Bill Text: HI SB831 | 2011 | Regular Session | Amended

Hawaii Senate Bill 831 (Prior Session Legislation)

Bill Title: New Markets Tax Credit; Section 704(b)(2), Internal Revenue Code

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Engrossed - Dead) 2011-04-28 - (S) Conference committee meeting to reconvene on 04-29-11 11:30AM in conference room 423. [SB831 Detail]

Download: Hawaii-2011-SB831-Amended.html

THE SENATE	S.B. NO.	831
TWENTY-SIXTH LEGISLATURE, 2011		S.D. 2
STATE OF HAWAII		H.D. 1

A BILL FOR AN ACT

RELATING TO TAXATION.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

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

"§235‑ New markets tax credit. (a) Section 45D (with respect to new markets tax credit) of the Internal Revenue Code of 1986, as amended, shall be operative for the purposes of this chapter, except as otherwise provided in this section.

(b) Each taxpayer, subject to the tax imposed by this chapter, who holds a qualified equity investment on a credit allowance date of that investment that occurs during the taxable year may claim a credit under this section. The amount of the credit shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed.

(c) The amount of the credit shall be equal to the applicable percentage of the amount paid to the qualified community development entity for the investment at its original issue. The applicable percentage shall be calculated as twenty per cent of the amount provided in section 45D(a)(2) of the Internal Revenue Code of 1986, as amended.

(d) For the purpose of this section, the determination of the following shall be made under the designated provisions of the Internal Revenue Code of 1986, as amended, as follows:

(1) Credit allowance date shall be made under section 45D(a)(3);

(2) Qualified equity investment shall be made under section 45D(b), except that reference to "the Secretary" under section 45D(b)(1), shall be to the director of taxation;

(3) Qualified community development entity shall be made under section 45D(c);

(4) Qualified low-income community investment shall be made under section 45D(d);

(5) Low-income community shall be made under section 45D(e); provided that the population census tract referenced shall refer to tracts in the State; provided further that "low-income community" has the same meaning as in section 45D(e)(1)(B), except that the percentage of median family income used for this determination shall be half that provided in that section;

(6) Recapture of credit shall be made under section 45D(g); provided that the tax for the taxable year, and five previous taxable years if applicable, shall be increased under section 45D(g)(1) only with respect to credits that were used to reduce state income tax; and

(7) Basis reduction shall be made under section 45D(h).

(e) The credit allowed under this section shall be deducted from the taxpayer's net income tax liability for the taxable year. For the purpose of deducting this tax credit, net income tax liability means net income tax liability reduced by all other credits allowed to the taxpayer under this chapter.

A tax credit under this section that exceeds the taxpayer's net income tax liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. All 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 properly and timely claim the credit shall constitute a waiver of the right to claim the credit.

(f) Section 469 (with respect to passive activity losses and credits limited) of the Internal Revenue Code of 1986, as amended, shall be applied in claiming the credit under this section.

(g) The director of taxation may adopt rules under chapter 91 and prepare any forms necessary to carry out the purposes of this section."

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

"§241- New markets tax credit. The new markets tax credit provided under section 235- shall be operative for this chapter."

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

"§431- New markets tax credit. The new markets tax credit provided under section 235- shall be operative for this chapter."

SECTION 4. Section 235-2.3, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) The following Internal Revenue Code subchapters, parts of subchapters, sections, subsections, and parts of subsections shall not be operative for the purposes of this chapter, unless otherwise provided:

(1) Subchapter A (sections 1 to 59A) (with respect to determination of tax liability), except section 1(h)(2) (relating to net capital gain reduced by the amount taken into account as investment income), except sections 2(a), 2(b), and 2(c) (with respect to the definition of "surviving spouse" and "head of household"), except section 41 (with respect to the credit for increasing research activities), except section 42 (with respect to low-income housing credit), except section 45D (with respect to new markets tax credit), except sections 47 and 48, as amended, as of December 31, 1984, (with respect to certain depreciable tangible personal property), and except section 48(d)(3), as amended, as of February 17, 2009, (with respect to the treatment of United States Department of Treasury grants made under [~~section~~] Section 1603 of the American Recovery and Reinvestment Tax Act of 2009). For treatment, see sections 235‑110.91, 235-110.7, [~~and~~] 235-110.8[;], and 235‑ ;

(2) Section 78 (with respect to dividends received from certain foreign corporations by domestic corporations choosing foreign tax credit);

(3) Section 86 (with respect to social security and tier 1 railroad retirement benefits);

