REPORT TITLE:
High Technology


DESCRIPTION:
Expands and clarifies high technology business incentives
provisions.

 
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                                                        2948
THE SENATE                              S.B. NO.           
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO HIGH TECHNOLOGY.



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

 1      SECTION 1.  Section 235-2.4, Hawaii Revised Statues, is
 
 2 amended to read as follows:
 
 3      "235-2.4  Operation of certain Internal Revenue Code
 
 4 provisions.(a)  Section 63 (with respect to taxable income
 
 5 defined) of the Internal Revenue Code shall be operative for the
 
 6 purposes of this chapter, except that the standard deduction
 
 7 amount in section 63(c) of the Internal Revenue Code shall
 
 8 instead mean:
 
 9      (1)  $1,900 in the case of:
 
10           (A)  A joint return as provided by section 235-93, or
 
11           (B)  A surviving spouse (as defined in section 2(a) of
 
12                the Internal Revenue Code),
 
13      (2)  $1,650 in the case of a head of household (as defined
 
14           in section 2(b) of the Internal Revenue Code),
 
15      (3)  $1,500 in the case of an individual who is not married
 
16           and who is not a surviving spouse or head of household,
 
17           or
 
18      (4)  $950 in the case of a married individual filing a
 
19           separate return.
 

 
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 1      Section 63(c)(4) shall not be operative in this State.
 
 2 Section 63(c)(5) shall be operative, except that the limitation
 
 3 on basic standard deduction in the case of certain dependents
 
 4 shall be the greater of $500 or such individual's earned income.
 
 5 Section 63(f) shall not be operative in this State.
 
 6      (b)  Section 72 (with respect to annuities; certain proceeds
 
 7 of endowment and life insurance contracts) of the Internal
 
 8 Revenue Code shall be operative for purposes of this chapter and
 
 9 be interpreted with due regard to section 235-7(a), except that
 
10 the ten per cent additional tax on early distributions from
 
11 retirement plans in section 72(t) shall not be operative for
 
12 purposes of this chapter.
 
13      (c)  Section 121 (with respect to the exclusion of gain from
 
14 the sale of principal residence) of the Internal Revenue Code
 
15 shall be operative for purposes of this chapter, except that for
 
16 the election under section 121(f), a reference to section 1034
 
17 treatment means a reference to section 235-2.4(n) in effect for
 
18 taxable year 1997.
 
19      (d)  Section 213 (with respect to medical, dental, etc.,
 
20 expenses) of the Internal Revenue Code shall be operative, except
 
21 that subsections (d)(1)(C) with respect to long-term care
 
22 services, (d)(1)(D) as it applies to long-term care insurance
 
23 contract premiums, (d)(7) as it applies to long-term care
 

 
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 1 insurance contract premiums, and (d)(10) as it applies to
 
 2 eligible long-term care premiums shall not be operative in this
 
 3 State.
 
 4      (e)  Section 219 (with respect to retirement savings) of the
 
 5 Internal Revenue Code shall be operative for the purpose of this
 
 6 chapter.  For the purpose of computing the limitation on the
 
 7 deduction for active participants in certain pension plans for
 
 8 state income tax purposes, adjusted gross income as used in
 
 9 section 219 as operative for this chapter means federal adjusted
 
10 gross income.
 
11      (f)  Section 220 (with respect to medical savings accounts)
 
12 of the Internal Revenue Code shall be operative for the purpose
 
13 of this chapter, but only with respect to medical services
 
14 accounts that have been approved by the secretary of the Treasury
 
15 of the United States.
 
16      (g)  Section 408A (with respect to Roth Individual
 
17 Retirement Accounts) of the Internal Revenue Code shall be
 
18 operative for the purposes of this chapter.  For the purposes of
 
19 determining the aggregate amount of contributions to a Roth
 
20 Individual Retirement Account or qualified rollover contribution
 
21 to a Roth Individual Retirement Account from an individual
 
22 retirement plan other than a Roth Individual Retirement Account,
 
23 adjusted gross income as used in section 408A as operative for
 

 
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 1 this chapter means federal adjusted gross income.
 
