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.  (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
 5 loss carryover and unused tax credits.  (a)  A high technology
 6 business may apply to the department of taxation to sell its
 7 unused net operating loss carryover or unused tax credits to
 8 another high technology business.  If approved by the department
 9 of taxation, a high technology business may sell its unused net
10 operating loss carryover or tax credits to another high
11 technology business in an amount equal to at least seventy-five
12 per cent of the dollar value of the net operating loss or
13 seventy-five per cent of the dollar value of the tax credit sold.
14      The net operating loss carryover or tax credits purchased by
15 the buyer high technology business shall be claimed in the
16 taxable year in which the sale is approved by the department.
17 Net operating loss carryover or the tax credits that are not
18 exhausted by the purchasing high technology business may be
19 carriedback or carriedforward until exhausted in accordance with

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                                     S.B. NO.           S.D. 1

 1 applicable law.
 2      The income received by the seller high technology business
 3 from the sale of net operating loss carryover or tax credits
 4 shall be reported as taxable income in the taxable year in which
 5 the income is received.
 6      (b)  No qualified high technology business shall sell:
 7      (1)  Net operating loss carryovers in excess of $      ; or
 8      (2)  Tax credits in excess of $      ;
 9 in any taxable year.
10      (c)  No application for the sale of unused net operating
11 losses or tax credits shall be approved in which the seller high
12 technology business:
13      (1)  Has demonstrated positive net income in any of the two
14           previous full years of ongoing operations as determined
15           on its financial statements;
16      (2)  Has demonstrated a ratio in excess of one hundred ten
17           per cent or greater of operating revenues divided by
18           operating expenses in any of the two previous full
19           years of operations as determined on its financial
20           statements;
21      (3)  Is directly or indirectly at least fifty per cent owned
22           or controlled by another corporation that has
23           demonstrated positive net income in any of the two

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                                     S.B. NO.           S.D. 1

 1           previous full years of ongoing operations as determined
 2           on its financial statements or is part of a
 3           consolidated group of affiliated corporations, as filed
 4           for federal income tax purposes, that in the aggregate
 5           has demonstrated positive net income in any of the two
 6           previous full years of ongoing operations as determined
 7           on its combined financial statements; or
 8      (4)  Has more than         employees.
 9      (d)  The department of taxation may adopt rules, pursuant to
10 chapter 91, to effectuate this section which shall include
11 procedure and criteria for the approval or disapproval of
12 applications filed by qualified high technology businesses buying
13 or selling unused net operating losses or tax credits.
14      (e)  As used in this section:
15      "High technology business" means a qualified high technology
16 business as defined in section 235-110.9.
17      "Tax credits" means tax credits allowed under sections 235-
18 110.7 and 235-110.91."
19      SECTION 2.  Section 235-2.4, Hawaii Revised Statutes, is
20 amended by amending subsection (q) to read as follows:
21      "(q)  Section 1212 (with respect to capital loss carrybacks
22 and carryforwards) of the Internal Revenue Code shall be
23 operative for the purposes of this chapter; except that for the

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                                     S.B. NO.           S.D. 1

 1 purposes of this chapter the capital loss carryback provisions of
 2 section 1212 shall not be operative and the capital loss
 3 carryforward allowed by section 1212(a) shall be limited to five
 4 years[.]; except for qualified high technology businesses under
 5 section 235-   , which shall be limited to       years."
 6      SECTION 3.  Section 237-24.3, Hawaii Revised Statutes, is
 7 amended to read as follows:
 8      "237-24.3  Additional amounts not taxable.  In addition to
 9 the amounts not taxable under section 237-24, this chapter shall
10 not apply to:
11      (1)  Amounts received from the loading, transportation, and
12           unloading of agricultural commodities shipped for a
13           producer or produce dealer on one island of this State
14           to a person, firm, or organization on another island of
15           this State.  The terms "agricultural commodity",
16           "producer", and "produce dealer" shall be defined in
17           the same manner as they are defined in section 147-1;
18           provided that agricultural commodities need not have
19           been produced in the State;
20      (2)  Amounts received from sales of:
21           (A)  Intoxicating liquor as the term "liquor" is
22                defined in chapter 244D;
23           (B)  Cigarettes and tobacco products as defined in

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                                     S.B. NO.           S.D. 1

 1                chapter 245; and
 2           (C)  Agricultural, meat, or fish products grown,
 3                raised, or caught in Hawaii, to any person or
 4                common carrier in interstate or foreign commerce,
 5                or both, whether ocean-going or air, for
 6                consumption out-of-state on the shipper's vessels
 7                or airplanes;
 8      (3)  Amounts received by the manager or board of directors
 9           of:
10           (A)  An association of apartment owners of a
11                condominium property regime established in
12                accordance with chapter 514A; or
13           (B)  A nonprofit homeowners or community association
14                incorporated in accordance with chapter 415B or
15                any predecessor thereto and existing pursuant to
16                covenants running with the land,
17           in reimbursement of sums paid for common expenses;
18      (4)  Amounts received or accrued from:
19           (A)  The loading or unloading of cargo from ships,
20                barges, vessels, or aircraft, whether or not the
21                ships, barges, vessels, or aircraft travel between
22                the State and other states or countries or between
23                the islands of the State;

