HOUSE OF REPRESENTATIVES	H.B. NO.	2262
TWENTY-SIXTH LEGISLATURE, 2012
STATE OF HAWAII

A BILL FOR AN ACT

relating to energy.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§235-   Renewable fuel feedstock tax credit. (a)  There shall be allowed to each taxpayer subject to the taxes imposed by this chapter, a renewable fuel feedstock 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; provided that the taxpayer:

(1) Provides feedstock grown in the State to a certified renewable fuels production facility, under section 235-110.3, for the production of renewable fuels; and

(2) Is domiciled or based in the State.

(b)  The amount of the tax credit shall be equal to:

(1) Ten per cent of the taxpayer's operational expenditures for the first taxable year that the credit is claimed; and

(2) Five per cent of the taxpayer's operational expenditures for the second taxable year that the credit is claimed;

provided that the credit claimed by a taxpayer under this section shall not exceed $150,000 per taxable year; and provided further that the aggregate amount of tax credits claimed under this section for all taxpayers shall not exceed $1,500,000 per taxable year.

For the purposes of this section, "operational expenditures" means expenses directly associated with the production of feedstock grown in the State for the production of renewable fuels.

(c)  If delivery of the feedstock for which a credit under this section is claimed has not occurred by the last day of the twelfth month following the second taxable year that the credit is claimed, the credit claimed under this section shall be recaptured.  The recapture shall be equal to fifty per cent of the amount of the total tax credit claimed under this section in the preceding two taxable years.  The amount of the recaptured tax credit 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.

(d)  The director of taxation shall prepare any forms that may be necessary to claim a tax credit under this section.  The director may also require the taxpayer to furnish reasonable 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.

(e)  If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of the credit over liability shall be refunded to the taxpayer; provided that no refunds or payments on account of the tax credit allowed under this section shall be made for amounts less than $1.  All claims for the 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 may be claimed.  Failure to comply with this subsection shall constitute a waiver of the right to claim the credit."

     SECTION 2.  Section 235-110.3, Hawaii Revised Statutes, is amended to read as follows:

     "§235-110.3  [Ethanol] Renewable fuels facility tax credit.  (a)  Each year during the credit period, there shall be allowed to each taxpayer subject to the taxes imposed by this chapter, [an ethanol] a renewable fuels 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[.]; provided that the taxpayer is domiciled or based in the State; and provided further that the taxpayer shall not claim a credit under this section for more than five taxable years.

     For each qualified [ethanol] renewable fuels production facility, the annual dollar amount of the [ethanol] renewable fuels facility tax credit during the [eight-year] five-year period shall be equal to [thirty per cent of its nameplate capacity if the nameplate capacity is greater than five hundred thousand but less than fifteen million gallons.] thirty cents per gallon or gallon equivalent of renewable fuels produced for motor vehicles, ships, aviation, and electrical generation; provided that the nameplate capacity of the renewable fuels production facility is not less than one million gallons or gallon equivalent; and provided further that the amount of tax credit claimed under this section by a taxpayer shall not exceed $1,500,000 per taxable year.  A taxpayer may claim this credit for each qualifying [ethanol] renewable fuels facility; provided that:

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

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

    [(3) The qualifying ethanol production facility is in production on or before January 1, 2017; and]

(3) Not less than fifty per cent of the feedstock used in the production of renewable fuels by the qualifying renewable fuels production facility is sourced in the State; 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.

If the qualifying renewable fuels production facility does not meet the feedstock requirement of paragraph (3), the taxpayer may claim a tax credit in an amount equal to forty per cent of the amount that would otherwise be available; provided that not less than ten per cent of the feedstock used by the qualifying renewable fuels production facility is sourced in the State.

     (b)  As used in this section:

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

     "Investment" means a nonrefundable capital expenditure related to the development and construction of any qualifying [ethanol] renewable fuels production facility, including processing equipment, waste treatment systems, pipelines, geothermal wells, and liquid storage tanks at the facility or remote locations, including expansions or modifications.  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 [ethanol] renewable fuels production facility's production design capacity, in gallons or gallon equivalent of [motor] fuel grade [ethanol] renewable fuels per year.

