SB2646 HD2

PART I

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, 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 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, including:

(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.

The purpose of this Act is to establish a variety of incentives that meet the requirements of Act 183 by:

(1) Providing incentives and protections to establish and sustain viable agricultural operations on important agricultural lands; and

(2) Providing for the designation of important agricultural lands on public lands by:

(A) Requiring the department of agriculture and department of land and natural resources to jointly identify the state-owned lands that should be designated as "important agricultural lands"; and

(B) Transferring management authority over those lands to the department of agriculture.

PART II

SECTION 2. 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, in an amount not to exceed $ that is received by a taxpayer subject to the taxes imposed by this chapter and derived from agricultural leases on lands identified and designated as important agricultural lands pursuant to part III of 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 mutually agreeable to the 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 further 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 used for agribusiness.

The taxpayer shall be eligible for the exclusion 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 in a manner prescribed by, the department of agriculture to enable an aggregated quantitative and qualitative assessment of the impact of the exclusion.

(1) Maintain records of the total amount of rental income excluded from gross income pursuant to this section for each taxpayer claiming an exclusion;

(2) Verify the amount of the exclusion claimed;

(3) Total all qualified exclusions claimed; and

(4) Certify the total amount of the exclusion for each taxable year and the cumulative amount of all exclusions claimed during the taxable period.

Upon each determination, the department of agriculture shall issue a certificate to the taxpayer verifying the exclusions, the amount of the exclusion certified for each taxable year, and the cumulative amount of the exclusions during the credit period. The taxpayer shall file the certificate with the taxpayer's tax return with the department of taxation. Notwithstanding the department of agriculture's certification authority under this section, the director of taxation may audit and adjust exclusions to conform to the facts.

If in any year, the annual amount of rental income from agricultural leases on important agricultural lands excluded from gross income reaches $2,500,000 in the aggregate, the department of agriculture shall immediately discontinue certifying exclusions and notify the department of taxation. In no instance shall the total amount of certified exclusions exceed $2,500,000 per year. Notwithstanding any other law to the contrary, this information shall be available for public inspection and dissemination under chapter 92F.

(d) For the purposes of this section:

"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 3. 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:

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

(2) Amounts received by the operator of the Hawaii convention center for reimbursement of costs or advances made pursuant to a contract with the Hawaii tourism authority under section 201B‑7[~~[; and]~~]

[[](3) Amounts received[]] by a professional employment organization from a client company equal to amounts that are disbursed by the professional employment organization for employee wages, salaries, payroll taxes, insurance premiums, and benefits, including retirement, vacation, sick leave, health benefits, and similar employment benefits with respect to assigned employees at a client company; provided that this exemption shall not apply to a professional employment organization upon failure of the professional employment organization to collect, account for, and pay over any income tax withholding for assigned employees or any federal or state taxes for which the professional employment organization is responsible. As used in this paragraph, "professional employment organization", "client company", and "assigned employee" shall have the meanings provided in section 373K-1[.]; and

(4) Amounts received as lease rents as provided in section 235- in an amount not to exceed $2,500,000 in the aggregate as provided by rule adopted pursuant to chapter 91. Any rules adopted pursuant to this paragraph shall include a provision that the income exemption shall apply only until the tax department has exempted an aggregate amount of $2,500,000 for any single tax year beginning after December 31, 2008."

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

SECTION 5. The department of taxation, in consultation with 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 2010, 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 III

SECTION 6. Chapter 205, Hawaii Revised Statutes, is amended by adding a new section to part III to be appropriately designated and to read as follows:

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

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

(2) Employee dwelling units shall be used exclusively by employees and their immediate family members who actively and currently work on important agricultural land upon which the dwelling is situated; provided further 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 farmer and employee dwelling units and all appurtenances are situated shall not occupy more than 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 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 7. Tax incentives are a critical component of the long-term viability of agriculture on important agricultural lands in the state. The legislature finds that it is in the public's interest to assist agricultural businesses in establishing and sustaining viable agricultural operations on important agricultural lands by providing incentives such as income tax credits.

The purpose of this part is to establish an important agricultural land qualified agricultural cost tax credit to establish and sustain viable agricultural operations on important agricultural lands.

