Report Title:

Tax Credit; Hotel Construction and Remodeling

Description:

Extends 4% tax credit through 12/31/07, raises credit to 8% from 1/1/08 to 12/31/2010, and sunsets credit on 12/31/2010; applies credit to "qualified full service hotel facility"; removes time share facilities, condominiums, and commercial buildings and facilities located within a qualified resort area from the definition of "qualified hotel facility"; includes recapture provisions in the event a qualified hotel facility is converted, or is being converted, to a time share facility or condominium. (SD1)

HOUSE OF REPRESENTATIVES

H.B. NO.

998

TWENTY-THIRD LEGISLATURE, 2005

H.D. 2

STATE OF HAWAII

S.D. 1


 

A BILL FOR AN ACT

 

RELATING TO HOTEL CONSTRUCTION AND REMODELING TAX CREDIT.

 

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

SECTION 1. In October of 2001, the legislature met in special session to approve legislation designed to ameliorate the adverse effects that the September 11, 2001, terrorist attacks had on Hawaii's economy. Act 10, Third Special Session 2001, raised the percentage of the tax credit for construction and remodeling of hotels from four to ten per cent for costs incurred prior to July 1, 2003, to assist the tourism industry in its efforts to attract more visitors to Hawaii. The legislature finds that this tax credit is an excellent means to boost Hawaii's tourism and construction industries, and that extension of this tax credit is warranted.

SECTION 2. Section 235-110.4, Hawaii Revised Statutes, is amended to read as follows:

"§235-110.4 Hotel construction and remodeling tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter and chapter 237D, an income tax credit, which 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.

The amount of the credit shall be four per cent through December 31, 2007, eight per cent from January 1, 2008 through December 31, 2010, and shall not be available for taxable years beginning after December 31, 2010, of the construction or renovation costs incurred during the taxable year for each qualified full service hotel facility located in Hawaii, and shall not include the construction or renovation costs for which another credit was claimed under this chapter for the taxable year. The credit shall apply to the construction or renovation costs incurred above $5,000,000; provided that the credit shall be allowed for all sums of costs incurred if the costs incurred exceed $5,000,000.

In the case of a partnership, S corporation, estate, trust, association of apartment owners of a qualified hotel facility, time share owners association, or any developer of a time share project, the tax credit allowable is for construction or renovation costs incurred by the entity for the taxable year. The cost upon which the tax credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined pursuant to section 235-110.7(a).

If a deduction is taken under section 179 (with respect to election to expense depreciable business assets) of the Internal Revenue Code, no tax credit shall be allowed for that portion of the construction or renovation cost for which the deduction is taken.

The basis of eligible property for depreciation or accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed. In the alternative, the taxpayer shall treat the amount of the credit allowable and claimed as a taxable income item for the taxable year in which it is properly recognized under the method of accounting used to compute taxable income.

(b) The credit allowed under this section shall be nonrefundable and claimed against the net income tax liability for the taxable year.

(c) [If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of credit over liability shall be refunded to the taxpayer; provided that no refunds or payment on account of the tax credits allowed by this section shall be made for amounts less than $1.] 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 comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(d) The director of taxation shall prepare any forms that may be necessary to claim a credit under this section. The director may also require the taxpayer to furnish information to ascertain the validity of the claim for credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.

(e) The tax credit allowed under this section shall be available [for taxable years beginning after December 31, 1998, and shall not be available for taxable years beginning after December 31, 2005.] as provided under subsection (a).

(f) To qualify for the income tax credit, the taxpayer shall be in compliance with all applicable federal, state, and county statutes, rules, and regulations.

(g) As used in this section:

"Construction or renovation cost" means any costs incurred after December 31, 1998, for plans, design, construction, and equipment related to new construction, alterations, or modifications to a qualified full service hotel facility.

"Net income tax liability" means income tax liability reduced by all other credits allowed under this chapter.

"Qualified full service hotel facility" [means a hotel/hotel-condo as defined in section 486K-1, and includes a time share facility or project.] has the same meaning as a "hotel" as defined in section 467-1, but excluding time share interests as defined in section 514E-1; provided that the hotel must provide a full range of services normally associated with a hotel operation. If the qualified full service hotel facility is part of a residential development complex comprised of a mix of projects, such as a hotel and a time share, the term is confined to the hotel portion.

"Taxpayer" means a taxpayer under this chapter, and includes [:

(1) Association] an association of apartment owners[; or

(2) Time share owners association].

(h) No taxpayer that claims a credit under this section shall claim a credit under chapter 235D.

(i) Upon the filing by the developer of an intent to convert a qualified full service hotel facility to a time share plan under section 514E-10(a) within ten years from the last year for which the credit was claimed under this section, there shall be a one hundred per cent recapture of the credit claimed for all tax years beginning after December 31, 2005, and no further credit may be taken by the taxpayer under this section, provided that:

(1) Notwithstanding any law to the contrary, the submission of a claim for credit under this section shall constitute a waiver of any statute of limitations period for assessment or claim for recapture of the credit. The limitation period under this subsection in every case shall be extended for a period of one year following notification to the department of commerce and consumer affairs of the intent to convert;

(2) If the taxpayer fails to file with the department of commerce and consumer affairs an intent to convert as specified in paragraph (1), then the taxpayer shall be subject to a penalty of forty per cent of the total amount of credits subject to recapture that shall in addition to the credit recapture under this section and any other penalties and interest as the department of taxation may legally impose; and

(3) Immediately upon the filing of a disclosure statement by the developer of the time share under section 514E-10(a) for conversion a qualified full service hotel facility to a time share or a condominium, there shall arise a lien in favor of the State for the total amount of the credits subject to recapture. The lien shall be extinguished upon payment of all moneys due under this section, including any penalty and interest."

SECTION 3. Section 514E-10, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) A developer shall not offer or dispose of a time share unit or a time share interest unless the disclosure statement required by section 514E-9 is filed with the director pursuant to the time specified in this chapter, or the development is exempt from filing, and the time share plan to be offered by the developer is accepted by the director for registration under this chapter. A developer shall file with the director an intent to convert a qualified full service hotel facility for purposes of section 235-110.4(i), upon such forms as the director may prescribe. The director shall not accept a developer's time share plan if the developer does not possess a history of honesty, truthfulness, financial integrity, and fair dealing."

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect on July 1, 2050, and shall apply to taxable years beginning after December 31, 2005 and ending before January 1, 2011.