High Technology; Taxes

Allows biotechnology companies to sell their unused net operating
loss carryover and unused tax credits to other qualified
biotechnology companies.  Also extends capital loss carryforward
for biotechnology companies.

THE SENATE                              S.B. NO.           2482
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT


 1      SECTION 1.  Chapter 235, Hawaii Revised Statutes, is amended
 2 by adding a new section to be appropriately designated and to
 3 read as follows:
 4      "235-    High technology; sale of unused net operating loss
 5 carryover and unused tax credits.  (a)  Definitions.  As used in
 6 this section:
 7      "Biotechnology" means the continually expanding body of
 8 fundamental knowledge regarding the functioning of biological
 9 systems, including the marine sciences, from the macro level to
10 the molecular and sub-atomic levels, as well as novel products,
11 services, technologies and sub-technologies developed as a result
12 of insights gained from research advances that add to that body
13 of fundamental knowledge.
14      "Biotechnology company" means a corporation that has its
15 headquarters or base of operation in the State and is engaged in
16 the research, development, production, or provision of
17 biotechnology or the marine sciences, for the purpose of
18 developing or providing products or processes for specific
19 commercial or public purposes, including but not limited to,

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 1 medical, pharmaceutical, nutritional, and other health-related,
 2 agricultural, or environmental purposes.
 3      (b)  A biotechnology company may apply to the department of
 4 taxation to sell its unused net operating loss carryover or
 5 unused tax credits to another biotechnology company.  If approved
 6 by the department of taxation, a biotechnology company may sell
 7 its unused net operating loss carryover or tax credit for private
 8 financial assistance from another biotechnology company in an
 9 amount equal to at least seventy-five per cent of the amount of
10 the surrendered tax benefit.  The tax benefit purchased by the
11 buyer biotechnology company shall be claimed in the year the sale
12 is approved by the department.  Any use of the purchased tax
13 benefit for tax carryback or carryforward purposes shall comply
14 with applicable law.  The financial assistance gained by the
15 seller biotechnology company shall be reported on its tax return
16 but shall not be considered taxable income.  The total amount of
17 unused net operating losses or tax credits sold annually pursuant
18 to this section shall not exceed $          .
19      (c)  No application for the sale of unused net operating
20 losses or tax credits shall be approved in which the seller
21 biotechnology company:
22      (1)  Has demonstrated positive net income in any of the two

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 1           previous full years of ongoing operations as determined
 2           on its financial statements; or
 3      (2)  Has demonstrated a ratio in excess of one hundred ten
 4           per cent or greater of operating revenues divided by
 5           operating expenses in any of the two previous full
 6           years of operations as determined on its financial
 7           statements; or
 8      (3)  Is directly or indirectly at least fifty per cent owned
 9           or controlled by another corporation that has
10           demonstrated positive net income in any of the two
11           previous full years of ongoing operations as determined
12           on its financial statements or is part of a
13           consolidated group of affiliate corporations, as filed
14           for federal income tax purposes, that in the aggregate
15           has demonstrated positive net income in any of the two
16           previous full years of ongoing operations as determined
17           on its combined financial statements.
18      (d)  The department of taxation shall adopt rules, pursuant
19 to chapter 91, to effectuate this section which shall include:
20      (1)  Procedure and criteria for the approval or disapproval
21           of applications filed by biotechnology companies buying
22           or selling unused net operating losses or tax credits;

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 1           and
 2      (2)  Criteria to provide for the equitable apportionment of
 3           qualified sales allowed annually under this section to
 4           eligible applicants."
 5      SECTION 2.  Section 235-2.4, Hawaii Revised Statutes, is
 6 amended by amending subsection (q) to read as follows:
 7      "(q)  Section 1212 (with respect to capital loss carrybacks
 8 and carryforwards) of the Internal Revenue Code shall be
 9 operative for the purposes of this chapter; except that for the
10 purposes of this chapter the capital loss carryback provisions of
11 section 1212 shall not be operative and the capital loss
12 carryforward allowed by section 1212(a) shall be limited to five
13 years[.]; except for biotechnology companies under section
14 235-   , which shall be limited to fifteen years."
15      SECTION 3.  Statutory material to be repealed is bracketed.
16 New statutory material is underscored.
17      SECTION 4.  This Act, upon its approval, shall apply to
18 taxable years beginning after December 31, 1999.
20                           INTRODUCED BY:  _______________________
22                                           _______________________

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