 2      (h)  In administering the provisions of sections 410 to 417
 
 3 (with respect to special rules relating to pensions, profit
 
 4 sharing, stock bonus plans, etc.), sections 418 to 418E (with
 
 5 respect to special rules for multiemployer plans), and sections
 
 6 419 and 419A (with respect to treatment of welfare benefit funds)
 
 7 of the Internal Revenue Code, the department of taxation shall
 
 8 adopt rules under chapter 91 relating to the specific
 
 9 requirements under such sections and to such other administrative
 
10 requirements under those sections as may be necessary for the
 
11 efficient administration of sections 410 to 419A.
 
12      In administering sections 401 to 419A (with respect to
 
13 deferred compensation) of the Internal Revenue Code, Public Law
 
14 93-406, section 1017(I), shall be operative for the purposes of
 
15 this chapter.
 
16      In administering section 402 (with respect to the taxability
 
17 of beneficiary of employees' trust) of the Internal Revenue Code,
 
18 the tax imposed on lump sum distributions by section 402(e) of
 
19 the Internal Revenue Code shall be operative for the purposes of
 
20 this chapter and the tax imposed therein is hereby imposed by
 
21 this chapter at the rate determined under this chapter.
 
22      (i)  Section 468B (with respect to special rules for
 
23 designated settlement funds) of the Internal Revenue Code shall
 

 
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 1 be operative for the purposes of this chapter and the tax imposed
 
 2 therein is hereby imposed by this chapter at a rate equal to the
 
 3 maximum rate in effect for the taxable year imposed on estates
 
 4 and trusts under section 235-51.
 
 5      (j)  Section 469 (with respect to passive activities and
 
 6 credits limited) of the Internal Revenue Code shall be operative
 
 7 for the purposes of this chapter.  For the purpose of computing
 
 8 the offset for rental real estate activities for state income tax
 
 9 purposes, adjusted gross income as used in section 469 as
 
10 operative for this chapter means federal adjusted gross income.
 
11      (k)  Sections 512 to 514 (with respect to taxation of
 
12 business income of certain exempt organizations) of the Internal
 
13 Revenue Code shall be operative for the purposes of this chapter
 
14 as provided in this subsection.
 
15      "Unrelated business taxable income" means the same as in the
 
16 Internal Revenue Code, except that in the computation thereof
 
17 sections 235-3 to 235-5, and 235-7 (except subsection (c)), shall
 
18 apply, and in the determination of the net operating loss
 
19 deduction there shall not be taken into account any amount of
 
20 income or deduction which is excluded in computing the unrelated
 
21 business taxable income.  Unrelated business taxable income shall
 
22 not include any income from a prepaid legal service plan.
 
23      For a person described in section 401 or 501 of the Internal
 

 
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 1 Revenue Code, as modified by section 235-2.3, the tax imposed by
 
 2 section 235-51 or 235-71 shall be imposed upon the person's
 
 3 unrelated business taxable income.
 
 4      (l)  Section 521 (with respect to cooperatives) and
 
 5 subchapter T (sections 1381 to 1388, with respect to cooperatives
 
 6 and their patrons) of the Internal Revenue Code shall be
 
 7 operative for the purposes of this chapter as to any cooperative
 
 8 fully meeting the requirements of section 421-23, except that
 
 9 Internal Revenue Code section 521 cooperatives need not be
 
10 organized in Hawaii.
 
11      (m)  Sections 527 (with respect to political organizations)
 
12 and 528 (with respect to certain homeowners associations) of the
 
13 Internal Revenue Code shall be operative for the purposes of this
 
14 chapter and the taxes imposed in each such section are hereby
 
15 imposed by this chapter at the rates determined under section
 
16 235-71.
 
17      (n)  Section 530 (with respect to education individual
 
18 retirement accounts) of the Internal Revenue Code shall be
 
19 operative for the purposes of this chapter.  For the purpose of
 
20 determining the maximum amount that a contributor could make to
 
21 an education individual retirement account for state income tax
 
22 purposes, modified adjusted gross income as used in section 530
 
23 for this chapter means federal modified adjusted gross income as
 

 
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 1 defined in section 530.
 