SECTION 8. 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 qualified agricultural cost tax credit. (a) There shall be allowed to each taxpayer, an important agricultural land qualified agricultural cost 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. The tax credit shall apply as follows:

(1) In the year qualified agricultural costs are incurred, fifty per cent of the qualified agricultural costs up to a maximum of $625,000;

(2) In the first year following the year in which qualified agricultural costs are incurred, twenty per cent of the qualified agricultural costs up to a maximum of $250,000;

(3) In the second year following the year in which qualified agricultural costs are incurred, ten per cent of the qualified agricultural costs up to a maximum of $125,000;

(4) In the third year following the year in which qualified agricultural costs are incurred, ten per cent of the qualified agricultural costs up to a maximum of $125,000; and

(5) In the fourth year following the year in which qualified agricultural costs are incurred, ten per cent of the qualified agricultural costs up to a maximum of $125,000.

(b) No other credit may be claimed under this chapter for 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 a deduction was 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 credit under this section exceeds the taxpayer's net income tax liability for the taxable year, the excess of the 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 is claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(f) The director of taxation:

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

(2) May require the taxpayer to furnish information to ascertain the validity of the claim for credit made under this section; and

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

(g) The department of agriculture shall:

(1) Maintain records of the total amount of qualified agricultural costs for each taxpayer claiming a credit;

(2) Verify the amount of the qualified agricultural costs claimed;

(3) Total all qualified agricultural costs claimed; and

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

Upon each determination, the department of agriculture shall issue a certificate to the taxpayer verifying the qualifying agricultural costs, the credit amount certified for each taxable year, and the cumulative amount of the tax credit during the credit period. The taxpayer shall file the certificate with the taxpayer's tax return with the department of taxation. Notwithstanding the department of agriculture's certification authority under this section, the director of taxation may audit and adjust certification to conform to the facts.

If in any year, the annual amount of certified credits reaches $2,500,000 in the aggregate, the department of agriculture shall immediately discontinue certifying credits and notify the department of taxation. In no instance shall the total amount of certified credits exceed $2,500,000 per year. Notwithstanding any other law to the contrary, this information shall be available for public inspection and dissemination under chapter 92F.

(h) The department of agriculture, in consultation with the department of taxation, shall annually determine the information necessary to provide a quantitative and qualitative assessment of the outcomes of the tax credit. 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 to and certified by the department of agriculture. Failure to provide the information shall result in ineligibility and a recapture of any credit already claimed for that taxable year. 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.

(i) The department of agriculture, in consultation with the department of taxation, shall annually submit a report 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.

(j) 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 agricultural 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 lands" means lands identified and designated as important agricultural lands pursuant to part III of chapter 205.

"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, where 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, where the majority of the crops or livestock processed, harvested, treated, washed, handled, or packaged are from agricultural businesses;

(C) Water wells, reservoirs, dams, water storage facilities, water pipelines, ditches, or irrigation systems in the state, primarily for agricultural purposes, providing water for lands, the majority of which, 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 farmers or employees 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 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);

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

(4) Regulatory processing, studies, and legal and other consultant services related to obtaining or retaining sufficient water for agricultural activities and retaining the right to farm on lands identified as important agricultural lands."

SECTION 9. The department of taxation, in consultation with 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 2010, regarding the quantitative and qualitative assessment of the impact of the important agricultural land qualified agricultural cost tax credit.

SECTION 10. 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 for the department of taxation to administer the important agricultural land qualified agricultural cost tax credit.

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

SECTION 11. 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 for the department of agriculture to administer the important agricultural land qualified agricultural cost tax credit and for one full time equivalent planner position for the department of agriculture.

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

PART V

SECTION 12. Financing is also a critical component of the long-term viability of agriculture on important agricultural lands in the state. The legislature finds that it is in the public interest to assist agricultural producers in meeting their financing needs for projects that are located on important agricultural lands.

The purpose of this part is to further implement Act 183, Session Laws of Hawaii 2005, by authorizing the chairperson of the board of agriculture to guarantee loans relating to agricultural projects located on important agricultural lands.

SECTION 13. Chapter 155, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§155- Loan guaranty; important agricultural lands; agricultural and aquacultural loans. (a) The chairperson of the board of agriculture may guarantee loans made by commercial lenders authorized to do business in this state, to agricultural producers for the purpose of developing and implementing agricultural projects; provided that the chairperson of the board of agriculture shall determine that:

(1) The agricultural projects are located on lands designated as important agricultural lands pursuant to part III of chapter 205;

(2) The commercial lender has completed its due diligence in approving the loan, including ensuring adequate collateral; and

(3) After consultation with the director of finance, the State possesses sufficient funds to provide an appropriate reserve for the loan guaranty and which, in the director of finance's judgment, are in excess of the amounts necessary for meeting the immediate requirements of the State and will not impede or hamper the fulfillment of the financial obligations of the State.