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                                     S.B. NO.           S.D. 1

 1           (B)  Tugboat services including pilotage fees performed
 2                within the State, and the towage of ships, barges,
 3                or vessels in and out of state harbors, or from
 4                one pier to another; and
 5           (C)  The transportation of pilots or governmental
 6                officials to ships, barges, or vessels offshore;
 7                rigging gear; checking freight and similar
 8                services; standby charges; and use of moorings and
 9                running mooring lines;
10      (5)  Amounts received by an employee benefit plan by way of
11           contributions, dividends, interest, and other income;
12           and amounts received by a nonprofit organization or
13           office, as payments for costs and expenses incurred for
14           the administration of an employee benefit plan;
15           provided that this exemption shall not apply to any
16           gross rental income or gross rental proceeds received
17           after June 30, 1994, as income from investments in real
18           property in this State; and provided further that gross
19           rental income or gross rental proceeds from investments
20           in real property received by an employee benefit plan
21           after June 30, 1994, under written contracts executed
22           prior to July 1, 1994, shall not be taxed until the
23           contracts are renegotiated, renewed, or extended, or

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                                     S.B. NO.           S.D. 1

 1           until after December 31, 1998, whichever is earlier.
 2           For the purposes of this paragraph, "employee benefit
 3           plan" means any plan as defined in section 1002(3) of
 4           title 29 of the United States Code, as amended;
 5      (6)  Amounts received for purchases made with United States
 6           Department of Agriculture food coupons under the
 7           federal food stamp program, and amounts received for
 8           purchases made with United States Department of
 9           Agriculture food vouchers under the Special
10           Supplemental Foods Program for Women, Infants and
11           Children;
12      (7)  Amounts received by a hospital, infirmary, medical
13           clinic, health care facility, pharmacy, or a
14           practitioner licensed to administer the drug to an
15           individual for selling prescription drugs or prosthetic
16           devices to an individual; provided that this paragraph
17           shall not apply to any amounts received for services
18           provided in selling prescription drugs or prosthetic
19           devices.  As used in this paragraph:
20           (A)  "Prescription drugs" are those drugs defined under
21                section [[]328-1[]] and dispensed by filling or
22                refilling a written or oral prescription by a
23                practitioner licensed under law to administer the

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                                     S.B. NO.           S.D. 1

 1                drug and sold by a licensed pharmacist under
 2                section 328-16 or practitioners licensed to
 3                administer drugs; and
 4           (B)  "Prosthetic device" means any artificial device or
 5                appliance, instrument, apparatus, or contrivance,
 6                including their components, parts, accessories,
 7                and replacements thereof, used to replace a
 8                missing or surgically removed part of the human
 9                body, which is prescribed by a licensed
10                practitioner of medicine, osteopathy, or podiatry
11                and which is sold by the practitioner or which is
12                dispensed and sold by a dealer of prosthetic
13                devices; provided that "prosthetic device" shall
14                not mean any auditory, ophthalmic, dental, or
15                ocular device or appliance, instrument, apparatus,
16                or contrivance;
17      (8)  Taxes on transient accommodations imposed by chapter
18           237D and passed on and collected by operators holding
19           certificates of registration under that chapter;
20      (9)  Amounts received as dues by an unincorporated merchants
21           association from its membership for advertising media,
22           promotional, and advertising costs for the promotion of
23           the association for the benefit of its members as a

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                                     S.B. NO.           S.D. 1

 1           whole and not for the benefit of an individual member
 2           or group of members less than the entire membership;
 3           [and]
 4     (10)  Amounts received by a labor organization for real
 5           property leased to:
 6           (A)  A labor organization; or
 7           (B)  A trust fund established by a labor organization
 8                for the benefit of its members, families, and
 9                dependents for medical or hospital care, pensions
10                on retirement or death of employees,
11                apprenticeship and training, and other membership
12                service programs.
13           As used in this paragraph, "labor organization" means a
14           labor organization exempt from federal income tax under
15           section 501(c)(5) of the Internal Revenue Code, as
16           amended[.]; and
17     (11)  Amounts received for machinery or equipment purchased
18           by a "qualified high technology business" as defined
19           under section 235-110.9; provided that no other tax
20           credit or exemption under title 14 shall apply to the
21           amounts claimed under this paragraph."
22      SECTION 4.  Statutory material to be repealed is bracketed.
23 New statutory material is underscored.

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                                     S.B. NO.           S.D. 1

 1      SECTION 5.  This Act shall take effect upon its approval and
 2 shall apply to taxable years beginning after December 31, 1999;
 3 provided that section 3 of this Act shall apply to gross income
 4 or gross proceeds received after July 1, 2000.