 2      (o)  Section 641 (with respect to imposition of tax) of the
 
 3 Internal Revenue Code shall be operative for the purposes of this
 
 4 chapter subject to the following:
 
 5      (1)  The deduction for exemptions shall be allowed as
 
 6           provided in section 235-54(b).
 
 7      (2)  The deduction for contributions and gifts in
 
 8           determining taxable income shall be limited to the
 
 9           amount allowed in the case of an individual, unless the
 
10           contributions and gifts are to be used exclusively in
 
11           the State.
 
12      (3)  The tax imposed by section 1(e) of the Internal Revenue
 
13           Code as applied by section 641 of the Internal Revenue
 
14           Code is hereby imposed by this chapter at the rate and
 
15           amount as determined under section 235-51 on estates
 
16           and trusts.
 
17      (p)  Section 667 (with respect to treatment of amounts
 
18 deemed distributed by trusts in preceding years) of the Internal
 
19 Revenue Code shall be operative for the purposes of this chapter
 
20 and the tax imposed therein is hereby imposed by this chapter at
 
21 the rate determined under this chapter; except that the reference
 
22 to tax-exempt interest to which section 103 of the Internal
 
23 Revenue Code applies in section 667(a) of the Internal Revenue
 

 
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 1 Code shall instead be a reference to tax-exempt interest to which
 
 2 section 235-7(b) applies.
 
 3      (q)  Section 685 (with respect to treatment of qualified
 
 4 funeral trusts) of the Internal Revenue Code shall be operative
 
 5 for purposes of this chapter, except that the tax imposed under
 
 6 this chapter shall be computed at the tax rates provided under
 
 7 section 235-51, and no deduction for the exemption amount
 
 8 provided in section 235-54(b)shall be allowed.  The cost-of-
 
 9 living adjustment determined under section 1(f)(3) shall be
 
10 operative for the purpose of applying section 685(c)(3) under
 
11 this chapter.
 
12      (r)  Section 1212 (with respect to capital loss carrybacks
 
13 and carryforwards) of the Internal Revenue Code shall be
 
14 operative for the purposes of this chapter; except that for the
 
15 purposes of this chapter the capital loss carryback provisions of
 
16 section 1212 shall not be operative and the capital loss
 
17 carryforward allowed by section 1212(a) shall be limited to five
 
18 years.
 
19      (s)  Subchapter S (sections 1361 to 1379) (with respect to
 
20 tax treatment of S corporations and their shareholders) of
 
21 chapter 1 of the Internal Revenue Code shall be operative for the
 
22 purposes of this chapter as provided in part VII.
 
23      (t)  Section 6015 (with respect to relief from joint and
 

 
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 1 several liability on joint return) of the Internal Revenue Code
 
 2 is operative for purposes of this chapter.
 
 3      (u)  Subchapter C (sections 6221 to 6233) (with respect to
 
 4 tax treatment of partnership items) of chapter 63 of the Internal
 
 5 Revenue Code shall be operative for the purposes of this chapter.
 
 6      (v)  Subchapter D (sections 6240 to 6255) (with respect to
 
 7 simplified audit procedures for electing large partnerships) of
 
 8 the Internal Revenue Code shall be operative for the purposes of
 
 9 this chapter, with due regard to chapter 232 relating to tax
 
10 appeals.
 
11      (w)  Section 6511(h) (with respect to running of periods of
 
12 limitation suspended while taxpayer is unable to manage financial
 
13 affairs due to disability) of the Internal Revenue Code shall be
 
14 operative for purposes of this chapter, with due regard to
 
15 section 235-111 relating to the limitation period for assessment,
 
16 levy, collection, or credit.
 
17      (x)  Section 7518 (with respect to capital construction fund
 
18 for commercial fishers) of the Internal Revenue Code shall be
 
19 operative for the purposes of this chapter.  Qualified
 
20 withdrawals for the acquisition, construction, or reconstruction
 
21 of any qualified asset which is attributable to deposits made
 
22 before the effective date of this section shall not reduce the
 
23 basis of the asset when withdrawn.  Qualified withdrawals shall
 

 
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 1 be treated on a first-in-first-out basis.
 
