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.  (SD1)

THE SENATE                              S.B. NO.           S.D. 1
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,
20 medical, pharmaceutical, nutritional, and other health-related,

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 1 agricultural, or environmental purposes.
 2      "Tax credits" means tax credits allowed under sections
 3 235-110.7 and 235-110.91.
 4      (b)  A biotechnology company may apply to the department of
 5 taxation to sell its unused net operating loss carryover or
 6 unused tax credits to another biotechnology company.  If approved
 7 by the department of taxation, a biotechnology company may sell
 8 its unused net operating loss carryover or tax credits to another
 9 biotechnology company in an amount equal to at least seventy-five
10 per cent of the dollar value of the net operating loss or tax
11 credits.  The net operating loss or tax credits purchased by the
12 biotechnology company shall be claimed in the year the sale is
13 approved by the department.  Any unused net operating loss or tax
14 credits by the biotechnology company may be carried forward under
15 applicable law.  The income received by the seller biotechnology
16 company shall be reported on its tax return but shall not be
17 considered taxable income.  No qualified biotechnology company
18 shall sell:
19      (1)  Net operating loss carryovers in excess of $         ;
20           or
21      (2)  Tax credits in excess of $         ;
22 in any taxable year.
23      (c)  No application for the sale of unused net operating

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                                     S.B. NO.           S.D. 1

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

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                                     S.B. NO.           S.D. 1

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