High Tech; GET; Tax Credits

Provides a GET exemption to a qualified high technology business
for machinery and equipment purchases and allows such businesses
to sell their unused net operating loss carryover and unused tax
credits to other qualified high technology businesses.

THE SENATE                              S.B. NO.           
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
 5 loss carryover and unused tax credits.  (a)  A "qualified high
 6 technology business", as defined under section 235-110.9, may
 7 apply to the department of taxation to sell its unused net
 8 operating loss carryover or unused tax credits to another
 9 qualified high technology business.  If approved by the
10 department of taxation, a qualified high technology business may
11 sell its unused net operating loss carryover or tax credit for
12 private financial assistance from another qualified high
13 technology business in an amount equal to at least     per cent
14 of the amount of the surrendered tax benefit.  The tax benefit
15 purchased by the buyer high technology business shall be claimed
16 in the year the sale is approved by the department.  Any use of
17 the purchased tax benefit for tax carryback or carryforward
18 purposes shall comply with applicable law.  The financial
19 assistance gained by the seller high technology business shall be

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 1 reported on its tax return but shall not be considered taxable
 2 income.  The total amount of unused net operating losses or tax
 3 credits sold annually pursuant to this section shall not exceed
 4 $       .
 5      (c)  No application for the sale of unused net operating
 6 losses or tax credits shall be approved in which the seller high
 7 technology business:
 8      (1)  Has demonstrated positive net income in any of the two
 9           previous full years of ongoing operations as determined
10           on its financial statements;
11      (2)  Has demonstrated a ratio in excess of one hundred ten
12           per cent or greater of operating revenues divided by
13           operating expenses in any of the two previous full
14           years of operations as determined on its financial
15           statements; or
16      (3)  Is directly or indirectly at least fifty per cent owned
17           or controlled by another corporation that has
18           demonstrated positive net income in any of the two
19           previous full years of ongoing operations as determined
20           on its financial statements or is part of a
21           consolidated group of affiliate corporations, as filed
22           for federal income tax purposes, that in the aggregate
23           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 combined financial statements.
 3      (d)  The department of taxation shall adopt rules, pursuant
 4 to chapter 91, to effectuate this section which shall include:
 5      (1)  Procedure and criteria for the approval or disapproval
 6           of applications filed by qualified high technology
 7           businesses buying or selling unused net operating
 8           losses or tax credits; and
 9      (2)  Criteria to provide for the equitable apportionment of
10           qualified sales allowed annually under this section to
11           eligible applicants."
12      SECTION 2.  Section 235-2.4, Hawaii Revised Statutes, is
13 amended by amending subsection (q) to read as follows:
14      "(q)  Section 1212 (with respect to capital loss carrybacks
15 and carryforwards) of the Internal Revenue Code shall be
16 operative for the purposes of this chapter; except that for the
17 purposes of this chapter the capital loss carryback provisions of
18 section 1212 shall not be operative and the capital loss
19 carryforward allowed by section 1212(a) shall be limited to five
20 years[.]; except for qualified high technology businesses under
21 section 235-   , which shall be limited to       years."
22      SECTION 3.  Section 237-24.3, Hawaii Revised Statutes, is
23 amended to read as follows:

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 1      "237-24.3  Additional amounts not taxable.  In addition to
 2 the amounts not taxable under section 237-24, this chapter shall
 3 not apply to:
 4      (1)  Amounts received from the loading, transportation, and
 5           unloading of agricultural commodities shipped for a
 6           producer or produce dealer on one island of this State
 7           to a person, firm, or organization on another island of
 8           this State.  The terms "agricultural commodity",
 9           "producer", and "produce dealer" shall be defined in
10           the same manner as they are defined in section 147-1;
11           provided that agricultural commodities need not have
12           been produced in the State;
13      (2)  Amounts received from sales of:
14           (A)  Intoxicating liquor as the term "liquor" is
15                defined in chapter 244D;
16           (B)  Cigarettes and tobacco products as defined in
17                chapter 245; and
18           (C)  Agricultural, meat, or fish products grown,
19                raised, or caught in Hawaii, to any person or
20                common carrier in interstate or foreign commerce,
21                or both, whether ocean-going or air, for
22                consumption out-of-state on the shipper's vessels
23                or airplanes;

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                                     S.B. NO.           