 2      (y)  Section 704 of the Internal Revenue Code (with respect
 
 3 to a partner's distributive share) shall be operative for
 
 4 purposes of this chapter; except that subsection (b)(2) shall not
 
 5 apply to allocations of the high-technology business investment
 
 6 tax credit allowed by section 235-110.9."
 
 7      SECTION 2.  Section 235-7.3, Hawaii Revised Statutes, is
 
 8 amended to read as follows:
 
 9      "[[]235-7.3[]]  Royalties and other income from high
 
10 technology business excluded from gross income.(a)  In addition
 
11 to the exclusions in section 235-7, there shall be excluded from
 
12 gross income, adjusted gross income, and taxable income, amounts
 
13 received by an individual or a qualified high technology business
 
14 as royalties and other income derived from patents, trade
 
15 secrets, and copyrights:
 
16      (1)  Owned by the individual or qualified high technology
 
17           business; and
 
18      (2)  Developed and arising out of a qualified high
 
19           technology business.
 
20      (b)  For the purposes of this section:
 
21      "Computer data" means any representation of information,
 
22 knowledge, facts, concepts, or instructions which is being
 
23 prepared or has been prepared and is intended to be processed, is
 

 
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 1 being processed, or has been processed in a computer or computer
 
 2 network.  "Computer data" includes works in the performing arts
 
 3 such as audio files, video files, audiovisual files, computer
 
 4 animation, and other entertainment products which are perceived
 
 5 by or through the operation of a computer.
 
 6      "Computer program" means an ordered set of computer data
 
 7 representing coded instructions or statements, that, when
 
 8 executed by a computer, causes the computer to perform one or
 
 9 more computer operations.
 
10      "Computer software" means computer data, a computer program,
 
11 or a set of computer programs, procedures, or associated
 
12 documentation concerned with the operation and function of a
 
13 computer system, and includes both systems and application
 
14 programs and subdivisions, such as assemblers, compilers,
 
15 routines, generators, and utility programs.
 
16      "Qualified high technology business" means a business
 
17 performing qualified research. The term "qualified high
 
18 technology business" does not include:
 
19      (1)  Any trade or business involving the performance of
 
20           services in the field of law, architecture, accounting,
 
21           actuarial science, [performing arts,] consulting,
 
22           athletics, financial services, or brokerage services;
 
23      (2)  Any banking, insurance, financing, leasing, rental,
 

 
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 1           investing, or similar business; any farming business,
 
 2           including the business of raising or harvesting trees;
 
 3           any business involving the production or extraction of
 
 4           products of a character with respect to which a
 
 5           deduction is allowable under section 611 (with respect
 
 6           to allowance of deduction for depletion), 613 (with
 
 7           respect to basis for percentage depletion), or 613A
 
 8           (with respect to limitation on percentage depleting in
 
 9           cases of oil and gas wells) of the Internal Revenue
 
10           Code;
 
11      (3)  Any business operating a hotel, motel, restaurant, or
 
12           similar business; and
 
13      (4)  Any trade or business involving a hospital, a private
 
14           office of a licensed health care professional, a group
 
15           practice of licensed health care professionals, or a
 
16           nursing home.
 
17      "Qualified research" means:
 
18      (1)  The same as in section 41(d) of the Internal Revenue
 
19           Code; or
 
20      (2)  Developing, designing, modifying, programming, and
 
21           licensing computer software."
 
22      SECTION 3.  Section 235-9.5, Hawaii Revised Statutes, is
 
23 amended to read as follows:
 

 
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 1      "[[]235-9.5[]]  Stock options from qualified high
 
 2 technology businesses exempt from taxation.(a)  Notwithstanding
 
 3 any law to the contrary, all income received from stock options
 
 4 from a qualified high technology business by an employee that
 
 5 would otherwise be taxed as ordinary income or as capital gains
 
 6 to those employees is exempt from taxation under this chapter.
 
 7      (b)  For the purposes of this section:
 
 8      "Computer data" means any representation of information,
 
 9 knowledge, facts, concepts, or instructions which is being
 
10 prepared or has been prepared and is intended to be processed, is
 
11 being processed, or has been processed in a computer or computer
 
12 network.  "Computer data" includes works in the performing arts
 
13 such as audio files, video files, audiovisual files, computer
 
14 animation, and other entertainment products which are perceived
 
15 by or through the operation of a computer.
 
