SB1303

SECTION 1. The historic important agricultural lands Act (Act 183, Session Laws of Hawaii 2005) mandates the State and counties to develop and implement incentives to promote the long-term use and protection of designated important agricultural lands for agricultural use in Hawaii.

These incentives are intended to promote investment in and the long-term use and protection of designated important agricultural lands for agricultural use in Hawaii by farmers, landowners, and others through the reduction of risks and costs that affect the viability of agricultural businesses and the retention of agricultural land.

The incentives proposed include a tax credit for infrastructure improvements, exclusion from income tax and exemption from general excise tax collected on leases of important agricultural lands, expanded agribusiness assistance through a guaranty loan program, and priority processing for air quality permits for certain facilities located on or related to important agricultural lands.

The overall package requires a substantial and sustained investment by the State, estimated at $5 million in the first year and $10 million in the second year after the legislature has adopted the most broadly supported incentives.

There is need for close scrutiny of all incentives to ensure that enhanced agricultural activity and viability occurring on designated important agricultural lands is commensurate with the State's expectations. Under this Act, the department of agriculture and the department of taxation will develop a process to share data in order for the department of agriculture to monitor, evaluate, and report on the status and performance of incentives on a regular basis.

The department of agriculture shall have the authority to obtain and analyze data presented by individuals and organizations to the department of taxation who utilize the incentives. The department of agriculture shall also have the authority to request additional information in order to provide certification of eligibility for the incentives and to report on the outcomes of the incentives and their effectiveness. The department of agriculture shall maintain the confidentiality of information provided unless specifically waived by the individual or organization utilizing the incentives.

SECTION 2. Chapter 36, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§36- Guaranty loan program for important agricultural lands. (a) The director of finance may guaranty loans to farmers, landowners, associations, and cooperatives from commercial lenders authorized to do business in the State for the purpose of developing agricultural and aquacultural operations and infrastructure on lands designated as important agricultural lands, when the director determines that:

(1) The project is located on important agricultural lands;

(2) The intent of the project is agricultural or aquacultural; and

(3) The lender has properly determined that the applicant and project qualifies, the lender's analysis is complete and sound, and there is adequate collateral.

(b) In addition to any other conditions that the director of finance may impose, any loan made pursuant to this section shall be subject to the following conditions:

(1) The maximum term for operating loans shall be ten years. The maximum term for capital improvement loans shall be twenty years;

(2) The interest rate charged shall be one per cent below the lender's prime rate as long as the guaranty is in effect;

(3) The guaranty may be up to eighty-five per cent of the principal amount but shall not include any fees or accrued interest associated with the loan or its collection;

(4) The State will not charge any fees for the guaranty; and

(5) The director determines there are sufficient moneys of the State to provide a proper reserve for the guaranties which in the director's judgment are in excess of the amounts necessary for meeting the immediate requirements of the State and where in the director's judgment will not impede or hamper the necessary financial obligations of the State."

SECTION 3. 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 infrastructure tax credit. (a) There shall be allowed to each person subject to the tax imposed by this chapter, an income tax credit, which shall be deductible from that person's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed.

The amount of the credit shall be one hundred per cent of any expenditure certified by the department of agriculture pursuant to this section as a qualified expenditure. Qualified expenditures are:

(1) Expenditures for planning, design, construction, renovation, or equipment incurred during the taxable year for any of the following:

(A) Roads or utilities, including distributed power generation facilities serving an agribusiness with a portion of lands utilized in the business identified and designated as important agricultural lands pursuant to part III of chapter 205;

(B) Agricultural processing facilities that processes crops or livestock from an agribusiness with a portion of lands utilized in the business identified and designated as important agricultural lands pursuant to part III of chapter 205;

(C) Water wells, reservoirs, dams, water storage facilities, water pipelines, ditches, or irrigation systems for which the lands serviced by these assets are identified and designated as important agricultural lands pursuant to part III of chapter 205;

(D) Agricultural housing specifically for laborers of an agribusiness with a portion of lands utilized in the business identified and designated as important agricultural lands pursuant to part III of chapter 205; and

(2) The costs incurred during a taxable year for equipment necessary to cultivate, grow, or harvest agricultural products by an agribusiness with a portion of lands utilized in the business identified and designated as important agricultural lands pursuant to part III of chapter 205.

