Report Title:

Affordable Rental Housing Donation Tax Credit.

 

 

Description:

Establishes an affordable rental housing donation tax credit.

 

 


HOUSE OF REPRESENTATIVES

H.B. NO.

2666

TWENTY-FOURTH LEGISLATURE, 2008

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT


 

 

RELATING TO AN AFFORDABLE RENTAL HOUSING DONATION TAX CREDIT.

 

 

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

 


     SECTION 1.  The purpose of this Act is to establish an affordable rental housing donation tax credit.  The credit may be claimed by a taxpayer under chapter 235 or chapter 241 that:

     (1)  Had a net tax liability for the previous taxable year; and

     (2)  Has made a cash donation to the rental housing trust fund or for the development of an affordable rental housing project.

The tax credit amount claimable by the taxpayer is the dollar amount of the cash donation.  A taxpayer may claim the credit to reduce the taxpayer's net tax liability for a taxable year equal to the taxpayer's tax liability for the previous taxable year plus a percentage increase commensurate with the council on revenues' general fund revenue projection.  Any unused portion of the credit may be claimed in subsequent taxable years until exhausted.  The tax credit also is transferable to another taxpayer.  Compensation received by a taxpayer for transferring the credit is not included in the taxpayer's taxable income.

     By this Act, the legislature intends to balance the need for more affordable rental housing with the need to maintain general fund revenue growth.  The legislature intends that the tax credit serve as an incentive for persons to donate cash that may be applied as equity gap financing for affordable rental housing projects.  Furthermore, the legislature intends that the transferability of the tax credit will provide value to a taxpayer who may not be able to claim the entire credit.  The legislature also intends that the limit on the amount by which a taxpayer may reduce the taxpayer's net tax liability will serve to prevent excessive general fund revenue loss.

     SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§235-A  Affordable rental housing donation tax credit.  (a)  For the purposes of this section:

     "Affordable rent" means the rent chargeable to a low- or moderate-income family for occupancy of an affordable dwelling unit in an affordable rental housing project as most recently established by the United States Department of Housing and Urban Development for the section 8 housing payment assistance program and adjusted for family size and unit type.

     "Affordable dwelling unit in an affordable rental housing project" means a dwelling unit in a project that is reserved for rental to low- or moderate-income families.

     "Affordable rental housing project" means a housing project subject to a regulatory agreement between its developer and a state or county agency that requires that for at least thirty years following completion of the project:

     (1)  At least twenty per cent of the dwelling units in the project are rented at affordable rents to families with not more than fifty per cent of the applicable county median income; or

     (2)  At least forty per cent of the dwelling units in the project are rented at affordable rents to families with not more than sixty per cent of the applicable county median income.

     "Cash donation for the development of an affordable rental housing project" means a donation of cash for the development of a project that does not:

     (1)  Result in the acquisition by the donor of an ownership interest in the project or right to future revenues from the project; or

     (2)  Require the developer of the project or any other person to repay the donor for any part of the donation.

     "County median income" means the median annual income, adjusted for family size, for households in a county as most recently established by the United States Department of Housing and Urban Development for the section 8 housing payment assistance program.

     "Development of an affordable rental housing project" means the planning, design, or construction of or land acquisition for an affordable rental housing project.  The term also means the purchase of furniture, fixtures, or equipment initially installed or placed in an affordable rental housing project.

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

     "Rental housing trust fund" refers to the fund established under section 201H-202.

     "Unused claimable portion of a tax credit" means the portion of an affordable rental housing tax credit that:

     (1)  Has not been used to reduce the net income tax liability of any taxpayer; and

     (2)  Has not lapsed pursuant to subsection (f).

     (b)  There shall be allowed an affordable rental housing donation tax credit to each taxpayer who is subject to the tax imposed by this chapter if the taxpayer had a net income tax liability in the previous taxable year and:

     (1)  Has made a cash donation, without restriction, to the rental housing trust fund and has not otherwise claimed the donation as a deduction or credit against the tax imposed by this chapter;

     (2)  Has made a cash donation for the development of an affordable rental housing project and has not otherwise claimed the donation as a deduction or credit against the tax imposed by this chapter; except that the credit shall not be allowed to a taxpayer if the development of the affordable rental housing project is a condition of a government land development approval granted to the taxpayer or another person associated with the taxpayer; or

     (3)  Has received by transfer from another taxpayer an unused claimable portion of a tax credit provided under this section.

