HB2218.DOC

PART I.

SECTION 1. The legislature finds that the development of renewable energy in Hawaii is crucial to the energy security and energy independence of Hawaii. In addition, the renewable energy technology industry will evolve into an important component of a diversified economy. The legislature further finds that incentives for investment in renewable energy will create positive economic impacts and environmental benefits for the State.

The purpose of this Act is to:

(1) Increase tax incentives for investment in renewable energy in Hawaii;

(2) Increase the State's renewable energy portfolio goals; and

(3) Allow individual schools in Hawaii to enter into agreements to purchase electricity from renewable energy facilities.

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- Renewable energy facility tax credit. (a) For each taxable year during the credit period, there shall be allowed, to each taxpayer subject to the taxes imposed by this chapter, a renewable energy facility tax credit that shall be applied to the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed.

For each qualified ethanol production facility, the annual amount of the renewable energy facility tax credit during the eight-year period shall be equal to thirty per cent of the taxpayer's qualifying investment in the facility made during the taxable year. A taxpayer may claim this credit for each qualifying renewable energy facility; provided that:

(1) The claim for this credit by any taxpayer of a qualifying renewable energy facility shall not exceed one hundred per cent of the total of all investments made by the taxpayer in the qualifying renewable energy facility during the credit period;

(2) The qualifying renewable energy facility operated at a level of production of at least seventy-five per cent of its nameplate capacity on an annualized basis;

(3) The qualifying renewable energy facility is in production on or before January 1, 2015; and

(4) No taxpayer that claims the credit under this section shall claim any other tax credit under this chapter for the same taxable year, including sections 235-110.3 or 235-110.9.

(b) As used in this section:

"Biofuels" means liquid or gaseous fuels produced from organic sources such as biomass crops, agricultural residues and oil crops, such as palm oil, canola oil, soybean oil, waste cooking oil, grease, and food wastes, animal residues and wastes, and sewage and landfill wastes.

"Credit period" means a maximum period of eight years beginning from the first taxable year in which the qualifying renewable energy facility begins production, even if actual production is not at seventy-five per cent of nameplate capacity.

"Investment" means a nonrefundable capital expenditure related to the development and construction of any qualifying renewable energy facility. Capital expenditures shall be those direct and certain indirect costs determined in accordance with section 263A of the Internal Revenue Code, relating to uniform capitalization costs, but shall not include expenses for compensation paid to officers of the taxpayer, pension and other related costs, rent for land, the costs of repairing and maintaining the equipment or facilities, training of operating personnel, utility costs during construction, property taxes, costs relating to negotiation of commercial agreements not related to development or construction, or service costs that can be identified specifically with a service department or function or that directly benefit or are incurred by reason of a service department or function. For the purposes of determining a capital expenditure under this section, the provisions of section 263A of the Internal Revenue Code shall apply as it read on March 1, 2004. For purposes of this section, investment excludes land costs and includes any investment for which the taxpayer is at risk, as that term is used in section 465 of the Internal Revenue Code (with respect to deductions limited to amount at risk).

"Nameplate capacity" means the qualifying renewable energy facility's production design capacity.

"Net income tax liability" means net income tax liability reduced by all other credits allowed under this chapter.

"Qualifying renewable energy facility" or "facility" means a facility located in Hawaii with the capacity to produce from renewable energy at least two hundred megawatts of electricity

"Renewable energy" means energy generated or produced using the following sources:

(1) Wind;

(2) The sun;

(3) Falling water;

(4) Biogas, including landfill and sewage-based digester gas;

(5) Geothermal;

(6) Ocean water, currents, and waves, including ocean thermal energy conversion;

(7) Biomass, including biomass crops, agricultural and animal residues and wastes, and municipal solid waste and other solid waste;

(8) Biofuels; and

(9) Hydrogen produced from renewable energy sources.

(c) In the case of a taxable year in which the cumulative claims for the credit by the taxpayer of a qualifying renewable energy facility exceeds the cumulative investment made in the qualifying renewable energy facility by the taxpayer, only that portion that does not exceed the cumulative investment shall be claimed and allowed.

(d) The department of business, economic development, and tourism shall:

(1) Maintain records of the total amount of investment made by each taxpayer in a facility;

(2) Verify the amount of the qualifying investment;

(3) Total all qualifying and cumulative investments that the department of business, economic development, and tourism certifies; 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 business, economic development, and tourism shall issue a certificate to the taxpayer verifying the qualifying investment amounts, 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 business, economic development, and tourism'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 $ in the aggregate, the department of business, economic development, and tourism shall immediately discontinue certifying credits and notify the department of taxation. In no instance shall the total amount of certified credits exceed $ per year. Notwithstanding any other law to the contrary, any information generated pursuant to this subsection shall be available for public inspection and dissemination under chapter 92F.