The chairperson of the board of agriculture may impose other conditions that the chairperson deems reasonable to implement the loan guaranty.

(b) In addition to the conditions that the chairperson of the board of agriculture may impose under subsection (a), any loan guaranty made pursuant to this section shall meet the following conditions:

(1) For any loan that finances operating costs, the maximum term of the loan shall be ten years;

(2) For any loan that finances capital improvement costs, the maximum term of the loan shall be twenty years;

(3) The interest rate charged on any loan shall be one per cent below the commercial lender's prime rate for as long as the loan guaranty is in effect;

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

(5) The total amount of the guaranty on all loans in any tax year shall not exceed $2,500,000.

(d) As used in this section:

"Agricultural producer" means a farmer, cooperative association, or landowner who derives at least fifty per cent of its gross income from agricultural or aquacultural activities.

"Agricultural project" means a project relating to agricultural or aquacultural operations or capital improvements."

SECTION 14. The department of taxation, in consultation with 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 2010, that provides a quantitative and qualitative assessment of the impact of the loan guaranty program established in section 155- , Hawaii Revised Statutes.

PART VI

SECTION 15. Section 174C-31, Hawaii Revised Statutes, is amended by amending subsections (e) and (f) to read as follows:

"(e) The department of agriculture shall prepare a state agricultural water use and development plan for agricultural uses in the [~~State~~] state in accordance with chapter 167 and this chapter, and subsequently modify and update the plan as necessary. The state agricultural water use and development plan shall include but not be limited to a master irrigation inventory plan which shall:

(1) Inventory [~~the~~] public and private irrigation water systems;

(2) Identify the extent of rehabilitation needed for each system;

(3) Identify sources of water used by agricultural operations and particularly those on lands identified and designated as important agricultural lands under part III of chapter 205;

(4) Identify current and future water needs for agricultural operations on lands identified and designated as important agricultural lands under part III of chapter 205;

[~~(3)~~] (5) Subsidize the cost of repair and maintenance of the systems;

[~~(4)~~] (6) Establish criteria to prioritize the rehabilitation of the systems;

[~~(5)~~] (7) Develop a five-year program to repair the systems; and

[~~(6)~~] (8) Set up a long-range plan to manage the systems.

The commission shall coordinate the incorporation of the state agricultural water use and development plan into the state water projects plan.

(f) Each county water use and development plan shall include but not be limited to:

(1) Status of water and related land development, including an inventory of existing water uses for domestic, municipal, and industrial users, agriculture, particularly agriculture on lands designated as important agricultural lands under part III of chapter 205, aquaculture, hydropower development, drainage, reuse, reclamation, recharge, and resulting problems and constraints;

(2) Future land uses and related water needs; and

(3) Regional plans for water developments, including recommended and alternative plans, costs, adequacy of plans, and relationship to the water resource protection and water quality plans."

PART VII

SECTION 16. Chapter 205, Hawaii Revised Statutes, is amended by adding a new section to part III to be appropriately designated and to read as follows:

"§205- Agricultural processing facilities; permits; priority. (a) Any agency subject to this chapter or title 13 that issues permits shall establish and implement a procedure for the priority processing of permit applications and renewals, at no additional cost to the applicant, for agricultural processing facilities that process crops or livestock from an agribusiness; provided that the majority of the lands held, owned, or used by the agribusiness shall be land designated as important agricultural lands pursuant to this part, excluding lands held, owned, or used by the agribusiness in a conservation district.

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

(b) As used in this section, "agribusiness" means a business primarily engaged in the care and production of livestock, livestock products, poultry, poultry products, apiary, horticultural or floricultural products, or the planting, cultivating, and harvesting of crops or trees."

SECTION 17. Chapter 321, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§321- Agricultural processing facilities; permits; priority. (a) Any agency subject to this chapter or title 19 that issues permits shall establish and implement a procedure for the priority processing of permit applications and renewals, at no additional cost to the applicant, for agricultural processing facilities that process crops or livestock from an agribusiness; provided that the majority of the lands held, owned, or used by the agribusiness shall be land designated as important agricultural lands pursuant to part III of chapter 205, excluding lands held, owned, or used by the agribusiness in a conservation district.

