Report Title:

State Enterprise Zones (EZ); Agricultural Businesses; Force Majeure

Description:

Establishes that agricultural businesses shall remain eligible for tax incentives under the EZ program in the event of force majeure. Allows agricultural businesses to meet annual gross revenue requirements if the businesses are unable to meet annual full-time employee requirements. Clarifies the definition of "full-time employees". Specifies that tax credits taken in the EZ program cannot be duplicated in other tax incentive programs.

HOUSE OF REPRESENTATIVES

H.B. NO.

2769

TWENTY-THIRD LEGISLATURE, 2006

 

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. However, thousands of acres of agricultural land lie idle. To encourage further economic development in rural areas, agriculture must be given the chance to prosper. New and existing agricultural ventures must be encouraged to expand and develop. 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 provides regulatory flexibility and tax incentives that are designed to stimulate the growth of business in designated areas, and is one method of encouraging the establishment and development of agricultural businesses. However, unlike other small businesses, agricultural businesses are confronted by unique employment challenges that compound the complexity of building a successful business. Agricultural employment is highly dependent on local and global markets, seasonal crops, labor availability, and weather conditions.

The legislature finds that the enterprise zones program has employment requirements that do not recognize the unique employment-related challenges that agricultural businesses face. These employment requirements discourage many agricultural businesses from applying for the program, or make it difficult for these businesses to qualify. The legislature recognizes that action is needed to allow more agricultural businesses to participate in the state enterprise zones program.

The purpose of this Act is to address the unique circumstances of agricultural businesses under the enterprise zones program by:

(1) Providing that agricultural businesses shall remain eligible for tax incentives in the event of force majeure;

(2) Allowing agricultural businesses that are unable to meet annual full-time employee requirements to instead meet annual gross revenue requirements;

(3) Clarifying that "full-time employee" includes leased employees and employees under a joint employer relationship; and

(4) Clarifying that the taxpayer claiming a tax credit or exemption under the enterprise zones program, may not claim any other tax credit or exemption that is identical to credit or exemption claimed.

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 shall 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 a force majeure event.

§209E-   Force majeure event; agricultural businesses. If an agricultural business is:

(1) Wholly or partially prevented from maintaining eligibility requirements under section 209E-9; or

(2) Interrupted,

by reason of or through any force majeure event, then the agricultural business shall not be disqualified under this chapter. The agricultural business shall remain eligible for all tax incentives under this chapter during any period caused by 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. The agricultural business shall be as prompt and diligent as practicable in providing the department with notice of a force majeure event or of any situation that may lead to a force majeure event."

SECTION 3. Section 209E-1, Hawaii Revised Statutes, is amended to read as follows:

"[[]§209E-1[]] Purpose. It is declared that the health, safety, and welfare of the people of this State are dependent upon the continual encouragement, development, growth, and expansion of the private sector, and that there are certain areas in the State that need the particular attention of government to help attract private sector investment. Therefore, it is the purpose of this chapter to stimulate business, agricultural, and industrial growth in areas [which] that would result in neighborhood revitalization of those areas by means of regulatory flexibility and tax incentives."

SECTION 4. Section 209E-2, Hawaii Revised Statutes, is amended as follows:

1. By adding four new definitions to be appropriately inserted and to read:

""Agricultural business" means any corporation, partnership, or sole proprietorship authorized to do business in the state that is:

(1) Qualified under section 209E-9;

(2) Subject to the state corporate or individual income tax under chapter 235; and

(3) A producer of agricultural products as defined in section 237-5 or engaged in processing agricultural products.

"Force majeure event" means an event, including damaging weather or natural disasters such as epidemic disease, pest outbreak, high wind, thunderstorm, hail storm, tornado, fire, flood, lava flow or other volcanic activity, drought, tidal wave, hurricane, or without limiting or restricting the foregoing in any way, any event reasonably beyond the control of, and not attributable to neglect by, an agricultural business.

"Joint employer" means an employment relationship in which:

(1) There is an arrangement between employers to share an employee's services, for example, to interchange employees;

(2) An employer is acting directly or indirectly in the interest of other employers in relation to the employee; or

(3) The employers are not completely disassociated with respect to the employment of an employee and may be deemed to share direct or indirect control of the employee because one employer controls, is controlled by, or is under common control with the other employer.

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

2. By amending the definition of "full-time employee" to read:

""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, the taxpayer claiming that tax credit or tax exemption may not claim any tax credit or tax exemption under any other law, that is identical to the claimed tax credit or tax exemption."

SECTION 7. Section 209E-9, Hawaii Revised Statutes, is amended as follows:

1. By amending subsections (a) to (c) to read:

"(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 if an agricultural business is unable to achieve the increase in employees required by this paragraph, the agricultural business instead may increase its cumulative average annual gross revenues by at least two per cent by the end of its first tax year of participation; 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 if an agricultural business is unable to achieve the increase in employees required by this paragraph, the agricultural business instead may increase its cumulative average annual gross revenues by at least two per cent by the end of the first tax year of participation.

(c) After designation as an enterprise zone, each qualified business [firm] in the zone shall submit annually to the department an approved form supplied by the department that provides the information necessary for the department to determine if the business [firm] qualifies as a qualified business. The approved form shall be submitted by each business to the governing body of the county in which the enterprise zone is located, then forwarded to the department by the governing body of the county."

2. By amending subsection (e) to read:

"(e) Tangible personal property shall be sold at an establishment of a qualified business within an enterprise zone and the transfer of title to the buyer of the tangible personal property shall take place in the same enterprise zone in which the tangible personal property is sold. Services shall be sold at an establishment of a qualified business engaged in a service business within an enterprise zone, and the services shall be delivered in the same enterprise zone in which they are sold. Any services rendered outside an enterprise zone shall not be deemed to be the services of a qualified business."

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

SECTION 9. This Act shall take effect on July 1, 2006, and shall apply to taxable years beginning after December 31, 2005.

INTRODUCED BY:

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