(4) Section 103 (with respect to interest on state and local bonds). For treatment, see section 235-7(b);

(5) Section 114 (with respect to extraterritorial income). For treatment, any transaction as specified in the transitional rule for 2005 and 2006 as specified in the American Jobs Creation Act of 2004 [~~section~~] Section 101(d) and any transaction that has occurred pursuant to a binding contract as specified in the American Jobs Creation Act of 2004 [~~section~~] Section 101(f) are inoperative;

(6) Section 120 (with respect to amounts received under qualified group legal services plans). For treatment, see section 235-7(a)(9) to (11);

(7) Section 122 (with respect to certain reduced uniformed services retirement pay). For treatment, see section 235-7(a)(3);

(8) Section 135 (with respect to income from United States savings bonds used to pay higher education tuition and fees). For treatment, see section 235-7(a)(1);

(9) Section 139C (with respect to COBRA premium assistance);

(10) Subchapter B (sections 141 to 150) (with respect to tax exemption requirements for state and local bonds);

(11) Section 151 (with respect to allowance of deductions for personal exemptions). For treatment, see section 235-54;

(12) Section 179B (with respect to expensing of capital costs incurred in complying with Environmental Protection Agency sulphur regulations);

(13) Section 181 (with respect to special rules for certain film and television productions);

(14) Section 196 (with respect to deduction for certain unused investment credits);

(15) Section 199 (with respect to the [~~U.S.~~] United States production activities deduction);

(16) Section 222 (with respect to qualified tuition and related expenses);

(17) Sections 241 to 247 (with respect to special deductions for corporations). For treatment, see section 235-7(c);

(18) Section 280C (with respect to certain expenses for which credits are allowable). For treatment, see section 235-110.91;

(19) Section 291 (with respect to special rules relating to corporate preference items);

(20) Section 367 (with respect to foreign corporations);

(21) Section 501(c)(12), (15), (16) (with respect to exempt organizations); except that section 501(c)(12) shall be operative for companies that provide potable water;

(22) Section 515 (with respect to taxes of foreign countries and possessions of the United States);

(23) Subchapter G (sections 531 to 565) (with respect to corporations used to avoid income tax on shareholders);

(24) Subchapter H (sections 581 to 597) (with respect to banking institutions), except section 584 (with respect to common trust funds). For treatment, see chapter 241;

(25) Section 642(a) and (b) (with respect to special rules for credits and deductions applicable to trusts). For treatment, see sections 235-54(b) and 235-55;

(26) Section 646 (with respect to tax treatment of electing Alaska Native settlement trusts);

(27) Section 668 (with respect to interest charge on accumulation distributions from foreign trusts);

(28) Subchapter L (sections 801 to 848) (with respect to insurance companies). For treatment, see sections 431:7-202 and 431:7-204;

(29) Section 853 (with respect to foreign tax credit allowed to shareholders). For treatment, see section 235-55;

(30) Section 853A (with respect to credits from tax credit bonds allowed to shareholders);

(31) Subchapter N (sections 861 to 999) (with respect to tax based on income from sources within or without the United States), except sections 985 to 989 (with respect to foreign currency transactions). For treatment, see sections 235-4, 235-5, and 235-7(b), and 235-55;

(32) Section 1042(g) (with respect to sales of stock in agricultural refiners and processors to eligible farm cooperatives);

(33) Section 1055 (with respect to redeemable ground rents);

(34) Section 1057 (with respect to election to treat transfer to foreign trust, etc., as taxable exchange);

(35) Sections 1291 to 1298 (with respect to treatment of passive foreign investment companies);

(36) Subchapter Q (sections 1311 to 1351) (with respect to readjustment of tax between years and special limitations);

(37) Subchapter R (sections 1352 to 1359) (with respect to election to determine corporate tax on certain international shipping activities using per ton rate);

(38) Subchapter U (sections 1391 to 1397F) (with respect to designation and treatment of empowerment zones, enterprise communities, and rural development investment areas). For treatment, see chapter 209E;

(39) Subchapter W (sections 1400 to 1400C) (with respect to District of Columbia enterprise zone);

(40) Section 1400O (with respect to education tax benefits);

(41) Section 1400P (with respect to housing tax benefits);

(42) Section 1400R (with respect to employment relief);

(43) Section 1400T (with respect to special rules for mortgage revenue bonds);

(44) Section 1400U-1 (with respect to allocation of recovery zone bonds);

(45) Section 1400U-2 (with respect to recovery zone economic development bonds); and

(46) Section 1400U-3 (with respect to recovery zone facility bonds)."

