Report Title:

State Enterprise Zones

Description:

Allows farmers who suffer economic losses from force majeure events to drop out of the Enterprise Zone (EZ) program for the period of the loss and gain a month-for -month extension of their overall 84-month eligibility. Clarifies the definition of a "full-time employee" includes leased employees and employees under a joint employer relationship. Specifies that tax credits taken in the EZ program cannot be duplicated in other tax incentive programs.

HOUSE OF REPRESENTATIVES

H.B. NO.

603

TWENTY-THIRD LEGISLATURE, 2005

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO STATE ENTERPRISE ZONES.

 

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

SECTION 1. The legislature finds that agriculture in Hawaii is a vital component of Hawaii's economy. It provides the State with export products, a diversity of employment opportunities, a stage for tourism, and an opportunity for land and water stewardship. The legislature also finds that to encourage further economic development in rural areas, agriculture must be given the chance to prosper. More incentives must be provided to give agricultural entrepreneurs the opportunity to build long-lasting businesses in Hawaii.

The legislature further finds that the state enterprise zone program is one method that provides tax incentives to encourage agricultural activity. However, qualifying employment requirements for this program discourage many agricultural businesses from applying or qualifying. While agricultural businesses are confronted by challenges similar to those faced by other small businesses, agricultural businesses labor under unique circumstances that compound the complexity of building a successful business. Agricultural employment is dependent on the local and global marketplace, seasonal crops, labor availability, and weather conditions. It is very difficult for agricultural businesses to meet the existing employment requirements of the state enterprise zone program. Therefore, the legislature recognizes that changes need to be made to allow more agricultural businesses the opportunity to participate in the state enterprise zone program if it is to serve its intended purpose of bringing successful business activity to rural areas.

The purpose of this Act is to address the unique circumstances of agricultural businesses that prevent them from fully utilizing the benefits of the state enterprise zone partnership. The Act also clarifies the definition of "full-time employee" to include leased employees and joint employer situations, clarifies that enterprise zone firms cannot claim the same tax credits or exemptions in other tax incentive programs, and removes two sections of chapter 209E, Hawaii Revised Statutes, that are obsolete.

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

"§209E-___ Agricultural business; extension of tax incentives. The department may extend all tax incentives provided under this chapter to existing qualified agricultural businesses for no more than the number of months of the duration of the force majeure.

§209E-_ Force majeure; agricultural businesses. If an agricultural business is wholly or partially prevented from maintaining eligibility requirements under section 209E-9, or if the agricultural business is interrupted by reason of or through any force majeure event, including but not limited to damaging weather or natural disaster such as epidemic disease, pest outbreak, high wind, thunderstorm, hailstorm, tornado, fire, flood, lava flow or volcanic activity, drought, tidal wave, hurricane, or without limiting or restricting the foregoing in any way, any other similar or dissimilar cause reasonably beyond its control and not attributable to its neglect, then the agricultural business shall not be disqualified under this chapter. The agricultural business shall be as prompt and diligent as practical in providing the department with notice of a force majeure event or of any situation that may lead to a force majeure event and the seven-year eligibility period shall be extended by the number of months of the duration of the force majeure event."

SECTION 3. Section 209E-2, Hawaii Revised Statutes, is amended by adding a new definition to be appropriately inserted and to read as follows:

""Leased employee" means an employee under a professional employment organization arrangement who is assigned to a client company on a substantially full-time basis for at least one year."

SECTION 4. Section 209E-2, Hawaii Revised Statutes, is amended by amending the definition of "full time employee" to read as follows:

""Full-time employee" means any employee, including leased employees and employees under a joint employer relationship, for whom the employer is legally required to provide employee fringe benefits."

SECTION 5. Section 209E-4, Hawaii Revised Statutes, is amended to read as follows:

"§209E-4 Enterprise zone designation. (a) The governing body of any county may apply in writing to the department to have an area declared to be an enterprise zone. The application shall include a description of the location of the area or areas in question, and a general statement identifying proposed local incentives to complement the state and any federal incentives.

(b) The governor, upon the recommendation of the director, shall approve the designation of up to six areas in each county as enterprise zones for a period of twenty years. Any such area shall be located in one United States census tract or two or more contiguous United States census tracts in accordance with the most recent decennial United States Census. The census tract or tracts within which each enterprise zone is located also shall meet at least one of the following criteria:

(1) Twenty-five per cent or more of the population have incomes below eighty per cent of the median family income of the county; or

(2) The unemployment rate is 1.5 times the state average.

[(c) Notwithstanding subsection (b), census tract #405 within the county of Kauai shall be eligible for designation as an enterprise zone. The eligibility for designation shall remain in effect until January 1, 1997, unless the governor earlier determines that the eligibility is no longer necessary.

(d) Notwithstanding subsection (b) or (c), only lands classified as agricultural in the Waialua district on Oahu, as defined in section 4-1(3)(D), shall be designated an enterprise zone on July 1, 1997, and the designation shall remain in effect until June 30, 2002.]"

SECTION 6. Section 209E-7, Hawaii Revised Statutes, is amended to read as follows:

"[[]§209E-7[]] Government assistance; prohibition. [There shall be no duplication of existing state tax incentives to qualified business firms which locate in an enterprise zone.] If any tax credit or tax exemption is claimed under this chapter, then no taxpayer shall claim a credit or exemption for the same taxes under any other provision of law."

SECTION 7. Section 209E-9, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:

"(a) Any business firm may be eligible to be designated a qualified business for purposes of this chapter if the business:

(1) Begins the operation of a trade or business within an enterprise zone;

(2) During each taxable year has at least fifty per cent of its enterprise zone establishment's gross receipts attributable to the active conduct of trade or business within the enterprise zone;

(3) Increases its average annual number of full-time employees by at least ten per cent by the end of its first tax year of participation; provided that in the case of an agricultural business, the requirement to increase employment shall be replaced by a requirement to increase its cumulative average annual gross revenues by at least two per cent by the end of the first year of participation if it is unable to achieve the required increase in its average number of full-time employees; and

(4) During each subsequent taxable year at least maintains that higher level of employment[.] or gross revenues pursuant to paragraph (3).

(b) A business firm also may be eligible to be designated a qualified business for purposes of this chapter if the business:

(1) Is actively engaged in the conduct of a trade or business in an area immediately prior to an area being designated an enterprise zone;

(2) Meets the requirements of subsection (a)(2); and

(3) Increases its average annual number of full-time employees employed at the business' establishment or establishments located within the enterprise zone by at least ten per cent annually[.]; provided that in the case of an agricultural business, the requirement to increase employment shall be replaced by a requirement to increase its cumulative average annual gross revenues by at least two per cent annually if it is unable to achieve the required increase in its average number of full-time employees."

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

SECTION 9. This Act shall apply to taxable years beginning after December 31, 2005.

INTRODUCED BY:

_____________________________

BY REQUEST