SB2870

SECTION 1. The legislature finds that the welfare and prosperity of the people in the State of Hawaii is positively impacted through the encouragement and expansion of key economic industries. The legislature further finds that targeting tax incentives to focus on key growth industries is an important business strategy to enhance the State's business environment. The legislature acknowledges that the solar electric industry is becoming a leader in the renewable energy field and that attracting companies in that industry to locate or relocate to Hawaii would have a positive effect on Hawaii's economy and environment.

Therefore, the legislature intends to enact comprehensive tax incentives that encourage companies in the solar electric industry who manufacture and distribute solar energy systems to be located in Hawaii. Providing tax incentives for companies in the solar electric industry to be located in, or relocate to, Hawaii is also an important step to retaining the few existing businesses in Hawaii that are in the solar electric industry. Implementation of the tax incentives in this Act strengthen the likelihood that solar electric companies will expand to Hawaii if they currently exist, or at least seriously consider being headquartered in Hawaii if they are a startup company in the solar electric industry. The establishment of solar electric companies in Hawaii will have a positive impact on the economy throughout Hawaii by creating jobs, inspiring our communities to be environmentally friendly, and stimulating the economy.

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

"§235-A Solar energy systems tax rate; definitions. (a) Beginning October 1, 2008, upon every person engaging in the business of manufacturing solar energy systems in Hawaii, through the use of photovoltaic modules or silicon components, shall be assessed a tax equal to the value of the product manufactured, or in the case of processors for hire the gross income of the business, multiplied by the rate of 0.2904 per cent. If the manufacturing entity is located in an enterprise zone established under chapter 209E, the rate of tax shall be 0.25 per cent.

(b) Beginning October 1, 2008, upon every person engaging in the business of making sales of solar energy systems at wholesale in Hawaii, through the use of photovoltaic modules or silicon components, shall be assessed a tax equal to the gross proceeds received from the sales of the solar energy systems, multiplied by the rate of 0.2904 per cent. If the business entity is located in an enterprise zone established under chapter 209E, the rate of tax shall be 0.25 per cent.

"Module" means the smallest nondivisible self-contained physical structure that houses interconnected photovoltaic cells and provides a single direct current electrical output.

"Photovoltaic cell" means a device that converts light directly into electricity without any moving parts.

"Solar energy system" means any device, or combination of devices or elements, that rely upon direct sunlight as an energy source for use in the generation of electricity.

(d) This section shall expire on December 31, 2014.

§235-B Tax credits for out-of-state sellers of manufacturing products. (a) Taxpayers who are taxable under this chapter for selling any of the following in Hawaii, shall be allowed a tax credit against those taxes for any of the following:

(1) Manufacturing taxes paid with respect to the manufacturing of products in Hawaii that are subsequently sold in Hawaii; or

(2) For taxes paid with respect to the extracting of products, or ingredients of products, in Hawaii that are subsequently sold in Hawaii. The extracting taxes that are taken as tax credit under subsection (b) may also be taken under this subsection, if otherwise allowable under this subsection. The amount of the tax credit shall not exceed the tax liability arising under this chapter with respect to the sale of those products.

(b) Taxpayers who are taxable under this chapter shall be allowed a tax credit against those taxes for any extracting taxes paid with respect to extracting the ingredients of the products manufactured in Hawaii. The amount of the tax credit shall not exceed the tax liability arising under this chapter with respect to the manufacturing of those products.

(c) Taxpayers who are taxable under this chapter with respect to extracting or manufacturing products in Hawaii shall be allowed a tax credit against those taxes for any of the following:

(1) Gross receipts taxes paid to another state with respect to the sales of the products extracted or manufactured in Hawaii;

(2) Manufacturing taxes paid with respect to the manufacturing of products using ingredients extracted in Hawaii; or

(3) Manufacturing taxes paid with respect to manufacturing activities completed in another state for products manufactured in Hawaii. The amount of the credit shall not exceed the tax liability arising under this chapter with respect to the extraction or manufacturing of those products.

(d) For purposes of this section, the following terms shall have the following meanings:

"Extracting tax" means a gross receipts tax imposed on the act or privilege of engaging in business as an extractor, and includes the tax imposed in subsection (c) and similar gross receipts taxes paid to other states.

"Gross receipts tax" means a tax:

(1) That is imposed on or measured by the gross receipts of the business, and in the determination of which the deductions allowed would not constitute the tax an income tax or value added tax; and

(2) That is also not, pursuant to law or industry custom, separately stated from the sales price.

"Manufacturing tax" means a gross receipts tax imposed on the act or privilege of engaging in business as a manufacturer, and includes the following:

(1) The taxes imposed by subsections (a) and (b) of this section and subsection (a) of section 235-A; and

(2) Similar gross receipts taxes paid to other states.

§235-C Annual reporting requirements. (a) A taxpayer who reports taxes under section 235-A shall provide an annual report to the department detailing the number of employees, wages, and employer-provided health and retirement benefits per job at the manufacturing site, however, the annual report shall not include names of the employees. The annual report shall also detail the total number of full-time, part-time, and temporary positions. The first report filed under this subsection shall include the number of employees, wages, and benefit information for the twelve month period immediately before the first use of a preferential tax rate under section 235‑A. The annual report is due by March 31st following any year in which a preferential tax rate under section 235-A is used.

(b) If a taxpayer fails to submit an annual report under subsection (a) of this section, the department shall declare the amount of taxes reduced for the previous calendar year to be immediately due and payable. Excise taxes payable under this subsection are subject to interest, but not penalties, at the rate provided for delinquent taxes, as provided under this chapter. The department shall assess interest retroactively to the date the preferential tax rate under section 235-A was used. The interest shall be assessed at the rate provided for delinquent excise taxes under this chapter and shall accrue until the taxes for which the preferential tax rate was used are repaid.

(c) The department shall report on the impact of this Act to the legislature by December 31, 2013. The report shall include the total number of solar energy system manufacturing companies located in Hawaii, any change in the number of solar energy system manufacturing companies in Hawaii since the effective date of this Act, the number of jobs created for residents of Hawaii, and any other factors the department deems to be relevant to the purposes of determining the impact of this Act."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2007.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2870
TWENTY-FOURTH LEGISLATURE, 2008
STATE OF HAWAII