 1      (3)  Amounts received by the manager or board of directors
 2           of:
 3           (A)  An association of apartment owners of a
 4                condominium property regime established in
 5                accordance with chapter 514A; or
 6           (B)  A nonprofit homeowners or community association
 7                incorporated in accordance with chapter 415B or
 8                any predecessor thereto and existing pursuant to
 9                covenants running with the land,
10           in reimbursement of sums paid for common expenses;
11      (4)  Amounts received or accrued from:
12           (A)  The loading or unloading of cargo from ships,
13                barges, vessels, or aircraft, whether or not the
14                ships, barges, vessels, or aircraft travel between
15                the State and other states or countries or between
16                the islands of the State;
17           (B)  Tugboat services including pilotage fees performed
18                within the State, and the towage of ships, barges,
19                or vessels in and out of state harbors, or from
20                one pier to another; and
21           (C)  The transportation of pilots or governmental
22                officials to ships, barges, or vessels offshore;
23                rigging gear; checking freight and similar

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                                     S.B. NO.           

 1                services; standby charges; and use of moorings and
 2                running mooring lines;
 3      (5)  Amounts received by an employee benefit plan by way of
 4           contributions, dividends, interest, and other income;
 5           and amounts received by a nonprofit organization or
 6           office, as payments for costs and expenses incurred for
 7           the administration of an employee benefit plan;
 8           provided that this exemption shall not apply to any
 9           gross rental income or gross rental proceeds received
10           after June 30, 1994, as income from investments in real
11           property in this State; and provided further that gross
12           rental income or gross rental proceeds from investments
13           in real property received by an employee benefit plan
14           after June 30, 1994, under written contracts executed
15           prior to July 1, 1994, shall not be taxed until the
16           contracts are renegotiated, renewed, or extended, or
17           until after December 31, 1998, whichever is earlier.
18           For the purposes of this paragraph, "employee benefit
19           plan" means any plan as defined in section 1002(3) of
20           title 29 of the United States Code, as amended;
21      (6)  Amounts received for purchases made with United States
22           Department of Agriculture food coupons under the
23           federal food stamp program, and amounts received for

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                                     S.B. NO.           

 1           purchases made with United States Department of
 2           Agriculture food vouchers under the Special
 3           Supplemental Foods Program for Women, Infants and
 4           Children;
 5      (7)  Amounts received by a hospital, infirmary, medical
 6           clinic, health care facility, pharmacy, or a
 7           practitioner licensed to administer the drug to an
 8           individual for selling prescription drugs or prosthetic
 9           devices to an individual; provided that this paragraph
10           shall not apply to any amounts received for services
11           provided in selling prescription drugs or prosthetic
12           devices.  As used in this paragraph:
13           (A)  "Prescription drugs" are those drugs defined under
14                section [[]328-1[]] and dispensed by filling or
15                refilling a written or oral prescription by a
16                practitioner licensed under law to administer the
17                drug and sold by a licensed pharmacist under
18                section 328-16 or practitioners licensed to
19                administer drugs; and
20           (B)  "Prosthetic device" means any artificial device or
21                appliance, instrument, apparatus, or contrivance,
22                including their components, parts, accessories,
23                and replacements thereof, used to replace a

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                                     S.B. NO.           

 1                missing or surgically removed part of the human
 2                body, which is prescribed by a licensed
 3                practitioner of medicine, osteopathy, or podiatry
 4                and which is sold by the practitioner or which is
 5                dispensed and sold by a dealer of prosthetic
 6                devices; provided that "prosthetic device" shall
 7                not mean any auditory, ophthalmic, dental, or
 8                ocular device or appliance, instrument, apparatus,
 9                or contrivance;
10      (8)  Taxes on transient accommodations imposed by chapter
11           237D and passed on and collected by operators holding
12           certificates of registration under that chapter;
13      (9)  Amounts received as dues by an unincorporated merchants
14           association from its membership for advertising media,
15           promotional, and advertising costs for the promotion of
16           the association for the benefit of its members as a
17           whole and not for the benefit of an individual member
18           or group of members less than the entire membership;
19           [and]
20     (10)  Amounts received by a labor organization for real
21           property leased to:
22           (A)  A labor organization; or
23           (B)  A trust fund established by a labor organization

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                                     S.B. NO.           

 1                for the benefit of its members, families, and
 2                dependents for medical or hospital care, pensions
 3                on retirement or death of employees,
 4                apprenticeship and training, and other membership
 5                service programs.
 6           As used in this paragraph, "labor organization" means a
 7           labor organization exempt from federal income tax under
 8           section 501(c)(5) of the Internal Revenue Code, as
 9           amended[.]; and
10     (11)  Amounts received for machinery or equipment purchased
11           by a "qualified high technology business" as defined
12           under section 235-110.9; provided that no other tax
13           credit or exemption under title 14 shall apply to the
14           amounts claimed under this paragraph."
15      SECTION 4.  Statutory material to be repealed is bracketed.
16 New statutory material is underscored.
17      SECTION 5.  This Act shall take effect upon its approval and
18 shall apply to taxable year beginning after December 31, 1999.
20                       INTRODUCED BY:  ___________________________