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

     "Qualifying [ethanol] renewable fuel production" means [ethanol produced from renewable, organic feedstocks, or waste materials, including municipal solid waste.  All qualifying production shall be fermented, distilled, gasified, or produced by physical chemical conversion methods such as reformation and catalytic conversion and dehydrated at the facility.] production of:

(1) Methanol, ethanol, or other alcohols;

(2) Blends of gasoline with eighty-five per cent or more of alcohol;

(3) Propane;

(4) Hydrogen;

(5) Biodiesel or renewable diesel;

(6) Biofuels derived from biological materials, including algae; or

(7) Renewable jet fuel, renewable gasoline, or liquid or gaseous fuels;

provided that the renewable fuel shall be sold in the State for ground transportation, sea transportation; aviation; or electrical generation.

     "Qualifying [ethanol] renewable fuels production facility" or "facility" means a facility located in Hawaii [which] that produces [motor] fuel grade [ethanol meeting the minimum specifications by the American Society of Testing and Materials standard D-4806, as amended.] renewable fuels meeting the relevant American Society of Testing and Materials International specifications for the particular fuel or other specifications for electrical production.

     (c)  In the case of a taxable year in which the cumulative claims for the credit by the taxpayer of a qualifying [ethanol] renewable fuels production facility exceeds the cumulative investment made in the qualifying [ethanol] renewable fuels production 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;] and type of renewable fuels produced, including the purpose for which the fuel was produced;

     (3)  Total all qualifying [and cumulative investments] renewable fuel production 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,] amounts of renewable fuel production, 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 [$12,000,000] $10,500,000 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 [$12,000,000] $10,500,000 per year.  Notwithstanding any other law to the contrary, this information 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 [ethanol] renewable fuels production 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 such 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)  Once the total nameplate capacities of qualifying [ethanol] renewable fuels production facilities built within the State reaches or exceeds a level of forty million gallons per year, credits under this section shall not be allowed for new [ethanol] renewable fuels production facilities.  If a new facility's production capacity would cause the statewide [ethanol] renewable fuels production capacity to exceed forty million gallons per year, only the [ethanol] renewable fuels production capacity that does not exceed the statewide forty million gallon per year level shall be eligible for the credit.

     (h)  Prior to construction of any new qualifying [ethanol] renewable fuels production facility, the taxpayer shall provide written notice of the taxpayer's intention to begin construction of a qualifying [ethanol] renewable fuels production 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.

     (i)  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 [ethanol] renewable fuel production for the next twenty-four months.  Notwithstanding any other law to the contrary, this information shall be available for public inspection and dissemination under chapter 92F.

     (j)  If a qualifying [ethanol] renewable fuels production facility fails to achieve an average annual production of at least [seventy-five] fifty 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 for the purposes of determining statewide production capacity under subsection (g) and allowable credits for that facility under subsection (a).  Notwithstanding any other law to the contrary, this information shall be available for public inspection and dissemination under chapter 92F.

     (k)  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 gallons of [ethanol] renewable fuels produced and sold during the previous calendar year, how much was sold in Hawaii versus overseas, feedstocks used for [ethanol] renewable fuel production, the number of employees of the facility, and the projected number of gallons of [ethanol] renewable fuel production for the succeeding year.

     (l)  In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for every qualifying [ethanol] renewable fuels production 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 pursuant to section 235-110.7(a).

     (m)  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 [ethanol] renewable fuels.  The report shall include:

     (1)  The number, location, and nameplate capacities of qualifying [ethanol] renewable fuels production facilities in the State;

     (2)  The total number of gallons of [ethanol] renewable fuels produced and sold during the previous year; and

     (3)  The projected number of gallons of [ethanol] renewable fuel production for the succeeding year.

     (n)  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."

     SECTION 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 4.  This Act, upon its approval, shall apply to taxable years beginning after December 31, 2012.

INTRODUCED BY:

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Report Title:

Renewable Fuels; Feedstock; Tax Credit

Description:

Amends the ethanol facility income tax credit to apply to several types of renewable fuel and reduces the aggregate dollar cap for the credit.  Establishes a tax credit for the growing of feedstock to be used in renewable fuel production and establishes an aggregate cap.  Applies to taxable years beginning after 12/31/12.

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