SB2941 HD2.DOC

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. Development of an aerospace high technology park on the island of Hawaii will create an environment that will attract major aerospace and lunar transportation companies that will have access to an analog research site providing 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, as well as access to the University of Hawaii and to each other.

The legislature also finds that such a park will offer educational and career opportunities to students of the University of Hawaii at Hilo, which will make the university more attractive to future students and will provide opportunities for the commercialization of intellectual property developed at the University of Hawaii at Hilo through research dollars invested in the university.

Additionally, the legislature finds that an aerospace high technology park will create an additional influx of research dollars through the nexus that such a park and its participants will have with the university. Such a park will allow tenants to engage in activities with each other, potentially leading to the development and commercialization of unforeseen technologies in a number of diverse areas beyond the aerospace industry alone.

However, to ensure the smooth development of an aerospace high technology park, the legislature finds that certain regulatory tax incentives through an enterprise zone system would help to facilitate the creation and establishment of these activities while tying into job creation and other metrics to ensure that the economic activities envisioned occurs. Also, the State must make it clear that the activities in the park are considered a permitted use of the agricultural district that includes the location of the proposed park, precluding the need to obtain variances or other exceptions from the appropriate government entities.

Accordingly, the purpose of this Act is to:

(1) Establish aerospace high technology enterprise zones in the State;

(2) Allow an aerospace high technology park in the land use agricultural district by specific permit; and

(3) Require the University of Hawaii to extend the lease of the high technology development corporation.

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 ENTERPRISE ZONES

§ -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 enterprise zone" means any area in the State declared by the department to be 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 a aerospace high technology enterprise zone.

"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 enterprise zone; and

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

"Taxes due the State" means income taxes due under chapter 235.

§ -2 Administration. 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 enterprise zones program;

(3) Assist the counties in obtaining the reduction of rules within aerospace high technology enterprise zones;

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

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

(6) Administer this chapter in a manner such that the areas designated as aerospace high technology enterprise zones will provide the most benefit to the areas and the State.

§ -3 Aerospace high technology enterprise zone designation; approval. (a) After receiving:

(1) A description of a proposed location in a county for a aerospace high technology enterprise zone; and

(2) A general statement identifying proposed county incentives to complement any state and federal incentives,

from the governing body of the county, the department shall consider and may designate the proposed area as an aerospace high technology enterprise zone.

(b) The department shall acquire from the county any additional information that the department deems necessary and shall approve the establishment of the aerospace high technology enterprise zone for a period of three years.

§ -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 enterprise zone.

§ -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, and development of land and construction in a aerospace high technology enterprise zone; 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 may provide by rule that lands within an aerospace high technology enterprise zone shall not be developed beyond existing uses or that improvements thereon shall not be demolished or substantially reconstructed or provide other restrictions on the use of the zone.

§ -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 enterprise zone and:

(A) During each taxable year has at least twenty-five per cent of its aerospace high technology enterprise zone establishment's gross receipts attributable to its operation within the aerospace high technology enterprise zone;

(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 tax year of participation; and

(C) During each subsequent taxable year maintains the level of employment established to meet the requirements of paragraph (1)(B) or greater for aerospace professional employees; or

(2) The aerospace facility:

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

(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 enterprise zone by at least ten per cent annually.

(b) After approval of the aerospace high technology enterprise zone, each qualified business in the aerospace high technology enterprise zone 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 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 a aerospace facility outside of the aerospace high technology enterprise zone shall not be included for the purposes of determining gross receipts attributable to the active provision of services under subsection (a).

§ -7 State business tax credit. (a) The department 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. Any tax credit not used in a taxable year shall not be applied to future taxable years.

(b) When 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 enterprise zone, shall allocate and apportion its taxable income attributable to that provision of services. 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 enterprise zone.

(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 enterprise zone. Any tax credit not used in a taxable year shall not be applied to future tax years.

§ -8 State general excise and use tax exemptions. The department shall certify annually to the department of taxation that any qualified business is exempt from the payment of taxes pursuant to chapter 237 on the gross proceeds from the provision of aerospace services and taxes pursuant to chapter 238 for purchases by the qualified business. 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 enterprise zone performed for a qualified business within an aerospace high technology enterprise zone. The exemption in this section shall extend for a period not to exceed three years after the effective date of this chapter.

§ -9 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 also propose measures for regulatory flexibility including:

(1) Special zoning districts;

(2) Permit process reform;

(3) Exemptions from local 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 enterprise zone.

