture and the conservation of productive agricultural lands in the State. Article XI, section 3, reads as follows:

"The State shall conserve and protect agricultural lands, promote diversified agriculture, increase agricultural self sufficiency and assure the availability of agriculturally suitable lands. The legislature shall provide standards and criteria to accomplish the foregoing.

Lands identified by the State as important agricultural lands needed to fulfill the purposes above shall not be reclassified by the State or rezoned by its political subdivisions without meeting the standards and criteria established by the legislature and approved by a two-thirds vote of the body responsible for the reclassification or rezoning action."

To address the issue of important agricultural lands, Act 183, Session Laws of Hawaii 2005, was enacted. Act 183 established standards, criteria, and mechanisms to identify important agricultural lands and to implement the intent and purpose of article XI, section 3, of the Hawaii state constitution.

Act 183 also recognized that while the supply of lands suitable for agriculture is critical, the long-term viability of agriculture also depends on other factors. These factors include:

(1) Commodity prices;

(2) Availability of water for irrigation;

(3) Agricultural research and outreach;

(4) Application of production technologies;

(5) Marketing; and

(6) Availability and cost of transportation services.

Hawaii's agricultural producers face operating costs that increasingly threaten the viability of their agricultural operations and the sustainability of agriculture in Hawaii. The legislature further finds that opportunities should be made for farmers and landowners with the ability to promote the long-term viability of the agricultural use of land.

Therefore, the intent of this Act is to provide for the development of incentives for agricultural viability in Hawaii, particularly for agricultural businesses that farm important agricultural lands and for landowners of important agricultural lands. This incentive mechanism would be designed to promote the retention of important agricultural lands for viable agricultural use over the long term.

The purpose of this Act is to further implement Act 183 and provide for an important agricultural land tax credit.

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

"§235- Important agricultural land tax credit. (a) There shall be allowed to each individual or corporate taxpayer who is not claimed, or is not otherwise eligible to be claimed as a dependent by another taxpayer for federal or state income tax purposes, an important agricultural land tax credit that shall be deductible from the taxpayer's net income tax liability imposed by this chapter for the taxable year in which the tax credit is properly claimed.

The tax credit shall apply as follows:

(1) In the year in which the qualified agricultural costs are incurred, the tax credit shall be fifty per cent of the qualified agricultural costs, up to a maximum of $ ;

(2) In the first year following the year in which the qualified agricultural costs are incurred, the tax credit shall be twenty per cent of the qualified agricultural costs, up to a maximum of $ ;

(3) In the second, third, and fourth years following the year in which the qualified agricultural costs are incurred, the tax credit shall be ten per cent of the qualified agricultural costs, up to a maximum of $ .

(b) No other credit may be claimed under this chapter for the qualified agricultural costs for which a credit is claimed under this section for the taxable year.

(c) The amount of the qualified agricultural costs eligible to be claimed under this section shall be reduced by the amount of funds received by the taxpayer during the taxable year from the irrigation repair and maintenance special fund under section 167-24.

(d) The cost upon which the tax credit is computed shall be determined at the entity level. In the case of a partnership, S corporation, estate, trust, or other pass through entity, distribution and share of the credit shall be determined pursuant to section 235-110.7(a).

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 qualified agricultural cost for which the deduction is taken.

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. No deduction shall be allowed for that portion of otherwise deductible qualified agricultural costs on which a credit is claimed under this section.

(e) If the tax credit under this section exceeds the taxpayer's net income tax liability for the taxable year, the excess of the credit over liability shall be refunded to the taxpayer; provided 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 tax credit under this section, including amended claims, shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit is claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(f) Prior to claiming the tax credit under this section, the taxpayer may request a letter from the department of agriculture specifying the qualified agricultural costs in the taxable year the tax credit will be claimed. The taxpayer shall provide to the department of agriculture the information required by the department of agriculture prior to the issuance of the letter.

