SB861.DOC

SECTION 1. Section 235-110.8, Hawaii Revised Statutes, is amended to read as follows:

"§235-110.8 Low-income housing tax credit. (a) Except for Section 42(b) of the Internal Revenue Code, which shall not be operative for purposes of this chapter, Section 42 (with respect to the low-income housing credit) of the Internal Revenue Code shall be operative for [~~the~~] purposes of this chapter as provided in this section.

(b) Each taxpayer subject to the tax imposed by this chapter, who has filed [[]a[]] net income tax return for a taxable year may claim a low-income housing tax credit against the taxpayer's net income tax liability. The amount of the credit 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 on a timely basis. A credit under this section may be claimed whether or not the taxpayer claims a federal low-income housing tax credit pursuant to section 42 of the Internal Revenue Code.

(c) The amount of the low-income housing tax credit that may be claimed by a taxpayer as provided in subsection (b) shall be [fifty per cent of the applicable percentage of the qualified basis of each building located in Hawaii. The applicable percentage shall be calculated as provided in section 42(b) of the Internal Revenue Code.] equal to the amount of the federal low-income housing tax credit that the taxpayer claimed or could have claimed pursuant to Section 42 of the Internal Revenue Code for the same taxable year with respect to each qualified low-income building located in Hawaii; provided that, for purposes of subsection (b), the taxpayer may claim a low-income housing tax credit only with respect to the amount of federal low-income housing tax credit claimed for the first five years of the credit period for each respective qualified low-income building, as defined in Section 42(f)(1) of the Internal Revenue Code that is located in Hawaii; and, further provided that the amount of the low-income housing tax credit claimed by a taxpayer shall be computed without regard to any federal low-income housing tax credit that is carried forward from a prior taxable year.

(d) For the purposes of this section, the determination of:

(1) Qualified basis and qualified low-income building shall be made under section 42(c);

(2) Eligible basis shall be made under section 42(d);

(3) Qualified low-income housing project shall be made under section 42(g);

(4) Recapture of credit shall be made under section 42(j), except that the tax for the taxable year shall be increased under section 42(j)(1) only with respect to credits that were used to reduce state income taxes;

(5) Application of at-risk rules shall be made under section 42(k);

of the Internal Revenue Code.

(e) As provided in section 42(e), rehabilitation expenditures shall be treated as separate new building and their treatment under this section shall be the same as in section 42(e). [~~The definitions and special rules relating to credit period in section 42(f) and the~~] The definitions and special rules in section 42(i) shall be operative for the purposes of this section.

(f) The definitions and special rules relating to credit periods in section 42(f) shall be operative for the purposes of this section; except that section 42(f)(1) of the Internal Revenue Code shall be modified as follows: the term "credit period" means, with respect to any building, the period of five taxable years beginning with:

(1) The taxable year in which the building is placed in service; or

(2) At the election of the taxpayer, the succeeding taxable year;

provided that the building is a qualified low-income building as of the close of the first year of such period. The election under paragraph (2), once made, shall be irrevocable.

[~~(f)~~] (g) The state housing credit ceiling under section 42(h) shall be zero for the calendar year immediately following the expiration of the federal low-income housing tax credit program and for any calendar year thereafter, except for the carryover of any credit ceiling amount for certain projects in progress which, at the time of the federal expiration, meet the requirements of section 42.

[~~(g)~~] (h) The credit allowed under this section shall be claimed against net income tax liability for the taxable year. For the purpose of deducting this tax credit, net income tax liability means net income tax liability reduced by all other credits allowed the taxpayer under this chapter.

A tax credit under this section which exceeds the taxpayer's income tax 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 must 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 properly and timely claim the credit shall constitute a waiver of the right to claim the credit. A taxpayer may claim a credit under this section only if the building or project is a qualified low-income housing building or a qualified low-income housing project under section 42 of the Internal Revenue Code.

Section 469 (with respect to passive activity losses and credits limited) of the Internal Revenue Code shall be applied in claiming the credit under this section.

[~~(h)~~] (i) The director of taxation may adopt any rules under chapter 91 and forms necessary to carry out this section."

SECTION 2. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 3. This Act shall take effect on January 1, 2010, and apply to buildings placed in service after December 31, 2009.

INTRODUCED BY:

_____________________________

By Request

THE SENATE	S.B. NO.	861
TWENTY-FIFTH LEGISLATURE, 2009
STATE OF HAWAII