Report Title:

Enterprise Zones

 

Description:

Requires State to share with the relevant county a portion of general excise, use, and income taxes paid by businesses initially assisted by State and local incentives to allow county to recoup its initial investment in an enterprise zone.

 

HOUSE OF REPRESENTATIVES

H.B. NO.

185

TWENTY-FIRST LEGISLATURE, 2001

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO ENTERPRISE ZONES.

 

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

SECTION 1. State law establishes the enterprise zone program. The program is intended to work as a partnership between the State and the county within which an enterprise zone is located. A county is authorized to initiate the designation of up to six enterprise zones for twenty years. Upon gubernatorial approval of a county-designated enterprise zone, qualified businesses within the zone become eligible during their initial years of operation for the following:

(1) State tax incentives in the form of income tax credits and general excise and use tax exemptions; and

(2) "Local incentives" offered by the county, such as real property tax rebates and permit fee waivers.

The incentives are intended to promote the viability of the qualified businesses during their initial years of operation.

After the expiration of the initial incentive eligibility period, the qualified businesses become subject to the taxes and fees. Then the State, primarily through the general excise, use, and income taxes, has the opportunity to generate more revenues from an enterprise zone than does a county. A county has no access to those tax revenues and, accordingly, has less of an opportunity to recoup its initial investment in an enterprise zone. Thus, the legislature finds that the State should share with the relevant county a portion of the general excise, use, and income taxes paid by businesses initially assisted by state and local incentives.

The legislature finds that the sharing of taxes will emphasize the partnership between the State and county, enable a county to recoup its investment in and derive positive net revenues from an enterprise zone, and encourage a county to propose more and larger enterprise zones. The legislature intends that this Act send each county a signal to be bold and visionary in the promotion of economic revitalization and development.

The legislature recognizes that the counties offer local incentives of different levels, some of which are more generous than others. The legislature finds that this Act may encourage a county to establish better local incentives which offer greater financial assistance to qualified businesses.

The purpose of this Act is to provide for the sharing between the State and a county of general excise, use, and income taxes paid by businesses in an enterprise zone which were initially assisted with state and local incentives, including real property tax exemptions intended to promote construction or renovation by a business either within or outside an enterprise zone.

SECTION 2. Chapter 209E, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§209E- Revenue sharing. (a) For the purpose of this section:

"Enterprise zone activity" means a type of business activity:

(1) Described under the definition of "qualified business" in section 209E-2; and

(2) Engaged in within an enterprise zone by a corporation, partnership, or sole proprietorship which was or continues to be a "qualified business."

The term does not mean business activity conducted at a location which was, but no longer is, within an enterprise zone because of termination or expiration of that zone.

"Incentive period" means the period established under section 209E-11 during which a qualified business is eligible for exemption from the general excise and use taxes.

"Local tax and fee incentives" means:

(1) Tax and fee reductions proposed by a county in an enterprise zone application approved by the governor; and

(2) Real property tax exemptions provided to a business to promote construction or renovation of a non-dwelling improvement situated either within or outside an enterprise zone.

"Relevant county" means the county which has established the enterprise zone within which a business subject to this section is situated.

"State enterprise zone tax incentives" means the state tax exemptions and credits provided to a qualified business under this chapter.

(b) After the expiration of the incentive period for a qualified business, the State shall transmit to the relevant county the county's share of the general excise, use, and income taxes paid by that business on its enterprise zone activity.

(1) The "county's share" shall be the percentage calculated by dividing the dollar value of the local tax and fee incentives provided to the qualified business during its incentive period by the sum of the following:

(A) The dollar value of the local tax and fee incentives provided to the qualified business during its incentive period; and

(B) The dollar value of the state enterprise zone tax incentives provided to the qualified business during its incentive period.

The "dollar value" of tax and fee incentives shall be the amount in dollars of the taxes and fees foregone by the State or relevant county because of the state enterprise zone tax incentives or local tax and fee incentives provided to the qualified business. The dollar value of the state enterprise zone tax incentives shall be determined by the state director of taxation and shall be conclusive for the purpose of this section. The dollar value of the local tax and fee incentives shall be determined by the relevant county's director of finance or equivalent officer and shall be conclusive for the purpose of this section. From the determinations of the dollar values of the incentives, the state director of business, economic development, and tourism shall calculate the percentage, rounded to the nearest tenth of a per cent, which is the "county's share." The director of business, economic development, and tourism shall make the calculation within thirty days of the expiration of the incentive period for the qualified business. The percentage shall be applicable until the termination or expiration of the enterprise zone for determining the county's share of the general excise, use, and income taxes paid by that particular business on its enterprise zone activity.