PART VIII

SECTION 18. The legislature declares that this Act establishes incentives for the designation of important agricultural lands in satisfaction of section 205-46, Hawaii Revised Statutes, and section 9 of Act 183, Session Laws of Hawaii 2005.

PART IX

SECTION 19. Chapter 205, Hawaii Revised Statutes, is amended by adding a new section to part III to be appropriately designated and to read as follows:

"§205‑ Important agricultural lands; public lands. (a) Notwithstanding any law to the contrary, before December 31, 2009, the department of agriculture and the department of land and natural resources shall collaborate to identify public lands as defined under section 171‑2 that should be designated important agricultural lands as defined in section 205‑42 and shall cause to be prepared maps delineating those lands. In making the designations, the departments shall use the standards and criteria of section 205-44.

(b) The designation of important agricultural lands pursuant to this section shall not be subject to the district boundary amendment procedures of section 205-3.1 or 205-4 or declaratory order procedures of section 205-45.

(c) Notwithstanding any law to the contrary, beginning January 1, 2010, after receipt of the maps of public lands identified as important agricultural lands pursuant to subsection (a), the commission shall designate the public lands as important agricultural lands and adopt the maps of those public lands. Upon designation, the public lands shall be subject to this chapter."

SECTION 20. Section 141-1, Hawaii Revised Statutes, is amended to read as follows:

"§141-1 Duties in general. The department of agriculture shall:

(1) Gather, compile, and tabulate, from time to time, information and statistics concerning:

(A) Entomology and plant pathology: Insects, scales, blights, and diseases injurious[,] or liable to become injurious[,] to trees, plants, or other vegetation, and the ways and means of exterminating pests and diseases already in the [~~State~~] state and preventing the introduction of [~~those~~] pests and diseases not yet here; and

(B) General agriculture: Fruits, fibres, and useful or ornamental plants and their introduction, development, care, and manufacture or exportation, with a view to introducing, establishing, and fostering new and valuable plants and industries;

(2) Encourage and cooperate with the agricultural extension service and agricultural experiment station of the University of Hawaii and all private persons and organizations doing work of an experimental or educational character coming within the scope of the subject matter of chapters 141, 142, and 144 to 150A, and avoid, as far as practicable, duplicating the work of those persons and organizations;

(3) Enter into contracts, cooperative agreements, or other transactions with any person, agency, or organization, public or private, as may be necessary in the conduct of the department's business and on such terms as the department may deem appropriate; provided that the department shall not obligate any funds of the State, except the funds that have been appropriated to the department. Pursuant to cooperative agreement with any authorized federal agency, employees of the cooperative agency may be designated to carry out, on behalf of the State the same as department personnel, specific duties and responsibilities under chapters 141, 142, 150A, and rules adopted pursuant to those chapters, for the effective prosecution of pest control[,] and animal disease control[,] and the regulation of import into the [~~State~~] state and intrastate movement of regulated articles;

(4) Secure copies of the laws of other states, territories, and countries, and other publications germane to the subject matters of chapters 141, 142, and 144 to 150A, and make laws and publications available for public information and consultation;

(5) Provide buildings, grounds, apparatus, and appurtenances necessary for the examination, quarantine, inspection, and fumigation provided for by chapters 141, 142, and 144 to 150A; for the obtaining, propagation, study, and distribution of beneficial insects, growths, and antidotes for the eradication of insects, blights, scales, or diseases injurious to vegetation of value and for the destruction of injurious vegetation; and for carrying out any other purposes of chapters 141, 142, and 144 to 150A;

(6) Formulate and recommend to the governor and legislature additional legislation necessary or desirable for carrying out the purposes of chapters 141, 142, and 144 to 150A;

(7) Publish at the end of each year a report of the expenditures and proceedings of the department and of the results achieved by the department, together with other matters germane to chapters 141, 142, and 144 to 150A[,] and [~~which~~] that the department may deem proper;

(8) Administer a program of agricultural planning and development, including the formulation and implementation of general and special plans, including but not limited to the functional plan for agriculture; administer the planning, development, and management of the agricultural park program; plan, construct, operate, and maintain the state irrigation water systems; review, interpret, and make recommendations with respect to public policies and actions relating to agricultural land and water use; assist in research, evaluation, development, enhancement, and expansion of local agricultural industries; and serve as liaison with other public agencies and private organizations for the above purposes. In the foregoing, the department [~~of agriculture~~] shall act to conserve and protect agricultural lands and irrigation water systems, promote diversified agriculture, increase agricultural self-sufficiency, and ensure the availability of agriculturally suitable lands[.]; and

(9) Manage, administer, and exercise control over any public lands, as defined under section 171‑2, that are designated important agricultural lands pursuant to section 205‑ , including but not limited to establishing priorities for the leasing of these public lands within the department's jurisdiction."

