SB738

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

"§235- Low-income housing investment tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter a low-income housing investment tax credit that shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the investment was made and the following four taxable years. The tax credit may be claimed as follows:

(1) In the taxable year the investment was made, thirty-five per cent of the investment made by the taxpayer in each project or $700,000, whichever is less;

(2) In the first taxable year following the year in which the investment was made, twenty-five per cent of the investment made by the taxpayer in each project or $500,000, whichever is less;

(3) In the second taxable year following the year in which the investment was made, twenty per cent of the investment made by the taxpayer in each project or $400,000, whichever is less;

(4) In the third taxable year following the year in which the investment was made, ten per cent of the investment made by the taxpayer in each project or $200,000, whichever is less; and

(5) In the fourth taxable year following the year in which the investment was made, ten per cent of the investment made by the taxpayer in each project or $200,000, whichever is less.

(b) The tax credit allowed under this section shall be claimed against the taxpayer's net income tax liability for the taxable year.

(c) If the tax credit under this section exceeds the taxpayer's income tax liability for any of the five taxable years that the credit is taken, the excess of the tax credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. Every claim, including amended claims, for a tax credit under this section 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 the foregoing provision shall constitute a waiver of the right to claim the credit.

(d) Common law principles, including the doctrine of economic substance and business purpose, shall apply to any investment. There exists a presumption that a transaction satisfies the doctrine of economic substance and business purpose to the extent that the special allocation of the low-income housing investment tax credit has an investment tax credit ratio of 4.0 or less of credit for every dollar invested.

Transactions for which an investment tax credit allocation ratio greater than 4.0 and up to 6.0 of credit for every dollar invested and claimed may be reviewed by the department for applicable doctrines of economic substance and business purpose.

Taxpayers claiming a tax credit for transactions with investment tax credit allocation ratios greater than 6.0 of credit for every dollar invested shall substantiate economic merit and business purpose consistent with this section.

(e) The director of taxation:

(1) Shall prepare any forms that may be necessary to claim a tax credit under this section;

(2) May require the taxpayer to furnish reasonable information to ascertain the validity of the claim for the tax credit made under this section; and

(3) May adopt rules under chapter 91 necessary to effectuate the purposes of this section.

(f) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of the credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. 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 the foregoing provision shall constitute a waiver of the right to claim the credit.

(g) As used in this section:

"Investment tax credit allocation ratio" means, with respect to a taxpayer that has made an investment in a project, the ratio of:

(1) The amount of the credit under this section that is, or is to be, received by, or allocated to, the taxpayer over the life of the investment, as a result of the investment; to

(2) The amount of the investment in the project.

"Project" means a qualified low-income housing project or qualified low-income building as referenced under section 235-110.8.

(h) This section shall not apply to taxable years beginning after December 31, ."

SECTION 2. Chapter 241, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§241- Low-income housing investment tax credit. The low-income housing investment tax credit provided under section 235- shall be operative for this chapter after December 31, 2018, and before January 1, ."

SECTION 3. Chapter 431, Hawaii Revised Statutes, is amended by adding a new section to article 7 to be appropriately designated and to read as follows:

"§431:7- Low-income housing investment tax credit. The low-income housing investment tax credit provided under section 235- shall be operative for this chapter after December 31, 2018, and before January 1, , and may be claimed against the tax imposed under section 431:7-202."

SECTION 4. Section 235-2.45, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:

"(d) Section 704 of the Internal Revenue Code (with respect to a partner's distributive share) shall be operative for purposes of this chapter; except that section 704(b)(2) shall not apply to:

(1) Allocations of the high technology business investment tax credit allowed by section 235-110.9 for investments made before May 1, 2009;

(2) Allocations of net operating loss pursuant to section 235-111.5;

(3) Allocations of the attractions and educational facilities tax credit allowed by section 235-110.46; [or]

(4) Allocations of low-income housing tax credits among partners under section 235-110.8[.]; or

(5) Allocations of low-income housing investment tax credits among partners under section 235- ."

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

SECTION 6. This Act shall take effect upon its approval and shall apply to investments made in qualified low-income housing projects or qualified low-income buildings after December 31, 2018.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	738
THIRTIETH LEGISLATURE, 2019
STATE OF HAWAII