HB1384

SECTION 1. The legislature finds that Hawaii's economy has been greatly impacted by the COVID-19 pandemic. However, during the first nine months of 2022, roughly 6,800,000 visitors arrived in Hawaii, representing eighty-eight per cent recovery from the same period in 2019. International visitors arriving by air recovered 36.7 per cent.

The legislature further finds that overall for 2022, the average annual unemployment rate is estimated to be 3.6 per cent, and is projected to decrease to 3.5 per cent in 2023, 3.2 per cent in 2024, and 2.9 per cent in 2025. These rates remain higher than Hawaii's average unemployment rate of 2.5 per cent from 2017 to 2019.

Despite signs of recovery, the legislature also finds that Hawaii's consumer inflation rate, as measured by the Honolulu consumer price index for all urban consumers, is estimated to increase 6.5 per cent in 2022, with a projected increase of 3.1 per cent in 2023, 2.3 per cent in 2024, and 2.1 per cent in 2025.

The legislature further finds that the food manufacturing industry in Hawaii can help the State's food security by strengthening the link between farmers and other agricultural producers and Hawaii's small business people who process raw fruits, vegetables, grains, meats, and dairy products into finished goods ready for the grocer or wholesaler to sell to households, restaurants, or institutional food services. In 2015, Act 215 created the manufacturing development program that provides assistance to manufacturing businesses in the State through grants. The further development of the food manufacturing industry in the State will prevent food waste and broaden and diversify the economy away from its heavy reliance on tourism.

The purpose of this Act is to establish an income tax credit to incentivize the development of the food manufacturing industry in the State.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Manufacturing development tax credit. (a) There shall be allowed to each qualified taxpayer subject to the tax imposed under this chapter, an income tax credit that shall be deductible from the qualified taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed.

(b) The amount of the tax credit shall be equal to the qualified expenses of the qualified taxpayer up to a maximum of $ in any taxable year.

(c) In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for qualified expenses incurred by the entity for the taxable year. The expenses 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 704(b) of the Internal Revenue Code.

(d) The amount of the tax credits allowed under this section shall not exceed $ for all qualified taxpayers in any taxable year; provided that any qualified taxpayer who is not eligible to claim the credit in a taxable year due to the $ tax credit cap being reached for that taxable year shall be eligible to claim the credit in the subsequent taxable year.

(e) By March 31 of each year, each qualified taxpayer claiming the tax credit for the previous taxable year, shall submit a written, certified statement to the chairperson of the board of agriculture identifying:

(1) Qualified expenses incurred in the previous year; and

(2) The amount of the tax credit claimed by the qualified taxpayer pursuant to this section, if any, in the previous taxable year.

(f) The department of agriculture shall:

(1) Maintain records of the names and addresses of the qualified taxpayers claiming the credits under this section and the total amount of the qualified expenses upon which the tax credits are based;

(2) Verify the nature and amount of the qualified expenses;

(3) Total all qualified and cumulative expenses that the corporation certifies; and

(4) Certify the amount of the tax credit for each qualified taxpayer of each taxable year and the cumulative amount of the tax credit.

Upon each determination made under this subsection, the department of agriculture shall issue a certificate to the qualified taxpayer verifying information submitted to the corporation, including amounts of qualified expenses, the credit amount certified for the qualified taxpayer for each taxable year, and the cumulative amount of tax credits certified. The qualified taxpayer shall file the certificate with the qualified taxpayer's tax return with the department of taxation.

The department of agriculture may assess and collect a fee to offset the costs of certifying tax credit claims under this section.

(g) 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 qualified 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.

(h) If the tax credit under this section exceeds the qualified taxpayer's net income tax liability, the excess of the credit over liability may be used as a credit against the qualified taxpayer's net 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.

(i) As used in this section:

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

"Qualified expenses" means expenses incurred by a qualified taxpayer for:

(1) The purchasing of food manufacturing equipment;

(2) Training of employees on the use of food manufacturing equipment;

(3) Improving existing energy efficiency manufacturing equipment or the purchase of improved energy efficiency equipment in the food manufacturing process; or

(4) Studying or planning the implementation of a new food manufacturing facility.

"Qualified taxpayer" means any person or business entity engaged in the food manufacturing industry in the State."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval; provided that section 2 of this Act shall apply to taxable years beginning after December 31, 2022.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	1384
THIRTY-SECOND LEGISLATURE, 2023
STATE OF HAWAII