SB2578.DOC

SECTION 1. The legislature finds that the economic multiplier effect from large construction projects can have a profound effect on stimulating the economy in this State. However, the looming expiration of the federal government's $8,000 first-time homebuyer income tax credit and $6,500 income tax credit for other qualified homebuyers could hamper any momentum that large construction projects generate, which may consequently prevent a complete recovery of the construction industry in this State.

The legislature finds that stimulating the demand side of buying new homes by providing financial incentives to homebuyers would be the greatest asset in turning around the current economic crisis faced by the construction industry and the overall state economy. The legislature further finds that establishing a state income tax credit for qualified taxpayers who purchase a newly constructed principal residence would help to reduce or avoid a potentially crippling housing market scenario in Hawaii once the federal tax credit expires by putting back to work many Hawaii taxpayers who make a living in the construction industry. A tax credit could also influence contracts to develop a greater supply of affordable housing in the State if the contractors feel that there is sufficient demand for purchasing affordable housing.

The purpose of this Act is to establish a refundable state income tax credit that mirrors the federal income tax credit but limits the tax credit to qualified taxpayers who purchase a qualified principal residence on or after April 1, 2010, and before January 1, 2012.

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

"§235- Ohana residential housing income tax credit. (a) There shall be allowed to each qualified taxpayer subject to the tax imposed by this chapter an ohana residential housing income tax credit which 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) For purposes of this section:

"Newly constructed principal residence" means a dwelling or residential unit that did not previously exist and that will result in a new structure that will be built from the ground up. A newly constructed principal residence includes a single-family home, duplex, condominium, manufactured home, or townhouse.

"Principal residence" means an individual's principal residence located in the State where the individual lives for more than two hundred seventy calendar days per calendar year.

"Purchase price" means all direct and indirect costs associated with building a newly constructed principal residence, excluding land acquisition costs and escrow closing costs.

"Qualified principal residence" means a principal residence that is a newly constructed principal residence, whether detached or attached, that adheres to all of the following:

(1) Received a certificate of completion on or after April 1, 2010;

(2) Used by the taxpayer as the taxpayer's principal residence for the immediately following two years; and

(3) A principal residence that is eligible for the homeowner's exemption.

"Qualified taxpayer" means an individual that signs a binding contract to purchase a qualified principal residence on or after April 1, 2010, and before January 1, 2012; provided that the individual closes on the purchase of the individual's newly constructed principal residence on or after April 1, 2010, and before March 1, 2012.

(1) Two per cent of the purchase price of the qualified principal residence; or

(2) $6,000;

provided that the tax credit shall be payable in two equal installments over two consecutive taxable years beginning with the taxable year in which the binding contract to purchase the qualified principal residence is signed; provided further that if more than one qualified taxpayer is claiming the tax credit under this section, then the applicable tax credit shall be divided equally between each qualified taxpayer. For purposes of this section a married couple is considered to be one qualified taxpayer.

(d) If the tax credit under this section exceeds the taxpayer's net income tax liability, the excess of credit over liability shall be refunded to the taxpayer; provided that no refunds or payment on account of the tax credit under 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 tax credit may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the tax credit.

(e) The tax credit under this section is limited to qualified principal residences with a purchase price of $625,000 or less.

(f) Each qualified taxpayer that is taking title to the qualified principal residence shall meet the following adjusted gross income limitations in order for any of the taxpayers who are taking title to the qualified principal residence to be eligible to claim the tax credit under this section:

(1) An individual with adjusted gross income of $75,000 or less;

(2) A married couple with adjusted gross income of $150,000 or less; or

(3) A grantor of any trust with adjusted gross income of $75,000 or less.

(g) If a qualified taxpayer sells or no longer uses the qualified principal residence as the taxpayer's principal residence within seven hundred thirty days after closing on the qualified principal residence, then the taxpayer shall be subject to recapture on the previously claimed credit under this section on a pro-rata dollar-for-dollar basis.

(h) The director of taxation shall prepare any forms that may be necessary to claim a credit under this section. The director of taxation may also require the taxpayer to furnish information to ascertain the validity of the claim for the tax credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2010.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2578
TWENTY-FIFTH LEGISLATURE, 2010
STATE OF HAWAII