SB2496

SECTION 1. The legislature finds that chronic drought conditions and water shortages across the State impact agricultural operations and crucial water infrastructure. Certain areas of the State such as east and upcountry Maui experience severe drought conditions that affect access to clean, reliable sources of water. By incorporating and utilizing gray water systems in residential units, the State can preserve valuable water resources and critical infrastructure.

Therefore, the purpose of this Act is to establish a gray water income tax credit.

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

"§235- Gray water income tax credit. (a) There shall be allowed to each qualified taxpayer subject to the tax imposed under this chapter, a gray water 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) 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 by rule.

(c) The amount of the tax credit shall be equal to per cent of the cost of each system, up to a maximum of $ in any taxable year; provided that the qualified gray water system is certified by the department of health pursuant to subsection (f); provided further that the gray water income tax credit, combined with other credits allowed pursuant to this chapter during the privilege period, shall not exceed fifty per cent of the qualified taxpayer's tax liability and shall not reduce the taxpayer's minimum income tax liability.

(d) The total amount of 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 $ cap having been exceeded for that taxable year shall be eligible to claim the credit in the subsequent taxable year.

(e) 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.

(f) The department of health shall:

(1) Certify all qualified gray water systems claimed for the purposes of this section;

(2) Collect and maintain a record of all qualified expenses certified by an appropriate government agency for the taxable year; and

(3) Certify the amount of the tax credit for each taxable year and cumulative amount of the tax credit; provided that if, in any year, the annual amount of certified credits reaches $ in the aggregate, the department of health shall immediately discontinue certifying credits and notify the department of taxation.

The director of health may adopt rules under chapter 91 as necessary to implement the certification requirements under this section.

(g) The director of taxation:

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

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

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

(h) All of the provisions relating to assessments and refunds under this chapter and under section 231-23(c)(1) shall apply to the tax credit under this section.

(i) 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.

(j) This section shall not apply to taxable years beginning after December 31, 2034.

(k) As used in this section:

"Gray water" has the same meaning as defined in section 342D-1.

"Qualified taxpayer" means an individual homeowner, landowner, or corporate entity that installs a qualified gray water system:

(1) On residential property owned by the taxpayer;

(2) While constructing a new home owned by the taxpayer; or

(3) For the construction of multiple homes as part of a new housing development.

"Qualified gray water system" means a gray water filtration system approved by the department of health used for irrigating lawns and gardens under a county gray water recycling program pursuant to section 342D-70."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2024; provided that section 2 of this Act shall repeal on January 1, 2035.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2496
THIRTY-SECOND LEGISLATURE, 2024
STATE OF HAWAII