Income Tax Credit

Increases the capital goods income tax credit from 4% to 10% for
taxable years beginning after 12/31/98, 8% for taxable years
beginning after 12/31/01, and 4.5% for taxable years beginning
after 12/31/03.

HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT


 1      SECTION 1.  Section 235-110.7, Hawaii Revised Statutes, is
 2 amended as follows:
 3      1.  By amending the title to read:
 4      "235-110.7  Capital goods [excise tax] investment credit."
 5      2.  By amending subsections (a), (b), and (c) to read:
 6      "(a)  There shall be allowed to each resident taxpayer
 7 subject to the tax imposed by this chapter a capital goods
 8 [excise tax] investment credit which shall be deductible from the
 9 resident taxpayer's net income tax liability, if any, imposed by
10 this chapter for the taxable year in which the credit is properly
11 claimed.
12      The amount of the [tax] credit shall be determined by the
13 application of the following rates against the cost of the
14 eligible depreciable tangible personal property used by the
15 taxpayer in a trade or business and placed in service within
16 Hawaii after December 31, [1987.] 1998.  For calendar years
17 beginning after:  [December 31, 1987, the applicable rate shall
18 be three per cent; December 31, 1988, and thereafter, the
19 applicable rate shall be four per cent, except that for the
20 period January 1, 1993, through December 31, 2002, and for

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                                     H.B. NO.           H.D. 1

 1 eligible depreciable tangible personal property used in a trade
 2 or business that is purchased in a county in which the county
 3 general excise and use tax surcharge is in effect and placed in
 4 service in any county the applicable rate shall be four and one-
 5 half per cent.]
 6      (1)  December 31, 1998, the applicable rate shall be ten per
 7           cent;
 8      (2)  December 31, 2001, the applicable rate shall be eight
 9           per cent; and
10      (3)  December 31, 2003, and thereafter, the applicable rate
11           shall be four and one-half per cent.
12 For resident taxpayers with fiscal taxable years, the applicable
13 rate shall be the rate for the calendar year in which the
14 eligible depreciable tangible personal property used in the trade
15 or business is placed in service within Hawaii.
16      In the case of a partnership, S corporation, estate, or
17 trust, the tax credit allowable is for eligible depreciable
18 tangible personal property which is placed in service by the
19 entity.  The cost upon which the tax credit is computed shall be
20 determined at the entity level.  Distribution and share of credit
21 shall be determined by rules.
22      [In the case of eligible depreciable tangible personal
23 property for which a credit for sales or use taxes paid to

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                                     H.B. NO.           H.D. 1

 1 another state is allowable under section 238-3(i), the amount of
 2 the tax credit allowed under this section shall not exceed the
 3 amount of use tax, and for the period January 1, 1993, through
 4 December 31, 2002, the amount of the county general excise and
 5 use tax surcharge, actually paid under chapter 238 relating to
 6 such tangible personal property.]
 7      If a deduction is taken under section 179 (with respect to
 8 election to expense certain depreciable business assets) of the
 9 Internal Revenue Code of 1954, as amended, no [tax] credit shall
10 be allowed for that portion of the cost of property for which the
11 deduction was taken.
12      (b)  [If the tax credit is claimed by a taxpayer at the rate
13 of four and one-half per cent, and the tangible personal property
14 is purchased in a county in which the county general excise and
15 use tax surcharge is not in effect, there shall be added to and
16 become part of the tax liability of the taxpayer:
17      (1)  The amount of the tax credit claimed under this section
18           multiplied by three; or
19      (2)  Ten per cent of the income tax liability for the
20           taxable year for which the income tax return is being
21           filed,
22 whichever is greater.]

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                                     H.B. NO.           H.D. 1

 1      If the capital goods [excise tax] investment credit allowed
 2 under subsection (a) exceeds the resident taxpayer's net income
 3 tax liability, the excess [of] credit [over liability shall be
 4 refunded to the taxpayer; provided that no refunds or payment on
 5 account of the tax credit allowed by this section shall be made
 6 for amounts less than $1.] shall be carried over until exhausted.
 7      All claims for [tax] credits under this section, including
 8 any amended claims, must be filed on or before the end of the
 9 twelfth month following the close of the taxable year for which
10 the credits may be claimed.  Failure to comply with the foregoing
11 provision shall constitute a waiver of the right to claim the
12 credit.
13      (c)  Application for the capital goods [excise tax]
14 investment credit shall be upon forms provided by the department
15 of taxation."
16      SECTION 2.  Statutory material to be repealed is bracketed.
17 New statutory material is underscored.
18      SECTION 3.  This Act, upon its approval, shall apply to
19 taxable years beginning after December 31, 1998.