§ -10 Termination of aerospace high technology enterprise zone. Upon designation of the area as an aerospace high technology enterprise zone, 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 ‑9 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, and development of land and construction in a aerospace high technology enterprise zone, then the aerospace high technology enterprise zone shall terminate. Qualified businesses located in the aerospace high technology enterprise zone shall be eligible to receive the tax incentives provided by this chapter even though the zone designation has terminated. No aerospace facility may become a qualified business after the date of zone termination."

SECTION 3. Section 205-6, Hawaii Revised Statutes, is amended to read as follows:

"§205-6 Special permit. (a) Subject to this section, the county planning commission may permit certain unusual and reasonable uses within agricultural and rural districts other than those for which the district is classified. Any person who desires to use the person's land within an agricultural or rural district other than for an agricultural or rural use, as the case may be, may petition the planning commission of the county within which the person's land is located for permission to use the person's land in the manner desired. Each county may establish the appropriate fee for processing the special permit petition. Copies of the special permit petition shall be forwarded to the land use commission, the office of planning, and the department of agriculture for their review and comment.

(b) The planning commission, upon consultation with the central coordinating agency, except in counties where the planning commission is advisory only in which case the central coordinating agency, shall establish by rule or regulation, the time within which the hearing and action on petition for special permit shall occur. The county planning commission shall notify the land use commission and such persons and agencies that may have an interest in the subject matter of the time and place of the hearing.

(c) The county planning commission may, under such protective restrictions as may be deemed necessary, permit the desired use, but only when the use would promote the effectiveness and objectives of this chapter; provided that a use proposed for designated important agricultural lands shall not conflict with any part of this chapter. A decision in favor of the applicant shall require a majority vote of the total membership of the county planning commission.

(d) Special permits for land the area of which is greater than fifteen acres or for lands designated as important agricultural lands shall be subject to approval by the land use commission. The land use commission may impose additional restrictions as may be necessary or appropriate in granting the approval, including the adherence to representations made by the applicant.

(e) A copy of the decision, together with the complete record of the proceeding before the county planning commission on all special permit requests involving a land area greater than fifteen acres or for lands designated as important agricultural lands, shall be transmitted to the land use commission within sixty days after the decision is rendered.

Within forty-five days after receipt of the complete record from the county planning commission, the land use commission shall act to approve, approve with modification, or deny the petition. A denial either by the county planning commission or by the land use commission, or a modification by the land use commission, as the case may be, of the desired use shall be appealable to the circuit court of the circuit in which the land is situated and shall be made pursuant to the Hawaii rules of civil procedure.

(f) Land uses substantially involving or supporting educational ecotourism, related to the preservation of native Hawaiian endangered, threatened, proposed, and candidate species, that are allowed in an approved habitat conservation plan under section 195D-21 or safe harbor agreement under section 195D-22, which are not identified as permissible uses within the agricultural district under sections 205-2 and 205-4.5, may be permitted in the agricultural district by special permit under this section, on lands with soils classified by the land study bureau's detailed land classification as overall (master) productivity rating class C, D, E, or U.

(g) An aerospace high technology park may be permitted in the agricultural district by special permit under this section, on lands with soil classified by the land study bureau's detailed land classification as overall (master) productivity rating class C, D, or E.

For purposes of this subsection:

"Aerospace high technology park" include 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 as defined in section 206M-1, 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.

"Alternative energy" means energy derived other than from the processing of petroleum.

"High technology" includes computer software and hardware, microprocessors, telecommunication devices, and robotics."

SECTION 4. The University of Hawaii shall extend the current land lease agreement with the high technology development corporation, located at 2800 Woodlawn Drive, Manoa, Honolulu, Hawaii, identified as tax map key 2-9-26: por. 3, 37, and 38, on the same terms and for a period no less than twenty-five years from the expiration date of the existing lease.

SECTION 5. The director of business, economic development, and tourism, pursuant to this Act, shall designate tax map key 1-6-146, 1-6-148, 1-6-151, and 1-6-03 on the island of Hawaii, as the pilot aerospace high technology enterprise zone for a period of ten years.

SECTION 6. The department of business, economic development, and tourism, in consultation with the department of taxation, shall submit a written report to the legislature by December 31 of each year, beginning in 2012, regarding the implementation of the pilot aerospace high technology enterprise zones in Hawaii county, including an evaluation of the success or failure of the pilot aerospace high technology enterprise zones in fulfilling their intended purposes.

SECTION 7. 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 therefore to the legislature at its next regular session thereafter for review by the legislature.

SECTION 8. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 9. 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 10. New statutory material is underscored.

SECTION 11. This Act shall take effect on July 1, 2012.

THE SENATE	S.B. NO.	2941
TWENTY-SIXTH LEGISLATURE, 2012		S.D. 2
STATE OF HAWAII		H.D. 2