Provides a new construction credit similar to the hotel
remodeling tax credit effective for tax years 1999 to 2001.

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

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds that Hawaii's economy
 2 continues to depend upon the health of the visitor industry,
 3 which is in need of revitalization.  In addition, the legislature
 4 finds that seventy per cent or more of Hawaii's visitor
 5 accommodations are in dire need of refurbishing, repair, or
 6 renovation.  Many are more than twenty or thirty years old.
 7 There is also a need for visitor accommodations to add capacity
 8 or new facilities to meet the changing market needs of visitors.
 9 Act 108, Session Laws of Hawaii 1997, was enacted to provide a
10 tax credit aimed at visitor accommodation remodeling and
11 upgrades.  The credit was to encourage the owners of these
12 facilities to refurbish, repair, and renovate their facilities.
13 Newly remodeled facilities can generate additional tax revenues
14 providing a sound return on the state's initial investment.  This
15 tax credit, however, was available only for the 1997 and 1998 tax
16 years.
17      The purpose of this Act is to provide a new credit similar
18 to the hotel remodeling tax credit which would be available from
19 tax years beginning after December 31, 1998 and before

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 1 December 31, 2001.  This new credit will provide incentives for
 2 new construction.  In addition, the credit enacted in 1997 was
 3 capped at an amount equal to ten per cent of the transient
 4 accommodations taxes paid by the qualified hotel facility.  To
 5 increase the value of this credit, this Act has no cap.  This Act
 6 also allows the association of apartment owners of a hotel-condo
 7 as defined in section 486K-1 to claim the credit.  Persons who
 8 take the credit will have the option of treating the credit as
 9 taxable income or reducing the basis of the property by the
10 amount of the credit.
11      SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended
12 by adding a new section to be appropriately designated and to
13 read as follows:
14      "235-    Hotel construction and remodeling tax credit.  (a)
15 There shall be allowed to each taxpayer subject to the taxes
16 imposed by this chapter and to chapter 237D, or the association
17 of apartment owners of a hotel-condo as defined in section
18 486K-1, an income tax credit that shall be deductible from the
19 taxpayer's or association of apartment owners' net income tax
20 liability, if any, imposed by this chapter for the taxable year
21 in which the credit is properly claimed.
22      The amount of the credit shall be four per cent of the

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 1 construction or renovation costs incurred during the taxable year
 2 for each qualified hotel facility located in Hawaii, and shall
 3 not include the construction or renovation costs for which
 4 another credit was claimed under this chapter for the taxable
 5 year.
 6      In the case of a partnership, S corporation, estate, trust,
 7 or the association of apartment owners of a hotel-condo as
 8 defined in section 486K-1, the tax credit allowable is for
 9 construction or renovation costs incurred by the entity for the
10 taxable year.  The cost upon which the tax credit is computed
11 shall be determined at the entity level.  Distribution and share
12 of credit shall be determined pursuant to section 235-110.7(a).
13      If a deduction is taken under section 179 (with respect to
14 election to expense depreciable business assets) of the Internal
15 Revenue Code of 1986, as amended, no tax credit shall be allowed
16 for that portion of the renovation cost for which the deduction
17 is taken.
18      The basis of eligible property for depreciation purposes for
19 state income taxes shall be reduced by the amount of credit
20 allowable and claimed.  Alternatively, the taxpayer shall treat
21 the amount of credit allowable and claimed as a taxable income
22 item for the taxable year in which it is properly recognized

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 1 under the method of accounting used to compute taxable income.
 2      (b)  As used in this section:
 3      "Qualified hotel facility" means a hotel/hotel-condo as
 4 defined in section 486K-1.
 5      "Construction or renovation cost" means any cost for plans,
 6 design, construction, and equipment related to new construction,
 7 alterations, and modifications to a qualified hotel facility.
 8      (c)  The credit allowed under this section shall be claimed
 9 against the net income tax liability for the taxable year.  For
10 the purpose of this tax credit, "net income tax liability" means
11 net income tax liability reduced by all other credits allowed
12 under this chapter.
13      (d)  If the tax credit under this section exceeds the
14 taxpayer's or association of apartment owners' income tax
15 liability, the excess of credit over liability shall be refunded
16 to the taxpayer or association of apartment owners; provided that
17 no refunds or payment on account of the tax credit allowed by
18 this section shall be made for amounts less than $1.  All claims
19 for a tax credit under this section must be filed on or before
20 the end of the twelfth month following the close of the taxable
21 year for which the credit may be claimed.  Failure to comply with
22 the foregoing provision shall constitute a waiver of the right to

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 1 claim the credit.
 2      (e)  The director of taxation shall prepare such forms as
 3 may be necessary to claim a credit under this section.  The
 4 director also may require the taxpayer to furnish information to
 5 ascertain the validity of the claim for credit made under this
 6 section and may adopt rules necessary to effectuate the purposes
 7 of this section pursuant to chapter 91.
 8      (f)  The tax credit allowed under this section shall be
 9 available for taxable years beginning after December 31, 1998,
10 and shall not be available for taxable years beginning after
11 December 31, 2001."
12      SECTION 3.  New statutory material is underscored.
13      SECTION 4.  This Act, upon its approval, shall apply to
14 taxable years beginning after December 31, 1998, and before
15 January 1, 2002.
17                           INTRODUCED BY:  _______________________

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