SECTION 5. 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 the new markets tax credit allowed by section 235‑ ."

SECTION 6. Section 237-4, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) "Wholesaler" or "jobber" applies only to a person making sales at wholesale. Only the following are sales at wholesale:

(1) Sales to a licensed retail merchant, jobber, or other licensed seller for purposes of resale;

(2) Sales to a licensed manufacturer of materials or commodities that are to be incorporated by the manufacturer into a finished or saleable product (including the container or package in which the product is contained) during the course of its preservation, manufacture, or processing, including preparation for market, and that will remain in [~~such~~] a finished or saleable product in [~~such~~] a form as to be perceptible to the senses, which finished or saleable product is to be sold and not otherwise used by the manufacturer;

(3) Sales to a licensed producer or cooperative association of materials or commodities that are to be incorporated by the producer or by the cooperative association into a finished or saleable product that is to be sold and not otherwise used by the producer or cooperative association, including specifically materials or commodities expended as essential to the planting, growth, nurturing, and production of commodities that are sold by the producer or by the cooperative association;

(4) Sales to a licensed contractor, of materials or commodities that are to be incorporated by the contractor into the finished work or project required by the contract and that will remain in [~~such~~] a finished work or project in [~~such~~] a form as to be perceptible to the senses;

(5) Sales to a licensed producer, or to a cooperative association described in section [~~237-23(a)(7)~~] 237-23(a)(8) for sale to a licensed producer, or to a licensed person operating a feed lot, of poultry or animal feed, hatching eggs, semen, replacement stock, breeding services for the purpose of raising or producing animal or poultry products for disposition as described in section 237-5 or for incorporation into a manufactured product as described in paragraph (2) or for the purpose of breeding, hatching, milking, or egg laying other than for the customer's own consumption of the meat, poultry, eggs, or milk so produced; provided that in the case of a feed lot operator, only the segregated cost of the feed furnished by the feed lot operator as part of the feed lot operator's service to a licensed producer of poultry or animals to be butchered or to a cooperative association described in section [~~237-23(a)(7)~~] 237-23(a)(8) of [~~such~~] the licensed producers shall be deemed to be a sale at wholesale; and provided further that any amount derived from the furnishing of feed lot services, other than the segregated cost of feed, shall be deemed taxable at the service business rate. This paragraph shall not apply to the sale of feed for poultry or animals to be used for hauling, transportation, or sports purposes;

(6) Sales to a licensed producer, or to a cooperative association described in section [~~237-23(a)(7)~~] 237-23(a)(8) for sale to the producer, of seed or seedstock for producing agricultural and aquacultural products, or bait for catching fish (including the catching of bait for catching fish), which agricultural and aquacultural products or fish are to be disposed of as described in section 237-5 or to be incorporated in a manufactured product as described in paragraph (2);

(7) Sales to a licensed producer, or to a cooperative association described in section [~~237-23(a)(7)~~] 237-23(a)(8) for sale to [~~such~~] the licensed producer; of polypropylene shade cloth; of polyfilm; of polyethylene film; of cartons and [~~such~~] other containers, wrappers, and sacks, and binders to be used for packaging eggs, vegetables, fruits, and other agricultural and aquacultural products; of seedlings and cuttings for producing nursery plants or aquacultural products; or of chick containers; which cartons and [~~such~~] other containers, wrappers, and sacks, binders, seedlings, cuttings, and containers are to be used as described in section 237-5, or to be incorporated in a manufactured product as described in paragraph (2);

(8) Sales of tangible personal property where:

(A) Tangible personal property is sold upon the order or request of a licensed seller for the purpose of rendering a service in the course of the person's service business or calling, or upon the order or request of a person subject to tax under section 237D-2 for the purpose of furnishing transient accommodations;

(B) The tangible personal property becomes or is used as an identifiable element of the service rendered; and

the sale shall be subject to section 237-13.3;

(9) Sales to a licensed leasing company of capital goods that have a depreciable life, are purchased by the leasing company for lease to its customers, and are thereafter leased as a service to others;

(10) Sales of services to a licensed seller engaging in a business or calling whenever:

(A) Either:

(i) In the context of a service-to-service transaction, a service is rendered upon the order or request of a licensed seller for the purpose of rendering another service in the course of the seller's service business or calling, including a dealer's furnishing of goods or services to the purchaser of tangible personal property to fulfill a warranty obligation of the manufacturer of the property;