(e) If the credit under this section exceeds the taxpayer's income tax liability, the excess of credit over liability shall be refunded to the taxpayer; provided that no refunds or payments on account of the tax credit allowed by this section shall be made for amounts less than $1. All claims for a credit under this section must be properly 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 a qualifying renewable energy facility or an interest therein is acquired by a taxpayer prior to the expiration of the credit period, the credit allowable under subsection (a) for any period after the acquisition shall be equal to the credit that would have been allowable under subsection (a) to the prior taxpayer had the taxpayer not disposed of the interest. If an interest is disposed of during any year for which the credit is allowable under subsection (a), the credit shall be allowable between the parties on the basis of the number of days during the year the interest was held by each taxpayer. In no case shall the credit allowed under subsection (a) be allowed after the expiration of the credit period.

(g) Prior to construction of any new qualifying renewable energy facility, the taxpayer shall provide written notice of the taxpayer's intention to begin construction of a qualifying renewable energy facility. The information shall be provided to the department of taxation and the department of business, economic development, and tourism on forms provided by the department of business, economic development, and tourism, and shall include information on the taxpayer, facility location, facility production capacity, anticipated production start date, and the taxpayer's contact information. Notwithstanding any other law to the contrary, this information shall be available for public inspection and dissemination under chapter 92F.

(h) The taxpayer shall provide written notice to the director of taxation and the director of business, economic development, and tourism within thirty days following the start of production. The notice shall include the production start date and expected electricity production of the facility for the next twenty-four months. Notwithstanding any other law to the contrary, the information required by this subsection shall be available for public inspection and dissemination under chapter 92F.

(i) If a qualifying renewable energy facility fails to achieve an average annual production of at least seventy-five per cent of its nameplate capacity for two consecutive years, the stated capacity of that facility may be revised by the director of business, economic development, and tourism to reflect actual production and allowable credits for that facility under subsection (a). Notwithstanding any other law to the contrary, any information generated by this subsection shall be available for public inspection and dissemination under chapter 92F.

(j) Each calendar year during the credit period, the taxpayer shall provide information to the director of business, economic development, and tourism on the number of megawatts of electricity produced from the qualifying renewable energy facility during the previous calendar year, how much was sold, the number of employees of the facility, and the projected number of megawatts of electricity production from the facility for the succeeding year.

(k) In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for every qualifying renewable energy facility. 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 rules adopted under chapter 91.

(l) Following each year in which a credit under this section has been claimed, the director of business, economic development, and tourism shall submit a written report to the governor and legislature regarding the production and sale of electricity produced from renewable energy in the State. The report shall include:

(1) The number, location, and nameplate capacities of qualifying renewable energy facilities in the State;

(2) The total number of megawatts of electricity produced from renewable energy and sold during the previous year; and

(3) The projected number of megawatts of electricity to be produced from renewable energy for the succeeding year.

(m) The director of taxation shall prepare forms that may be necessary to claim a credit under this section. Notwithstanding the department of business, economic development, and tourism's certification authority under this section, the director may audit and adjust certification to conform to the facts. 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."

PART III.

SECTION 3. Section 269-92, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Each electric utility company that sells electricity for consumption in the State shall establish a renewable portfolio standard of:

(1) Ten per cent of its net electricity sales by December 31, 2010;

(2) Fifteen per cent of its net electricity sales by December 31, 2015; and

(3) [~~Twenty-five~~] Fifty per cent of its net electricity sales by December 31, 2020[~~; and~~].

[~~(4)~~ ~~Forty per cent of its net electricity sales by December 31, 2030.~~]"

PART IV.

SECTION 4. The Hawaii Revised Statutes is amended by adding a new section to be appropriately designated and to read as follows:

"§302A- Public schools; renewable energy purchases. Individual public schools may enter into agreements with renewable energy facilities for the purchase of electricity. Prior to entering into an agreement, the school administration shall submit a written request along with the proposed agreement to the board of education for approval. If the board does not deny the request within thirty days, the request shall be deemed to be approved.

For the purposes of this section, "renewable energy facility" shall have the same meaning as defined in section 201N-1."

PART V.

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect on its approval; provided that section 3 shall apply to taxable years beginning after December 31, 2009.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	2218
TWENTY-FIFTH LEGISLATURE, 2010
STATE OF HAWAII