SECTION 21. Section 171-3, Hawaii Revised Statutes, is amended to read as follows:

"§171-3 Department of land and natural resources. (a) The department of land and natural resources shall be headed by an executive board to be known as the board of land and natural resources. The department shall manage, administer, and exercise control over public lands, the water resources, ocean waters, navigable streams, coastal areas (excluding commercial harbor areas), and minerals and all other interests therein and exercise such powers of disposition thereof as may be authorized by law. The department shall also manage and administer the state parks, historical sites, forests, forest reserves, aquatic life, aquatic life sanctuaries, public fishing areas, boating, ocean recreation, coastal programs, wildlife, wildlife sanctuaries, game management areas, public hunting areas, natural area reserves, and other functions assigned by law.

(b) Notwithstanding subsection (a), beginning January 1, 2010, the authority to manage, administer, and exercise control over any public lands that are designated important agricultural lands pursuant to section 205‑ , shall be transferred to the department of agriculture."

SECTION 22. All appropriations, records, equipment, machines, files, supplies, contracts, books, papers, documents, maps, and other personal property heretofore made, used, acquired, or held by the department of land and natural resources relating to the functions transferred to the department of agriculture shall be transferred by this Act with the functions to which they relate.

PART X

SECTION 23. Section 235-2.45, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:

"(d) Section 704 of the Internal Revenue Code (with respect to a partner's distributive share) shall be operative for purposes of this chapter; except that section 704(b)(2) shall not apply to:

(1) Allocations of the high technology business investment tax credit allowed by section 235-110.9;

(2) Allocations of net operating loss pursuant to section 235-111.5; or

[~~(3)~~ ~~Allocations of the attractions and educational facilities tax credit allowed by section 235-110.46;~~ or

~~(4)~~] (3) Allocations of low-income housing tax credits among partners under section 235-110.8."

SECTION 24. Section 235-110.46, Hawaii Revised Statutes, is repealed.

["~~[§235-110.46] Attractions and educational facilities tax credit; Ko Olina Resort and Marina; Makaha Resort.~~ (a) There shall be allowed to each qualified taxpayer subject to the taxes imposed by this chapter or chapter 237, 237D, 238, 239, 241, or 431, a tax credit [that] may be claimed for taxable years beginning after December 31, 2004, for qualified costs in the development of facilities for attractions and educational purposes at Ko Olina Resort and Marina and at Makaha Resort. The tax credit shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter and, at the election of the taxpayer, from the tax liability imposed by chapters 237, 237D, 238, 239, 241, and 431.

(b) The tax credit earned shall be equal to the qualified costs incurred from June 1, 2003, through May 31, 2009, up to a maximum of $75,000,000 of credits in the aggregate for all qualified taxpayers for all years; provided that notwithstanding the amount of tax credits earned in any year, a maximum of $7,500,000 of tax credits in the aggregate for all qualified taxpayers may be used in any one taxable year. The credits over $7,500,000 shall be used as provided in subsection (d). In the case of a partnership, limited liability company, S corporation, estate, trust, or association of apartment owners, the tax credit allowable is for qualified costs incurred by the entity. The costs upon which the tax credit is computed shall be determined at the entity level.

~~(c) To qualify for the tax credit, a taxpayer shall:~~

~~(1)~~ ~~Have expended qualified costs on and be developing a world-class aquarium and marine science and mammal research facility at Ko Olina Resort and Marina; and~~

(2) Dedicate one-half of the net operating income of the world-class aquarium to the State, beginning on the first day of the seventeenth year following the year in which the attractions and educational facilities credit was first taken; or

~~(3)~~ Acquire or own the Makaha Resort, and lease or sell a portion of the Makaha Resort for use as training and educational facilities for a period of not less than six years to a taxpayer meeting the requirements of subsection (c)(1).