16      "Computer program" means an ordered set of computer data
 
17 representing coded instructions or statements, that, when
 
18 executed by a computer, causes the computer to perform one or
 
19 more computer operations.
 
20      "Computer software" means computer data, a computer program,
 
21 or a set of computer programs, procedures, or associated
 
22 documentation concerned with the operation and function of a
 
23 computer system, and includes both systems and application
 

 
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 1 programs and subdivisions, such as assemblers, compilers,
 
 2 routines, generators, and utility programs.
 
 3      "Qualified high technology business" means a business
 
 4 performing qualified research.  The term "qualified high
 
 5 technology business" does not include:
 
 6      (1)  Any trade or business involving the performance of
 
 7           services in the field of law, architecture, accounting,
 
 8           actuarial science, [performing arts,] consulting,
 
 9           athletics, financial services, or brokerage services;
 
10      (2)  Any banking, insurance, financing, leasing, rental,
 
11           investing, or similar business; any farming business,
 
12           including the business of raising or harvesting trees;
 
13           any business involving the production or extraction of
 
14           products of a character with respect to which a
 
15           deduction is allowable under section 611 (with respect
 
16           to allowance of deduction for depletion), 613 (with
 
17           respect to basis for percentage depletion), or 613A
 
18           (with respect to limitation on percentage depleting in
 
19           cases of oil and gas wells) of the Internal Revenue
 
20           Code;
 
21      (3)  Any business operating a hotel, motel, restaurant, or
 
22           similar business; and
 
23      (4)  Any trade or business involving a hospital, a private
 

 
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 1           office of a licensed health care professional, a group
 
 2           practice of licensed health care professionals, or a
 
 3           nursing home.
 
 4      "Qualified research" means:
 
 5      (1)  The same as in section 41(d) of the Internal Revenue
 
 6           Code; or
 
 7      (2)  Developing, designing, modifying, programming, and
 
 8           licensing computer software."
 
 9      SECTION 4.  Section 235-110.9, Hawaii Revised Statutes, is
 
10 amended to read as follows:
 
11      "[[]235-110.9[]]  High-technology business investment tax
 
12 credit.(a)  There shall be allowed to each taxpayer, subject to
 
13 the taxes imposed by this chapter, a high technology investment
 
14 tax credit that shall be deductible from the taxpayer's net
 
15 income tax liability, if any, imposed by this chapter for the
 
16 taxable year in which the credit is properly claimed.  The tax
 
17 credit shall be an amount equal to ten per cent of the investment
 
18 made by the taxpayer in each qualified high technology business,
 
19 up to a maximum allowed credit of $500,000 for the taxable year
 
20 for the investment made by the taxpayer in a qualified high
 
21 technology business.
 
22      (b)  The credit allowed under this section shall be claimed
 
23 against the net income tax liability for the taxable year.  For
 

 
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 1 the purpose of this section, "net income tax liability" means net
 
 2 income tax liability reduced by all other credits allowed under
 
 3 this chapter.
 
 4      (c)  If the tax credit under this section exceeds the
 
 5 taxpayer's income tax liability, the excess of the tax credit
 
 6 over liability may be used as a credit against the taxpayer's
 
 7 income tax liability in subsequent years until exhausted.  All
 
 8 claims, including any amended claims, for tax credits under this
 
 9 section shall be filed on or before the end of the twelfth month
 
10 following the close of the taxable year for which the credit may
 
11 be claimed.  Failure to comply with the foregoing provision shall
 
12 constitute a waiver of the right to claim the credit.
 
13      (d)  [As used in] For the purposes of this section:
 
14           "Computer data" means any representation of
 
15 information, knowledge, facts, concepts, or instructions which is
 
16 being prepared or has been prepared and is intended to be
 
17 processed, is being processed, or has been processed in a
 
18 computer or computer network.  "Computer data" includes works in
 
19 the performing arts such as audio files, video files, audiovisual
 
20 files, computer animation, and other entertainment products which
 
21 are perceived by or through the operation of a computer; provided
 
22 the works are created in the State and are transmitted or
 
23 broadcast to users over the Internet by way of servers located in
 

 
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 1 the State.
 
