HB2872 SD2.DOC

PART I

SECTION 1. The legislature finds that the aerospace industry offers great potential for sustainable long-term economic growth that will help drive investment to Hawaii and create high paying, sustainable, green jobs both now and in the future. The legislature further finds that the establishment of an aerospace high technology district in the State that provides a range of county and state incentives will assist the economic growth of the State. Additionally, development of an aerospace high technology district on the island of Hawaii will create an environment where major aerospace and lunar transportation companies will want to come, not only to have access to the analog research site that gives these companies the ability to test equipment and technologies in environments identical to those in outer space, such as on the moon and near Earth objects, but also to have access to the University of Hawaii and to each other.

A prime example of the potential of the development of an aerospace high technology district in Hilo is the ‘Imiloa Astronomy Center in Hilo, which is an economic development project made possible by the federal American Recovery and Reinvestment Act of 2009. The ‘Imiloa Astronomy Center is located above the University of Hawaii Hilo campus and has forty thousand square feet of planetarium and exhibition space, which was funded primarily by the National Aeronautics and Space Administration. ‘Imiloa means "seek and explore" in Hawaiian and the center seeks to merge Hawaiian and Polynesian culture with astronomy through the one hundred or more exhibits and displays presented in English and Hawaiian.

The legislature further finds that an aerospace high technology district in Hilo will bring educational and career opportunities to students of the University of Hawaii system, which will make the university more attractive to future students and will help provide opportunities for the commercialization of intellectual property developed at the University of Hawaii through state and federal research dollars invested in the university. The legislature believes that places like Hilo should be designed around the concept of "Main Street" as a place of traditional values. Main Street communities and architecture represent the interests of everyday working-class people and small business owners. In small towns across the United States, Main Street is not only the major road running through town but also the site of all street life and activity.

The legislature further finds that an aerospace high technology district will create an additional influx of possible research dollars through the nexus that such a park and its participants will have with the university. Through an aerospace high technology district, tenants will engage in activities with each other, and the relationships forged through the district will foster the development and commercialization of unforeseen technologies in a number of diverse areas beyond the aerospace industry.

The legislature further finds that the development of and investment in an aerospace high technology district would benefit from certain regulatory tax incentives through an enterprise zone system, which would help to facilitate development and investment in the district while tying in job creation and other metrics to ensure that the economic activities envisioned occur.

Accordingly, the purpose of this Act is to establish an aerospace high technology district that has all the benefits of an enterprise zone.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

AEROSPACE HIGH TECHNOLOGY DISTRICT

§ -1 Definitions. As used in this chapter:

"Aerospace facility" includes aerospace, processing, manufacturing, research, or instructional enterprises for aerospace high technology, commercial or experimental rocketry, satellite, lunar, nextgen avionics, solid waste resource recovery systems, enterprises for the development, processing, or transmission of alternative energy, industrial parks under chapter 206M, retail, including food serving establishments, and wholesale, industry, processing, transportation, or manufacturing enterprises, the primary purpose of which is to serve or provide products to the aerospace high technology enterprises or their employees.

"Aerospace high technology district" means a district in the county of Hawaii, extending for a distance to three miles out from downtown Hilo, that is eligible for benefits pursuant to this chapter.

"Department" means the department of business, economic development, and tourism.

"Establishment" means a single physical location where aerospace high technology services are provided in an aerospace facility. A qualified business may include one or more establishments, any number of which may be in an aerospace high technology district.

"Full-time employee" means any employee for whom the employer is legally required to provide employee fringe benefits.

"Qualified business" means any aerospace facility that:

(1) Is authorized to do business in this State;

(2) Is located within the aerospace high technology district; and

(3) Meets the eligibility requirements set forth in section -6.

§ -2 Administration. (a) The department shall administer this chapter and have the power and duty to:

(1) Monitor the implementation and operation of this chapter;

(2) Conduct continuing evaluations of the aerospace high technology district;

(3) Submit annual reports to the legislature and the governor evaluating the effectiveness of the program and proposing any recommended legislation;

(4) Administer and enforce rules adopted by the department; and

(5) Administer this chapter in a manner such that an area designated as an aerospace high technology district provides the most benefit to the area and the State.