(g) The department of agriculture, in consultation with the department of taxation, shall determine the types of information that are necessary on an annual basis to enable a quantitative and qualitative assessment of the outcomes of the tax credit to be determined. Every taxpayer, no later than the last day of the taxable year following the close of the taxpayer's taxable year in which qualified costs were incurred, shall submit a written statement containing the information to, and certified by the department of agriculture.

Any taxpayer failing to submit a statement to the department of agriculture in the manner prescribed by the department of agriculture prior to the last day of the taxable year following the close of the taxpayer's taxable year in which qualified costs were incurred shall be ineligible to receive the tax credit, and any credit already claimed for that taxable year shall be recaptured in total. The amount of the recaptured tax credit shall be added to the taxpayer's tax liability for the taxable year in which the recapture occurs.

Notwithstanding any law to the contrary, a statement submitted under this subsection shall be a public document.

(h) As used in this section:

"Agricultural business" means any person with a commercial agricultural, silvicultural, or aquacultural facility or operation, including:

(1) The care and production of livestock and livestock products, poultry and poultry products, apiary products, and plant and animal production for nonfood uses;

(2) The planting, cultivating, harvesting, and processing of crops; and

(3) The farming or ranching of any plant or animal species in a controlled salt, brackish, or freshwater environment;

provided that the principal place of the business is maintained in the State and more than fifty per cent of the land the agricultural business owns or leases, excluding land classified as conservation land, is important agricultural land.

"Important agricultural land" means lands identified and designated as important agricultural lands pursuant to chapter 205, part III.

"Net income tax liability" means income tax liability reduced by all other credits allowed under this chapter.

"Qualified agricultural costs" means expenditures for:

(1) The plans, design, engineering, construction, renovation, repair, maintenance, and equipment for:

(A) Roads or utilities, primarily for agricultural purposes, for which the majority of the lands serviced by the roads or utilities, excluding lands classified as conservation lands, are important agricultural lands;

(B) Agricultural processing facilities in the State, primarily for agricultural purposes, that process, harvest, treat, wash, handle, or package a majority of crops or livestock from agricultural businesses;

(C) Water wells, reservoirs, dams, water storage facilities, water pipelines, ditches, or irrigation systems in the State, primarily for agricultural purposes, for which the majority of the lands serviced by its water, excluding lands classified as conservation lands, are important agricultural lands; and

(D) Agricultural housing in the State, primarily for agricultural purposes, provided that:

(i) The majority of the housing units are occupied by laborers for agricultural businesses and their immediate family members;

(ii) The housing units are owned by the agricultural business;

(iii) The housing units are in the general vicinity, as determined by the department of agriculture, of important agricultural lands owned or leased by the agricultural business; and

(iv) The housing units conform to any other conditions that may be required by the department of agriculture;

(2) Feasibility studies, regulatory processing, and legal and accounting services related to the items under paragraph (1); and

(3) Equipment, primarily for agricultural purposes, used to cultivate, grow, harvest, or process agricultural products by an agricultural business.

(i) The director of taxation:

(1) Shall prepare forms as may be necessary to claim a tax credit under this section;

(2) May require proof of the claim for the tax credit; and

(3) May adopt rules pursuant to chapter 91 to effectuate the purposes of this section.

(j) The department of agriculture, in consultation with the department of taxation, shall annually submit a report to the legislature evaluating the effectiveness of the tax credit. The report shall include but not be limited to findings and recommendations to improve the effectiveness of the tax credit to further encourage the development of agricultural businesses."

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 2008-2009 to the department of taxation for the costs to administer the important agricultural land tax credit.

The sum appropriated shall be expended by the department of taxation for the purposes of this Act.

SECTION 4. 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 2008-2009 to the department of agriculture for the costs to administer the important agricultural land tax credit and for one full-time equivalent planner position.

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

SECTION 5. New statutory material is underscored.

SECTION 6. This Act shall take effect upon its approval; provided that:

(1) Section 1 of the Act shall apply to taxable years beginning after December 31, 2007; and

(2) Sections 3 and 4 of the Act shall take effect on July 1, 2008.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	2821
TWENTY-FOURTH LEGISLATURE, 2008
STATE OF HAWAII