     Except as otherwise provided in this section, the tax credit amount shall be equal to the cash donation under paragraph (1) or (2) or the transferred portion received under paragraph (3).

     (c)  Except as provided by subsection (f), a taxpayer may claim the taxpayer's entitled credit as follows:

     (1)  If the taxpayer has made a cash donation to the rental housing trust fund in accordance with subsection (b)(1), the credit may be claimed against the income tax imposed by this chapter for any taxable year following the date of the contribution;

     (2)  If the taxpayer has made a cash donation for the development of an affordable rental housing project in accordance with subsection (b)(2), the credit may be claimed against the tax imposed by this chapter for any taxable year following the execution of the regulatory agreement for the project; or

     (3)  If the taxpayer has received by transfer an unused claimable portion of a tax credit pursuant to subsection (b)(3), the credit may be claimed against the tax imposed by this chapter for any taxable year following the transfer.

     (d)  For a taxable year, the taxpayer may claim the amount of the taxpayer's entitled tax credit that would reduce the taxpayer's net income tax liability for the taxable year equal to the previous year's liability plus projected revenue growth.  The "previous year's liability plus projected revenue growth" means the sum of the following:

     (1)  The amount of the taxpayer's net income tax liability for the previous taxable year; and

     (2)  The result derived by multiplying the amount under paragraph (1) by the lesser of the following:

         (A)  The percentage change of general fund revenues for the upcoming fiscal year under the most recent council on revenues' projection; or

          (B)  0 per cent.

          For the purpose of this paragraph, the "most recent council on revenues' projection" means the projection of general fund revenues issued by the council on revenues most recently before January 1 of the taxable year for which the tax credit is claimed.  The "upcoming fiscal year" means the fiscal year that will begin on July 1 of the taxable year for which the tax credit is claimed.  The "percentage change of general fund revenues for the upcoming fiscal year" means the percentage difference between the general fund revenues projected for the upcoming fiscal year as compared to the general fund revenues projected for the current fiscal year.

     In the case of spouses who file separate returns for a taxable year for which they could have filed a joint return, they may claim only the tax credit amount to which they would have been entitled had a joint return been filed.

     In the case of a partnership, S corporation, estate, or trust, the distribution and share of the tax credit shall be subject to the same provisions as applicable to such entities for the capital goods excise tax credit of section 235-110.7.

     (e)  If, after claiming the tax credit, a portion of the taxpayer's entitled tax credit remains unused and claimable, the taxpayer may:

     (1)  Claim the unused portion in subsequent taxable years in accordance with this section until exhausted or lapsed; or

     (2)  Transfer the unused claimable portion to another taxpayer.

     A taxpayer, before claiming any portion of the taxpayer's entitled tax credit, also may transfer any unused claimable portion to another taxpayer.

     In addition, a transfer of a portion of an unused tax credit may be claimed by a person who had a net tax liability for the previous taxable year under chapter 241.

     The tax credit in this section is not refundable.

     (f)  Any unused portion of a taxpayer's entitled tax credit shall lapse after the end of the fifth taxable year following the taxable year in which the cash donation was made:

     (1)  To the rental housing trust fund that entitled the taxpayer to the credit; or

     (2)  For the development of the affordable rental housing project that entitled the taxpayer to the credit.

     Any claim of a lapsed portion of a tax credit shall be invalid.

     (g)  Every claim, including any amended claim, for a tax credit shall be filed with the department of taxation by the end of the twelfth month following the close of the taxable year for which the credit may be claimed.  Failure to comply with this requirement shall constitute a waiver of the right to claim the credit for that taxable year.

     (h)  If a taxpayer has claimed a tax credit because of a cash donation for the development of an affordable rental housing project or receipt of a transferred credit for such a donation, but no certificate of occupancy has been issued for the applicable project within five years from the execution of the regulatory agreement for the project, all portions of the credit claimed shall be recaptured.  The department shall recapture the dollar amount of the claimed credit, with ten per cent interest from the first day of the taxable year for which the credit was claimed.  The department may either add the recaptured amount to the taxpayer's net income tax liability for the next taxable year or collect the recaptured amount from the taxpayer.

     (i)  The tax credit shall be in addition to the low-income housing tax credit in section 235-110.8.  A taxpayer may be granted the tax credit in this section and section 235-110.8 for the same housing project, if qualified for both.

     (j)  The director of taxation shall prepare necessary forms to claim of a tax credit under this section and may require evidence to prove entitlement to the credit.