(b) The county of Hawaii shall adopt ordinances or rules to implement the development of an aerospace high technology district.

§ -3 Aerospace high technology district designation. (a) The department may designate an aerospace high technology district that shall encompass downtown Hilo, and if possible the University of Hawaii at Hilo, within which district shall be located an aerospace high technology facility or complex. The location and boundaries of the aerospace high technology district shall be designated by the department upon receiving public input from the Hawaii county council, Hawaii county mayor, and interested stakeholders of the general public.

(b) The county of Hawaii shall develop county incentives to complement any state and federal incentives for the development of an aerospace high technology district.

§ -4 Duplicative tax incentives; prohibition. There shall be no duplication of existing state tax incentives to qualified businesses that are located in an aerospace high technology district.

§ -5 Rules. (a) The department, in consultation with the department of taxation, shall adopt rules pursuant to chapter 91 to implement this chapter, including rules relating to health, safety, building, planning, zoning, and land use. Rules adopted pursuant to this section shall supersede all other inconsistent ordinances and rules relating to the use, zoning, planning, development of land, and construction in an aerospace high technology district; provided that rules adopted pursuant to this section shall conform to existing law, rules, and ordinances as closely as possible to comply with minimum standards for energy efficiency, health, and safety.

(b) The department shall provide by rule that lands within an aerospace high technology district shall not be developed beyond existing uses or that improvements thereon shall not be demolished or substantially reconstructed, or provide by rule other restrictions on the use of an aerospace high technology district.

§ -6 Eligibility; qualified business; sale of property or services. (a) Any aerospace facility may be eligible to be designated a qualified business for purposes of this chapter if:

(1) The aerospace facility begins operations in an aerospace high technology district and:

(A) During each taxable year has at least twenty-five per cent of gross receipts attributable to operations within the aerospace high technology district;

(B) Increases its average annual number of full-time aerospace professional employees by at least twenty-five per cent by the end of its first taxable year of participation; and

(2) The aerospace facility:

(A) Is actively engaged in the operation of an aerospace facility in an area immediately prior to the area being designated as an aerospace high technology district;

(B) Meets the requirements of paragraph (1)(B); and

(C) Increases its average annual number of full-time employees employed at the aerospace facility's establishment or establishments located within the aerospace high technology district by at least ten per cent annually.

(b) After the department's establishment of an aerospace high technology district, each qualified business in the aerospace high technology district shall annually complete and submit to the department, on an application prescribed by the department, the information necessary for the department to determine whether the aerospace facility qualifies or continues to qualify as a qualified business. If the department determines that the aerospace facility qualifies as a qualified business, the department shall approve the application and notify the department of taxation and the relevant governing body of the county.

(c) A completed application form approved by the department, pursuant to subsection (b), shall be prima facie evidence of the eligibility of an aerospace facility for the purposes of this section.

(d) Any operations or services provided by an aerospace facility outside of the aerospace high technology district shall not be included for the purposes of determining gross receipts attributable to the operations within the district pursuant to subsection (a).

§ -7 Credit for qualified business located within an aerospace high technology district. (a) The department of business, economic development, and tourism shall certify annually to the department of taxation the applicability of the tax credit provided in this section for a qualified business against any income taxes imposed under chapter 235. The credit shall be twenty-five per cent of the tax due for the first three taxable years that the business qualifies as a qualified business.

(b) If a partnership is eligible for a tax credit under this section, each partner shall be eligible for the tax credit in proportion to that partner's income tax liability from the partnership. Any qualified business earning taxable income from the provision of the qualified business's services, both within and without the aerospace high technology district, shall allocate and apportion its taxable income attributable to the respective location of the provision of services within or without the district. Tax credits provided for in this section shall only apply to taxable income of a qualified business attributable to the services provided within the aerospace high technology district.