(d) If the tax credit under this section exceeds $7,500,000 in the aggregate for all qualified taxpayers for any taxable year or exceeds the taxpayer's tax liability under this chapter or chapters 237, 237D, 238, 239, 241, and 431 for any year for which the credit is taken, the excess of the tax credit may be used as a credit against the taxpayer's tax liability for the taxes set forth in this section in subsequent years until exhausted; provided that the taxpayer may continue to claim the credit provided in this section if the qualified costs are incurred before June 1, 2009, subject to the monetary ceilings in subsection (b).

(e) Every claim, including amended claims, for a tax 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.

(f) If, at any time during the six-year period in which tax credits are earned under this section, the costs incurred no longer meet the definition of qualified costs, the credits claimed under this section shall be recaptured. The recapture shall be equal to one hundred per cent of the total tax credits claimed under this section for the preceding taxable year; provided that the amount of the credits recaptured shall apply only to those costs that no longer meet the definition of qualified costs. The amount of the recaptured tax credits determined under this subsection shall be added to the taxpayer's tax liability for the taxable year in which the recapture occurs under this subsection.

(g) If any credit is claimed under this section, then no taxpayer shall claim a credit under any chapter identified in this section for the same qualified costs for which a credit is claimed under this section.

(h) 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 claims for credits made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.

Every qualified taxpayer, no later than March 31 of each year in which qualified costs were expended in the previous taxable year, shall submit a written, certified statement to the director of business, economic development, and tourism, in the form specified by the director of business, economic development, and tourism, identifying:

~~(1)~~ ~~Qualified costs, if any, expended in the previous taxable year;~~

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

~~(3)~~ ~~The tax liability under this chapter and chapters 237, 237D, 238, 239, 241, and 431 against which the tax credits are claimed.~~

~~Any other law to the contrary notwithstanding, a statement submitted under this subsection shall be a public document.~~

(i) The department of business, economic development, and tourism shall maintain records of the names of taxpayers eligible for the credits and the total amount of qualified costs incurred from June 1, 2003, through May 31, 2009. The department of business, economic development, and tourism shall verify all qualified costs and, upon each determination, shall issue a certificate to the taxpayer certifying:

~~(1)~~ ~~The amount of the qualified costs; and~~

~~(2)~~ ~~The amount of tax credit that the taxpayer is allowed to use for the taxable year.~~

The department of business, economic development, and tourism shall certify no more than $7,500,000 in credits in the aggregate for all taxpayers for each taxable year; provided that the department may verify qualified costs of no more than $75,000,000 from June 1, 2003, through May 31, 2009. The taxpayer shall file the certificate with the taxpayer's return with the department of taxation.

~~(j) As used in this section:~~

~~"Ko Olina Resort and Marina" means the six hundred forty-two acres reclassified to urban district by Decision and Order entered on September 12, 1985, in Docket A83-562, by the land use commission.~~

~~"Makaha Resort" means the three hundred thirty-two acre property identified as tax map keys (1) 8-04-002 parcels 51, 52, 53, 54, 55, and 67 and (1) 8-04-029-142.~~

"Qualified costs" means any costs for plans, design, and construction, costs for equipment that is permanently affixed to a building or structure, and acquisition of facilities for educational purposes, up to a total of $75,000,000 in the aggregate, incurred after May 31, 2003, and before June 1, 2009, at either or both of:

~~(1)~~ Ko Olina Resort and Marina for the development of facilities for attractions and educational purposes, and for infrastructure within the Ko Olina Resort and Marina that is directly related to those facilities, including a world-class aquarium, marine science and mammal research facilities, international sports training complex, a travel industry management intern campus, infrastructure for the transfer of ocean waters to the aquarium or marine mammal facilities, or both, seawater air conditioning, and other educational facilities developed or operated in cooperation with the University of Hawaii or other educational institutions; or

~~(2)~~ ~~Makaha Resort for the development of a training and educational facility within a working resort and hotel;~~

~~provided that "qualified costs" shall not include land acquisition costs.~~

~~"Qualified taxpayer" means a person who fulfills the requirements of subsection (c).~~"]

PART XI

SECTION 25. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 26. This Act shall take effect on July 1, 2008; provided that sections 2, 3, and 8 of this Act shall apply to taxable years beginning after December 31, 2008; and provided further that no taxpayer may claim the tax credit established in section 8 of this Act in taxable years beginning after December 31, 2014, but may continue to claim amounts already claimed against the taxpayer's tax liability in subsequent years.

THE SENATE	S.B. NO.	2646
TWENTY-FOURTH LEGISLATURE, 2008		S.D. 2
STATE OF HAWAII		H.D. 2