HOUSE OF REPRESENTATIVES	H.B. NO.	2741
TWENTY-SIXTH LEGISLATURE, 2012
STATE OF HAWAII

A BILL FOR AN ACT

relating to renewable fuels.

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

     SECTION 1.  The legislature finds that pyrolysis oil, renewable diesel, biogasoline and biojet, in addition to ethanol, are examples of potential fuels that could be produced in Hawaii from locally grown agricultural feedstock.  The local production of these biofuels could contribute to Hawaii's renewable liquid fuel objectives, mitigate Hawaii's exposure to oil price volatility, strengthen the State's energy security, diversify the economy, and keep energy dollars circulating within Hawaii's economy.  Furthermore, initiatives that support new or significantly improved technology will help to attract high technology investment to the State, jumpstart construction, and create jobs.

     The purpose of this Act is to modify the existing ethanol facility tax credit to include other liquid biofuels, enable larger facilities to be eligible for the tax incentive, without changing the level of total funding for the incentive or cap per facility, and convert the existing facility credit to a cents-per-gallon production credit in order to streamline administrative efficiency and to help ensure that the associated biofuels production comes online.

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

     1.  By amending the title and subsections (a) through (c) to read:

"§235-110.3  [Ethanol] Biofuel production 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 biofuel production 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] qualifying biofuel production facility, the annual dollar amount of the [ethanol] biofuel production facility tax credit during the eight-year period shall be equal to thirty [per cent] cents per gallon of its nameplate capacity if the nameplate capacity is greater than five hundred thousand [but less than fifteen million] gallons[.] and employs a new or significantly improved technology as compared with commercial technologies.  A taxpayer may claim this credit for the first fifteen million gallons of production for each qualifying [ethanol] biofuel production facility; provided that:

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

     (2)  The qualifying [ethanol] biofuel production 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 biofuel production facility is located within the State and uses agricultural feedstock for at least seventy-five per cent of its production output, if available;

    [(3)] (4)  The qualifying [ethanol] biofuel production facility commences construction on or after January 1, 2013, and is in production on or before January 1, [2017;] 2020; and

    [(4)] (5)  No taxpayer that claims the credit under this section shall claim any other tax credit under this chapter for the same taxable year.

     (b)  As used in this section:

"Agricultural feedstock" means sugar cane, byproducts from sugar cane, sweet sorghum, sugar beets, biomass, renewable oils, fiber, algae, woody biomass, and other organic materials.

"Biofuel" means ethanol, pyrolysis oil, renewable diesel, biogasoline, biojet fuel, or other liquid fuel, that meets the relevant fuel specifications of ASTM International (formerly ASTM, the American Society for Testing and Materials) and is produced from agricultural feedstock.

"Commercial technology" means a technology in general use in the commercial marketplace in the United States that has been installed and has been in operation in three or more commercial projects in the United States for at least five years.

     "Credit period" means a maximum period of eight years beginning from the first taxable year in which the qualifying [ethanol] biofuel production 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 new qualifying [ethanol] biofuel production facility, including processing equipment, waste treatment systems, pipelines, [and] liquid storage tanks at the facility or remote locations, including expansions or modifications[.], and agricultural infrastructure, including irrigation and drainage systems, land clearing and leveling, establishment of crops, planting, and cultivation where the biofuel production facility and agricultural operations are integrated.  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] biofuel production facility's production design capacity, in gallons of [motor fuel grade ethanol] biofuel per year.

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

"New or significantly improved technology" means technology that is not a commercial technology and has either:

(1) Only recently been developed, discovered, or learned; or

(2) Involves or constitutes one or more meaningful and important improvements in productivity or value, in comparison to commercial technologies in use in the United States.

     "Qualifying [ethanol] biofuel production" means [ethanol] biofuel produced from [renewable, organic feedstocks, or waste materials, including municipal solid waste.] agricultural feedstock.  All qualifying production shall be fermented, distilled, transesterified, gasified, pyrolized, or produced by other advanced physical, chemical, biochemical, or thermochemical conversion methods [such as reformation and catalytic conversion and dehydrated at the facility].

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

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

     2.  By amending subsections (f) through (m) to read:

     "(f)  If a qualifying [ethanol] biofuel 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 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 production facilities.  If a new facility's production capacity would cause the statewide ethanol production capacity to exceed forty million gallons per year, only the ethanol production capacity that does not exceed the statewide forty million gallon per year level shall be eligible for the credit.] Biofuel production facilities shall be eligible for a combined $12,000,000 of annual credits.  If biofuel production facilities are built that reach or exceed their maximum eligible credits, no further credits under this section shall be allowed for new biofuel production facilities.

     (h)  Prior to construction of any new qualifying [ethanol] biofuel production facility, the taxpayer shall provide written notice of the taxpayer's intention to begin construction of a qualifying [ethanol] biofuel 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 fuel] biofuel 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] biofuel production 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 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] and type of biofuel produced and sold during the previous calendar year, how much was sold in Hawaii versus overseas, [feedstocks] percentage of Hawaii-grown agricultural feedstock and other agricultural feedstock used for [ethanol] biofuel production, the number of employees of the facility, and the projected [number of] gallons of [ethanol] biofuel 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] biofuel 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] include in its annual report to the governor and legislature [regarding the production and sale of ethanol.  The report shall include:] the following:

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

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

     (3)  The projected [number of] gallons [of ethanol] and type of biofuel production and sales for the succeeding year."

     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, 2015.

INTRODUCED BY:

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Report Title:

Taxation; Biofuels

Description:

Changes the existing ethanol facility tax credit to a biofuel production facility tax credit; includes ethanol and other liquid biofuels in the definition of biofuel; changes the amount of the tax credit from thirty per cent of nameplate capacity to thirty cents per gallon and deletes the cap in the nameplate capacity; makes conforming amendments; applies to taxable years beginning after 12/31/2015.

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