(c) In addition to any other tax credit authorized under this section, a qualified business shall be entitled to a tax credit against any taxes due the State in an amount equal to a percentage of unemployment taxes paid pursuant to chapter 383. The amount of the credit shall be equal to twenty-five per cent of the unemployment taxes paid for during the first three taxable years that the business qualifies as a qualified business.

(d) Tax credits provided for in subsection (c) shall only apply to the unemployment tax paid on employees employed at the qualified business's establishment or establishments located within the aerospace high technology district. Any tax credit not used in a taxable year shall not be applied to future tax years.

§ -8 Exemption from general excise tax for qualified business located within an aerospace high technology district. The department of business, economic development, and tourism shall certify annually to the department of taxation that any qualified business shall be exempt from the payment of taxes under chapter 237 on the gross proceeds from the provision of aerospace services. The gross proceeds received by a contractor licensed under chapter 444 shall be exempt from taxation under chapter 237 for construction within an aerospace high technology district performed for a qualified business.

§ -9 Exemption from use tax for qualified business located within an aerospace high technology district. The department of business, economic development, and tourism shall certify annually to the department of taxation that any qualified business shall be exempt from the payment of taxes under chapter 238 on the gross proceeds from the provision of aerospace services. The gross proceeds received by a contractor licensed under chapter 444 shall be exempt from taxation under chapter 238 for construction within an aerospace high technology district performed for a qualified business.

§ -10 Local incentives. (a) A county may propose local incentives, including:

(1) Reduction of permit fees;

(2) Reduction of user fees; and

(3) Reduction of real property taxes.

(b) A county may provide regulatory flexibility in any aerospace high technology district, including:

(1) Special zoning districts;

(2) Permit process reform;

(3) Exemptions from ordinances; and

(4) Other public incentives proposed in the locality's application, which shall be binding upon the locality upon designation of the aerospace high technology district.

§ -11 Termination of aerospace high technology district. Upon designation of an area as an aerospace high technology district, the proposals for regulatory flexibility, tax incentives, and other public incentives specified in this chapter shall be binding upon the governing body of the county for a period of three years. If the governing body of the county is unable or unwilling to provide any of the incentives set forth in section ‑10 or other incentives acceptable to the department, and the department has not adopted rules pursuant to section ‑5 that supersede inconsistent ordinances and rules relating to the use, zoning, planning, development of land, and construction in an aerospace high technology district, then the designation by the department of the aerospace high technology district shall be terminated. Qualified businesses located in the aerospace high technology district shall be eligible to receive the tax incentives provided by this chapter even though the district designation has been terminated. No aerospace facility may become a qualified business after the date of aerospace high technology district termination."

PART II

SECTION 3. The director of business, economic development, and tourism shall designate tax map keys 1-6-146, 1-6-148, 1-6-151, and 1-6-03 on the island of Hawaii, as the pilot aerospace high technology district for a period of ten years.

SECTION 4. The department of business, economic development, and tourism, in consultation with the department of taxation, shall submit a report to the legislature by December 31 of each year, beginning in 2012, regarding the implementation of the pilot aerospace high technology district in Hawaii county, including an evaluation of the success or failure of the pilot aerospace high technology district in fulfilling its intended purposes.

SECTION 5. It is the intent of this Act not to jeopardize the receipt of any federal aid nor to impair the obligation of the State or any agency thereof to the holders of any bond issued by the State or by any agency, and to the extent, and only to the extent, necessary to effectuate this intent, the governor may modify the strict provisions of this Act, but shall promptly report any modification with reasons therefor to the legislature at its next regular session thereafter for review by the legislature.

SECTION 6. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 7. If any provision of this Act, or the application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the Act, which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 8. New statutory material is underscored.

SECTION 9. This Act shall take effect upon its approval and shall be repealed on June 30, 2022.

HOUSE OF REPRESENTATIVES	H.B. NO.	2872
TWENTY-SIXTH LEGISLATURE, 2012		H.D. 3
STATE OF HAWAII		S.D. 2