(ii) In the context of a service-to-tangible personal property transaction, a service is rendered upon the order or request of a licensed seller for the purpose of manufacturing, producing, or preparing tangible personal property to be sold;

(iii) In the context of a services-to-contracting transaction, a service is rendered upon the order or request of a licensed contractor as defined in section 237-6 for the purpose of assisting that licensed contractor; or

(iv) In the context of a services-to-transient accommodations rental transaction, a service is rendered upon the order or request of a person subject to tax under section 237D-2 for the purpose of furnishing transient accommodations;

(B) The benefit of the service passes to the customer of the licensed seller, licensed contractor, or person furnishing transient accommodations as an identifiable element of the other service or property to be sold, the contracting, or the furnishing of transient accommodations;

(C) The cost of the service does not constitute overhead to the licensed seller, licensed contractor, or person furnishing transient accommodations;

(D) The gross income of the licensed seller is not divided between the licensed seller and another licensed seller, contractor, or person furnishing transient accommodations for imposition of the tax under this chapter;

(E) The gross income of the licensed seller is not subject to a deduction under this chapter or chapter 237D; and

(F) The resale of the service, tangible personal property, contracting, or transient accommodations is subject to the tax imposed under this chapter at the highest tax rate.

Sales subject to this paragraph shall be subject to section 237-13.3;

(11) Sales to a licensed retail merchant, jobber, or other licensed seller of bulk condiments or prepackaged single-serving packets of condiments that are provided to customers by the licensed retail merchant, jobber, or other licensed seller;

(12) Sales to a licensed retail merchant, jobber, or other licensed seller of tangible personal property that will be incorporated or processed by the licensed retail merchant, jobber, or other licensed seller into a finished or saleable product during the course of its preparation for market (including disposable, nonreturnable containers, packages, or wrappers, in which the product is contained and that are generally known and most commonly used to contain food or beverage for transfer or delivery), and [~~which~~] the finished or saleable product is to be sold and not otherwise used by the licensed retail merchant, jobber, or other licensed seller;

(13) Sales of amusements subject to taxation under section 237-13(4) to a licensed seller engaging in a business or calling whenever:

(A) Either:

(i) In the context of an amusement-to-service transaction, an amusement is rendered upon the order or request of a licensed seller for the purpose of rendering another service in the course of the seller's service business or calling;

(ii) In the context of an amusement-to-tangible personal property transaction, an amusement is rendered upon the order or request of a licensed seller for the purpose of selling tangible personal property; or

(iii) In the context of an amusement-to-amusement transaction, an amusement is rendered upon the order or request of a licensed seller for the purpose of rendering another amusement in the course of the person's amusement business;

(B) The benefit of the amusement passes to the customer of the licensed seller as an identifiable element of the other service, tangible personal property to be sold, or amusement;

(D) The gross income of the licensed seller is not divided between the licensed seller and another licensed seller, person furnishing transient accommodations, or person rendering an amusement for imposition of the tax under chapter 237;

(E) The gross income of the licensed seller is not subject to a deduction under this chapter; and

(F) The resale of the service, tangible personal property, or amusement is subject to the tax imposed under this chapter at the highest rate.

As used in this paragraph, "amusement" means entertainment provided as part of a show for which there is an admission charge. Sales subject to this paragraph shall be subject to section 237-13.3; and

(14) Sales by a printer to a publisher of magazines or similar printed materials containing advertisements, when the publisher is under contract with the advertisers to distribute a minimum number of magazines or similar printed materials to the public or defined segment of the public, whether or not there is a charge to the persons who actually receive the magazines or similar printed materials."

SECTION 7. Section 237-23, Hawaii Revised Statutes, is amended by amending subsections (a), (b), and (c) to read as follows:

"(a) This chapter shall not apply to the following persons:

(1) Public service companies as that term is defined in section 239-2, with respect to the gross income, either actual gross income or gross income estimated and adjusted, that is included in the measure of the tax imposed by chapter 239;

(2) Public utilities owned and operated by the State or any county, or other political subdivision thereof;

(3) Fraternal benefit societies, orders, or associations, operating under the lodge system, or for the exclusive benefit of the members of the fraternity itself, operating under the lodge system, and providing for the payment of death, sick, accident, prepaid legal services, or other benefits to the members of the societies, orders, or associations, and to their dependents;