Except as otherwise set forth in this section, tax credits shall not be calculated on the construction or renovation costs for which another credit was claimed under this chapter for the taxable year.

The cost upon which the tax credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined by rule.

If a deduction is taken under section 179 of the Internal Revenue Code of 1986, no tax credit shall be allowed for that portion of the construction or renovation 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. In the alternative, the taxpayer shall treat the amount of the credit allowable and claimed as a taxable income item for the taxable year in which it is properly recognized under the method of accounting used to compute taxable income.

(b) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year.

(c) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. 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 may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(d) The director of taxation shall prepare any 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 and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.

(e) Taxpayers claiming the credit 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 board of agriculture shall adopt rules pursuant to chapter 91 to effectuate the purposes of this section.

(f) 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, 2017."

SECTION 4. 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 exclusion from income and exemption from general excise tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter an exclusion from gross income for rental income derived from agricultural leases on important agricultural lands pursuant to part III of chapter 205. The exclusion shall be from the taxpayer's gross income, if any, for the taxable year in which rental income was recognized. The exclusion shall only be applied to lease rents collected from lessees of important agricultural lands.

The exclusion shall be allowed provided that the minimum length of the lease term shall be established at twenty years, or less if mutually agreeable to both the lessor and lessee. The amount of the lease rent may be set by negotiation or, if mutually agreeable, an independent appraisal, using the lower of the comparable value or agricultural capitalization appraisal methodologies. Lease rents from the important agricultural lands will be eligible for the exclusion for up to twenty years from the date of enactment.

(b) Taxpayers claiming the exclusion must provide prescribed information to the department of agriculture on an annual basis that will enable an aggregated quantitative and qualitative assessment of the impact of the exemptions to be conducted as prescribed in rules. The board of agriculture shall adopt rules pursuant to chapter 91 to effectuate the purposes of this section."

SECTION 5. 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 received as a beverage container deposit collected under chapter 342G, part VIII.

As a further addition to the amounts exempt under section 237-24, this chapter shall not apply to amounts received as lease rents from lessees of important agricultural lands provided that that the minimum length of the lease term shall be established at twenty years, or less if mutually agreeable to both the lessor and lessee. The amount of the lease rent may be set by negotiation or, if mutually agreeable, independent appraisal, using the lower of the comparable value or agricultural capitalization appraisal methodologies. The lessor will be eligible for the general excise tax exemption for up to twenty years from the date of enactment.

Taxpayers claiming the exclusion must provide prescribed information to the department of agriculture on an annual basis that will enable an aggregated quantitative and qualitative assessment of the impact of the exemptions to be conducted as prescribed in rules."

SECTION 6. Section 342B-24, Hawaii Revised Statutes, is amended to read as follows:

"§342B-24 Action on a permit application. (a) Within sixty days of receipt of an application the department shall give the applicant written notice that the application is complete, or give the applicant written notice of incompleteness outlining additional information requirements.

(b) The department shall take final action on each permit application within eighteen months after the application is determined or deemed to be complete, except that in each of the first three years of the permit program the department need only act on one third of the permit applications submitted during the first year of the permit program. The department may prioritize final action on applications for construction or modification.

(d) For each application for a covered source permit the director shall provide public notice, including the method by which a public hearing can be requested, and an opportunity for public comments in accordance with section 342B-13.

(e) The department shall establish and implement a procedure for the priority processing of permit applications and renewals for agricultural processing facilities that process crops or livestock from an agribusiness with a majority of the lands held, owned, or utilized by the agribusiness which lands are identified and designated as important agricultural lands pursuant to part III of chapter 205, but excluding lands held, owned, or utilized by the agribusiness in the conservation district. Such priority processing shall be done at no additional cost to the applicant.

Any priority permit processing procedure established pursuant to this subsection shall not imply or provide that any permit application filed under the priority processing procedure shall be automatically approved."

SECTION 7. Total tax credits or financial incentives allowed pursuant to this Act shall not exceed $5,000,000 for fiscal year 2007-2008 and $10,000,000 for fiscal year 2008-2009.

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect on January 1, 2008.

INTRODUCED BY:

_____________________________

BY REQUEST

THE SENATE	S.B. NO.	1303
TWENTY-FOURTH LEGISLATURE, 2007
STATE OF HAWAII