     The director may adopt rules in accordance with chapter 91 to effectuate this section."

     SECTION 3.  Chapter 241, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§241-A  Affordable rental housing project donation tax credit.  (a)  The affordable rental housing project donation tax credit provided under section 235-A shall be operative for this chapter.  The provisions of section 235-A regarding the transferability of the tax credit between taxpayers under chapter 235 also shall apply to transfers of the credit to taxpayers under this chapter.

     (b)  Any portion of an unused claimable tax credit may be transferred to a person who had a net tax liability for the previous taxable year under chapter 235.  The transferee may claim the transferred portion against the transferee's net tax liability under chapter 235.

     (c)  The tax credit under this section shall be in addition to the low-income housing tax credit under section 241-4.7.  A taxpayer may be granted the tax credit in this section and section 241-4.7 for the same housing project, if qualified for both."

     SECTION 4.  Section 235-7, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  There shall be excluded from gross income, adjusted gross income, and taxable income:

     (1)  Income not subject to taxation by the State under the Constitution and laws of the United States;

     (2)  Rights, benefits, and other income exempted from taxation by section 88-91, having to do with the state retirement system, and the rights, benefits, and other income, comparable to the rights, benefits, and other income exempted by section 88-91, under any other public retirement system;

     (3)  Any compensation received in the form of a pension for past services;

     (4)  Compensation paid to a patient affected with Hansen's disease employed by the State or the United States in any hospital, settlement, or place for the treatment of Hansen's disease;

     (5)  Except as otherwise expressly provided, payments made by the United States or this State, under an act of Congress or a law of this State, which by express provision or administrative regulation or interpretation are exempt from both the normal and surtaxes of the United States, even though not so exempted by the Internal Revenue Code itself;

     (6)  Any income expressly exempted or excluded from the measure of the tax imposed by this chapter by any other law of the State, it being the intent of this chapter not to repeal or supersede any express exemption or exclusion;

     (7)  Income received by each member of the reserve components of the Army, Navy, Air Force, Marine Corps, or Coast Guard of the United States of America, and the Hawaii national guard as compensation for performance of duty, equivalent to pay received for forty-eight drills (equivalent of twelve weekends) and fifteen days of annual duty, at an:

         (A)  E-1 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2004;

         (B)  E-2 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2005;

         (C)  E-3 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2006;

         (D)  E-4 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2007; and

         (E)  E-5 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2008;

     (8)  Income derived from the operation of ships or aircraft if the income is exempt under the Internal Revenue Code pursuant to the provisions of an income tax treaty or agreement entered into by and between the United States and a foreign country; provided that the tax laws of the local governments of that country reciprocally exempt from the application of all of their net income taxes, the income derived from the operation of ships or aircraft that are documented or registered under the laws of the United States;

     (9)  The value of legal services provided by a prepaid legal service plan to a taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

    (10)  Amounts paid, directly or indirectly, by a prepaid legal service plan to a taxpayer as payment or reimbursement for the provision of legal services to the taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

    (11)  Contributions by an employer to a prepaid legal service plan for compensation (through insurance or otherwise) to the employer's employees for the costs of legal services incurred by the employer's employees, their spouses, and their dependents;

    (12)  Amounts received in the form of a monthly surcharge by a utility acting on behalf of an affected utility under section 269-16.3 shall not be gross income, adjusted gross income, or taxable income for the acting utility under this chapter.  Any amounts retained by the acting utility for collection or other costs shall not be included in this exemption; [and]

    (13)  One hundred per cent of the gain realized by a fee simple owner from the sale of a leased fee interest in units within a condominium project, cooperative project, or planned unit development to the association of apartment owners or the residential cooperative corporation of the leasehold units.

          For purposes of this paragraph:

              "Fee simple owner" shall have the same meaning as provided under section 516-1; provided that it shall include legal and equitable owners;

              "Legal and equitable owner", and "leased fee interest" shall have the same meanings as provided under section 516-1; and

              "Condominium project" and "cooperative project" shall have the same meanings as provided under section 514C-1[.]; and

    (14)  Compensation received for the transfer to another taxpayer of an unused claimable portion of the affordable rental housing donation tax credit under section 235-A, but not more than the dollar amount of the unused claimable portion received."

     SECTION 5.  In codifying the new sections added by sections 2 and 3 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

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

     SECTION 7.  This Act shall take effect upon its approval and shall apply to taxable years beginning after December 31, 2007.

 

INTRODUCED BY:

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