(4) Corporations, associations, trusts, or societies organized and operated exclusively for religious, charitable, scientific, or educational purposes, as well as that of operating senior citizens housing facilities qualifying for a loan under the laws of the United States as authorized by section 202 of the Housing Act of 1959, as amended, as well as that of operating a prepaid legal services plan, as well as that of operating or managing a homeless facility, or any other program for the homeless authorized under part XVII of chapter 346;

(5) Business leagues, chambers of commerce, boards of trade, civic leagues, agricultural and horticultural organizations, and organizations operated exclusively for the benefit of the community and for the promotion of social welfare that shall include the operation of a prepaid legal service plan, and from which no profit inures to the benefit of any private stockholder or individual;

(6) Hospitals, infirmaries, and sanitaria;

(7) Companies that provide potable water and are tax exempt under section 501(c)(12) of the Internal Revenue Code of 1986, as amended;

[~~(7)~~] (8) Cooperative associations incorporated under chapter 421 or Code section 521 cooperatives which fully meet the requirements of section 421-23, except Code section 521 cooperatives need not be organized in Hawaii; provided that:

(A) The exemption shall apply only to the gross income derived from activities that are pursuant to purposes and powers authorized by chapter 421, except those provisions pertaining to or requiring corporate organization in Hawaii do not apply to Code section 521 cooperatives;

(B) The exemption shall not relieve any person who receives any proceeds of sale from the association of the duty of returning and paying the tax on the total gross proceeds of the sales on account of which the payment was made, in the same amount and at the same rate as would apply thereto had the sales been made directly by the person, and all those persons shall be so taxable; and

(C) As used in this paragraph, "section 521 cooperatives" mean associations that qualify as a cooperative under section 521 (with respect to exemption of farmers' cooperatives from tax) of the Internal Revenue Code of 1986, as amended;

[~~(8)~~] (9) Persons affected with Hansen's disease and kokuas, with respect to business within the county of Kalawao;

[~~(9)~~] (10) Corporations, companies, associations, or trusts organized for the establishment and conduct of cemeteries no part of the net earnings of which inures to the financial benefit of any private stockholder or individual; provided that the exemption shall apply only to the activities of those persons in the conduct of cemeteries and shall not apply to any activity the primary purpose of which is to produce income, even though the income is to be used for or in the furtherance of the exempt activities of those persons; and

[~~(10)~~] (11) Nonprofit shippers associations operating under part 296 of the Civil Aeronautics Board Economic Regulations.

(b) The exemptions enumerated in subsection (a)(3) to [~~(6)~~] (7) shall apply only:

(1) To those persons who shall have registered with the department of taxation by filing a written application for registration in such form as the department shall prescribe, shall have paid the registration fee of $20, and shall have had the exemption allowed by the department or by a court or tribunal of competent jurisdiction upon appeal from any assessment resulting from disallowance of the exemption by the department;

(2) To activities from which no profit inures to the benefit of any private stockholder or individual, except for death or other benefits to the members of fraternal societies; and

(3) To the fraternal, religious, charitable, scientific, educational, communal, or social welfare activities of [~~such~~] persons, or to the activities of [~~such~~] hospitals, infirmaries, [~~and~~] sanitaria [~~as such~~], and potable water companies, and not to any activity the primary purpose of which is to produce income even though the income is to be used for or in furtherance of the exempt activities of [~~such~~] persons[.] performing the exempt activities.

(1) A person under subsection (a)(3) to [~~(6),~~] (7), who has received or applied for recognition of tax exempt status under section 501(c)(3), (4), (6), [or] (8), or 12 of the Internal Revenue Code of 1986, as amended, or who is a subordinate person of a person who has received a group exemption letter under section 501(c)(3), (4), (6), [or] (8), or 12 of the Internal Revenue Code of 1986, as amended, shall register with the department by filing a statement attaching a copy of the exemption or application for recognition of exempt status and any particular facts that the department may require; and

(2) All other persons under subsection (a)(3) to (6) shall file an application for exemption in the form of an affidavit or affidavits setting forth in general all facts affecting the right to the exemption and [~~such~~] any particular facts as the department may require, to which shall be attached such records, papers, and other information as the department may prescribe."

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2030.

Report Title:

New Markets Tax Credit; Section 704(b)(2), Internal Revenue Code

Description:

Establishes a new markets tax credit for qualified equity investment on a credit allowance date and that is exempt from the requirements of section 704(b)(2) of the Internal Revenue Code; restricts community development entity investments to low-income communities in Hawaii; includes franchise taxes and insurance premium taxes eligible for the tax credit. Exempts federally tax exempt companies that supply potable water from the state income and general excise taxes. (SB831 HD2)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.