(2) The "general excise, use, and income taxes paid by the business on its enterprise zone activity" means:

(A) The general excise taxes paid by the business upon the gross income or gross proceeds derived from the business's enterprise zone activity;

(B) The use taxes paid by the business upon the price or value of property imported or purchased for use in the business's enterprise zone activity; and

(C) The net income taxes paid by the business upon taxable income earned from the business's enterprise zone activity. "Net income taxes" means income taxes paid less refunds.

The state director of taxation shall determine the amount of taxes paid by a particular business upon its enterprise zone activity. The determination shall be conclusive for the purpose of this section.

(c) Except as otherwise provided by subsection (d), the state director of finance, on behalf of the State, shall transmit to the relevant county the county's share of the general excise, use, and income taxes by the following deadlines:

(1) The transmittal of the county's share of the general excise taxes paid by a business on its enterprise zone activity during a fiscal year shall be made within thirty days of the filing by the business of the annual general excise tax return for that fiscal year;

(2) The transmittal of the county's share of the use taxes paid by a business on its enterprise zone activity shall be made within thirty days of the filing by the business of any monthly, quarterly, or semiannual use tax return; and

(3) The transmittal of the county's share of the income taxes paid by a business on its enterprise zone activity shall be made within thirty days of the filing by the business of its annual net tax return for a taxable year.

When a return by a business covers a fiscal period extending beyond the termination or expiration date of an enterprise zone, the county's share shall be calculated only on the taxes paid by the business on its enterprise zone activity before the termination or expiration date.

(d) The transmittal deadline set under subsection (c)(1), (2), or (3) shall not apply when a county's share of taxes cannot be determined on the deadline because of an appeal or delinquency by a business. When the county's share does become determinable because of resolution of the appeal or payment of the delinquency, the state director of finance shall transmit to the relevant county the county's share of the applicable taxes within thirty days of the date of resolution or payment.

(e) The share of the general excise, use, and income taxes required to be transmitted to the relevant county by this section shall be deemed revenues of that county, not the State. No legislative appropriation shall be necessary for the transmittal of those revenues to the relevant county.

(f) This section shall not require the transmittal to a county of general excise, use, or income taxes paid by a business before the expiration of the business's incentive period. This provision shall apply even if the business loses its "qualified" status for any fiscal year during the incentive period.

This section also shall not require the transmittal to a county of general excise, use, and income taxes due and owing by a business because of activity conducted after the termination or expiration of an enterprise zone."

SECTION 3. Section 235-119, Hawaii Revised Statutes, is amended to read as follows:

"§235-119 Taxes, state realizations[.], exception. All income taxes, except the share required to be transmitted to a county pursuant to section 209E-  , shall be [for]:

(1) For the use of the State; and [shall be paid]

(2) Paid into the state treasury at such times as the director of finance shall direct."

SECTION 4. Section 237-31, Hawaii Revised Statutes, is amended to read as follows:

"§237-31 Remittances. All remittances of taxes imposed by this chapter shall be made by money, bank draft, check, cashier's check, money order, or certificate of deposit to the office of the department of taxation to which the return was transmitted. The department shall issue its receipts therefor to the taxpayer and shall pay the moneys into the state treasury as a state realization, to be kept and accounted for as provided by law; provided that:

(1) The sum from all general excise tax revenues realized by the State that represents the difference between $45,000,000 and the proceeds from the sale of any general obligation bonds authorized for that fiscal year for the purposes of the state educational facilities improvement special fund shall be deposited in the state treasury in each fiscal year to the credit of the state educational facilities improvement special fund;

(2) A sum, not to exceed $5,000,000, from all general excise tax revenues realized by the State shall be deposited in the state treasury in each fiscal year to the credit of the compound interest bond reserve fund; [and]

(3) A sum, not to exceed the amount necessary to meet the obligations of the integrated tax information management systems performance-based contract may be retained and deposited in the state treasury to the credit of the integrated tax information management systems special fund. The sum retained by the director of taxation for deposit to the integrated tax information [[]management[]] systems special fund for each fiscal year shall be limited to amounts appropriated by the legislature. This paragraph shall be repealed on July 1, 2004[.]; and

(4) The share of general excise tax revenues required to be transmitted to a county pursuant to section 209E-   shall be a county realization, not a state realization."

SECTION 5. Section 238-14, Hawaii Revised Statutes, is amended to read as follows:

"§238-14 Taxes state realizations[.]; exception. All taxes collected under this chapter shall be state realizations[.]; except that the share required to be transmitted to a county pursuant to section 209E-   shall be county realizations."

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act shall take effect on July 1, 2001.

INTRODUCED BY:

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