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Goodsill Anderson Quinn & Stifel Article on Hawaii State Tax Investment Act 221 from our Law Firm

Hawaii State Department of Taxation High Tech Resources

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Maui Aloha Investment Fund

Public Information and Comment on Act 221

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Act 221 - Text of Hawaii Revised Statutes

§235-110.9 High technology business investment tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter a high technology business 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 years provided the credit is properly claimed. The tax credit shall be as follows:
(1) In the year the investment was made, thirty-five per cent;
(2) In the first year following the year in which the investment was made, twenty-five per cent;
(3) In the second year following the investment, twenty per cent;
(4) In the third year following the investment, ten per cent; and
(5) In the fourth year following the investment, ten per cent;
of the investment made by the taxpayer in each qualified high technology business, up to a maximum allowed credit in the year the investment was made, $700,000; in the first year following the year in which the investment was made, $500,000; in the second year following the year in which the investment was made, $400,000; in the third year following the year in which the investment was made, $200,000; and in the fourth year following the year in which the investment was made, $200,000.
(b) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year.
For the purpose of this section, “net income tax liability” means net income tax liability reduced by all other credits allowed under this chapter.
(c) If the tax credit under this section exceeds the taxpayer’s income tax liability for any of the five 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) If at the close of any taxable year in the five-year period in subsection (a):
(1) The business no longer qualifies as a qualified high technology business;
(2) The business or an interest in the business has been sold by the taxpayer investing in the qualified high
technology business; or
(3) The taxpayer has withdrawn the taxpayer’s investment wholly or partially from the qualified high
technology business;
the credit claimed under this section shall be recaptured. The recapture shall be equal to ten per cent of the amount of the total tax credit claimed under this section in the preceding two taxable years. The amount of the credit recaptured shall apply only to the investment in the particular qualified high technology business that meets the requirements of paragraph (1), (2), or (3). The recapture provisions of this subsection shall not apply to a tax credit claimed for a qualified high technology business that does not fall within the provisions of paragraph (1), (2), or (3). The amount of the recaptured tax credit determined under this subsection shall be added to the taxpayer’s tax liability for the taxable year in which the recapture occurs under this subsection.
(e) As used in this section:
“Qualified high technology business” means a business, employing or owning capital or property, or maintaining
an office, in this State; provided that:
(1) More than fifty per cent of its total business activities are qualified research; and provided further that the
business conducts more than seventy-five per cent of its qualified research in this State; or
(2) More than seventy-five per cent of its gross income is derived from qualified research; and provided further
that this income is received from:
(A) Products sold from, manufactured in, or produced in this State; or
(B) Services performed in this State.

“Qualified research” means the same as defined in section 235-7.3.
[(f)]This section shall not apply to taxable years beginning after December 31, 2005. [L 1999, c 178, §24; am L
2000, c 297, §8; am 2001, c 221, §9]

Note:

Applies to taxable years beginning after December 31, 1998, for investments made pursuant to this section on or after July 1, 1999. L 1999, c 178, §31(3).
Applicability of 2000 amendment. L 2000, c 297, §§10, 35(1). [It is the intention of the legislature in making amendments in this Part to sections 235-7.3, 235-9.5, 235-110.9, and 235-110.91, Hawaii Revised Statutes, that the amendments be liberally construed, and in this regard, the department of taxation given liberal latitude to interpret those amendments in light of current industry standards. The amendments made in this Part to sections 235-7.3, 235-9.5, 235-110.9, and 235-110.91, Hawaii Revised Statutes, shall not be construed to disqualify any taxpayer who has received a favorable written determination from the department of taxation under the original provisions of those sections as enacted by Act 178, Session Laws of Hawaii, 1999.]
L 2001, c 221, §15(2) provides:
“(2) Section 9 [amending §235-110.9] shall apply to taxable years beginning after December 31, 2000, but shall not apply to taxable years after December 31, 2005; provided that a taxpayer may continue to claim the credits if the five-year period to claim the credits commences in taxable years beginning before January 1, 2006; . . .”
§235-110.91 INCOME TAX LAW

Section 235-7.3

“Qualified high technology business” means a business that conducts more than fifty per cent of its activities in
qualified research.
“Qualified research” means:
(1) The same as in section 41(d) of the Internal Revenue Code;
(2) The development and design of computer software using fourth generation or higher software development
tools or native programming languages to design and construct unique and specific code to create
applications and design databases for sale or license;
(3) Biotechnology;
(4) Performing arts products;
(5) Sensor and optic technologies;
CHAPTER 235, Page 30
(6) Ocean sciences;
(7) Astronomy; or
(8) Nonfossil fuel energy-related technology. [L 1999, c 178, §22;amL2000, c 297, §6;amL2001, c 221, §7]
INCOME TAX LAW §235-7.5

•QHTB must have Hawaii presence (capital, property, office), and: –

More than 50% of its total activities are QR and more than 75% of this QR is done in HI;

or –More than 75% of its gross income is derived from QR and the income so derived is received:

•from products sold from or manf’d in Hawaii; or

•from services performed in Hawaii

Information on Hawaii Securities Law