 2      "Computer program" means an ordered set of computer data
 
 3 representing coded instructions or statements, that, when
 
 4 executed by a computer, causes the computer to perform one or
 
 5 more computer operations.
 
 6      "Computer software" means a set of computer programs,
 
 7 procedures, or associated documentation concerned with the
 
 8 operation and function of a computer system, and includes both
 
 9 systems and application programs and subdivisions, such as
 
10 assemblers, compilers, routines, generators, and utility
 
11 programs.
 
12      "Investment" means a nonrefundable investment, at risk, as
 
13 that term is used in section 465 (with respect to deductions
 
14 limited to amount at risk) of the Internal Revenue Code, in a
 
15 qualified high technology business, of cash that is transferred
 
16 to the qualified high technology business, the transfer of which
 
17 is in connection with a transaction in exchange for stock,
 
18 interests in partnerships, joint ventures, or other entities,
 
19 licenses (exclusive or nonexclusive), rights to use technology,
 
20 marketing rights, warrants, options, or any items similar to
 
21 those included herein, including but not limited to options or
 
22 rights to acquire any of the items included herein.  The
 
23 nonrefundable investment is entirely at risk of loss where
 

 
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 1 repayment depends upon the success of the qualified high
 
 2 technology business.  If the money invested is to be repaid to
 
 3 the taxpayer, no repayment except for dividends or interest shall
 
 4 be made for at least three years from the date the investment is
 
 5 made.  The annual amount of any dividend and interest payment to
 
 6 the taxpayer shall not exceed twelve per cent of the amount of
 
 7 the investment.
 
 8 [(e) For the purposes of this section:]
 
 9      "Qualified high technology business" means[:
 
10      (1)A] a business, employing or owning capital or property,
 
11 or maintaining an office, in this State; and which
 
12 [(2)(A)](1)    Conducts one hundred per cent of its activities in
 
13                performing qualified research in this State; or
 
14 [(B)](2)  Receives one hundred per cent of its gross income
 
15           derived from qualified research; provided that the
 
16           income is received from products sold from,
 
17           manufactured, or produced in the State; or services
 
18           performed in this State.
 
19 The term "qualified high technology business" does not include:
 
20      (1)  Any trade or business involving the performance of
 
21           services in the field of law, architecture, accounting,
 
22           actuarial science, [performing arts,] consulting,
 
23           athletics, financial services, or brokerage services;
 

 
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 1      (2)  Any banking, insurance, financing, leasing, rental,
 
 2           investing, or similar business; any farming business,
 
 3           including the business of raising or harvesting trees;
 
 4           any business involving the production or extraction of
 
 5           products of a character with respect to which a
 
 6           deduction is allowable under section 611 (with respect
 
 7           to allowance of deduction for depletion), 613 (with
 
 8           respect to basis for percentage depletion), or 613A
 
 9           (with respect to limitation on percentage depleting in
 
10           cases of oil and gas wells) of the Internal Revenue
 
11           Code;
 
12      (3)  Any business operating a hotel, motel, restaurant, or
 
13           similar business; and
 
14      (4)  Any trade or business involving a hospital, a private
 
15           office of a licensed health care professional, a group
 
16           practice of licensed health care professionals, or a
 
17           nursing home.
 
18      "Qualified research" means:
 
19      (1)  The same as in section 41(d) of the Internal Revenue
 
20           Code; or
 
21      (2)  Developing, designing, modifying, programming, and
 
22           licensing computer software;
 
23 except that it shall not include research conducted outside the
 

 
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 1 State.
 
 2      [(f)](e)  This section shall not apply to taxable years
 
 3 beginning after December 31, 2005."
 
 4      SECTION 5.  Section 235-110.91, Hawaii Revised Statutes, is
 
 5 amended to read as follows:
 
 6      "[[]235-110.91[]]  Tax credit for increasing research
 
 7 activities.(a)  Section 41 (with respect to the credit for
 
 8 increasing research activities) and section 280C(c) (with respect
 
 9 to certain expenses for which the credit for increasing research
 
10 activities are allowable) of the Internal Revenue Code shall be
 
11 operative for the purposes of this chapter as provided in this
 
12 section.  If Section 41 of the Internal Revenue Code is repealed
 
13 or terminated prior to January 1, 2006, its provisions shall
 
14 remain in effect for purposes of the income tax law of the State
 
15 as provided for in subsection (j).
 
16      (b)  All references to Internal Revenue Code sections within
 
17 sections 41 and 280C(c) of the Internal Revenue Code shall be
 
18 operative for purposes of this section.
 
19      (c)  There shall be allowed to each taxpayer, subject to the
 
20 tax imposed by this chapter, an income tax credit for increased
 
21 research activities equal to the credit for research activities
 
22 provided by Section 41 of the Internal Revenue Code.  [that] The
 
23 credit shall be deductible from the taxpayer's net income tax
 

 
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 1 liability, if any, imposed by this chapter for the taxable year
 
 2 in which the credit is properly claimed.
 
 3      (d)  [The tax credit for increased research activities shall
 
 4 be equal to the sum of:
 
 5      (1)  2.5 per cent of the excess (if any) of:
 
 6           (A)  The qualified research expenses for the taxable
 
 7                year; over
 
 8           (B)  The base amount; and
 
 9      (2)  2.5 per cent of the basic research payments determined
 
10           under section 41(e)(1)(A) of the Internal Revenue Code.
 
11      (e)  For purposes of this section:
 
12      (1)  The alternative incremental credit in section 41(c)(4)
 
13           of the Internal Revenue Code shall be equal to the sum
 
14           of 12.5 per cent of:
 
15           (A)  1.65 per cent of so much of the qualified research
 
16                expenses for the taxable year as exceeds one per
 
17                cent of the average described in section
 
18                41(c)(1)(B) but does not exceed 1.5 per cent of
 
19                such average;
 
20           (B)  2.2 per cent of so much of those expenses as
 
21                exceeds 1.5 per cent of the average but does not
 
22                exceed two per cent of the average; and
 
23           (C)  2.75 per cent of so much of those expenses as
 

 
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 1                exceeds two per cent of the average;
 
 2      (2)  The term] For purposes of this section, "qualified
 
 3           research" [under section 41(d)(1) of the Internal
 
 4           Revenue Code shall not include research conducted
 
 5           outside of the State; and (3)The term]] and "basic
 
 6           research" under section 41(e) of the Internal Revenue
 
 7           Code shall not include research conducted outside of
 
 8           the State.
 
 9      [(f)  The amount of reduced credit in section 280C(c)(3)(B)
 
10 of the Internal Revenue Code shall be equal to the excess of:
 
11      (1)  The amount of credit determined under section 41(a) (as
 
12           provided for in this section) (without regard to this
 
13           paragraph); over
 
14      (2)  The product of:
 
15           (A)  The amount described in subsection (f)(1); and
 
16           (B)  12.5 per cent of the maximum rate of tax under
 
17                section 11(b)(1) of the Internal Revenue Code.
 
18      (g)](f)  If the tax credit for increased research activities
 
19 claimed by a taxpayer exceeds the amount of income tax payment
 
20 due from the taxpayer, the excess of the tax credit over payments
 
21 due may be used as a credit against the taxpayer's income tax
 
22 liability in subsequent years until exhausted.
 
23      [(h)](g)  All claims for a tax credit under this section
 

 
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 1 must be filed on or before the end of the twelfth month following
 
 2 the close of the taxable year for which the credit may be
 
 3 claimed. Failure to properly claim the credit shall constitute a
 
 4 waiver of the right to claim the credit.
 
 5      [(i)](h)  The director of taxation may adopt any rules under
 
 6 chapter 91 and forms necessary to carry out this section.
 
 7      [(j)](i)  This section shall not apply to taxable years
 
 8 beginning after December 31, 2005."
 
 9      SECTION 6.  Statutory material to be repealed is bracketed.
 
10 New statutory material is underscored.
 
11      SECTION 7.  This Act, upon its approval, shall apply to
 
12 taxable years beginning after December 31, 1999.
 
13 
 
14                           INTRODUCED BY:  _______________________
 

 
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