Report Title:

Nonresidential Construction Projects; Tax Credit

 

Description:

Provides a qualified nonresidential construction project tax credit. (CD1)

THE SENATE

S.B. NO.

2383

TWENTY-FIRST LEGISLATURE, 2002

S.D. 2

STATE OF HAWAII

H.D. 2


C.D. 1

A BILL FOR AN ACT

 

RELATING TO TAXATION TO STIMULATE THE ECONOMY.

 

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

SECTION 1. In October of 2001, the legislature met in special session to approve legislation designed to ameliorate the negative effects that the September 11, 2001, terrorist attacks had on Hawaii's economy. Act 10, Third Special Session 2001, raised the percentage of the tax credit for construction and remodeling of hotels from four to ten per cent to assist the tourism industry in its efforts to attract more visitors to Hawaii.

The legislature finds that this tax credit is an excellent means to boost Hawaii's tourism and construction industries, and should be expanded to include a wider range of construction activities, both related and unrelated to tourism. As an industry, construction is very important to Hawaii's economy. Investment in physical assets provides the means by which future economic activity will take place and is a significant component of overall economic activity.

Construction projects provide the necessary stimulus for economic development and creation of needed jobs in the current economic climate. The additional economic activity generated by construction and the resultant tax revenues gained will more than offset the short-term loss in tax revenues from the credit.

Hawaii is one of the few states that impose a general excise tax on construction activity. Hawaii continues to have higher construction costs per square foot than other competitive destinations. Therefore, significant incentives are necessary to help overcome these barriers to development in Hawaii.

Furthermore, the legislature finds that the tourism industry embraces more than just Waikiki and hotels. Many non-hotel facilities, amenities, and off-site improvements contribute to the success of the tourism industry. This bill expands the kinds of construction costs eligible for the hotel construction and remodeling credit.

Credits that extend to all commercial development will help create a stronger, more sustainable, and better-equipped economy statewide. Therefore, this Act provides new tax credits for the development of all commercial construction projects, with enhanced tax credits for large-scale projects. Only enhanced credits can attract large-scale development. Large-scale projects in turn produce the greatest impact on economic activity.

The purpose of this Act is to promote Hawaii's tourism and construction industries by expanding the facilities eligible for the construction and remodeling tax credit and by establishing a nonrefundable qualified project construction tax credit for qualified projects.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235-   Qualified project construction tax credit. (a) There shall be allowed to each taxpayer, subject to the taxes imposed by chapter 235, a qualified project construction tax credit that shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed. If the credit allowed under this section exceeds the taxpayer's tax liability for the tax in the taxable year, the excess of the credit over liability may be carried forward until exhausted.

(b) The amount of the credit claimed under this section shall be four per cent of the qualified project construction costs incurred in each taxable year during the four-consecutive-year period; provided that the taxpayer shall require that any general contractor performing work for the qualified project pay its employees the prevailing wages.

(c) All claims for the credit under this section shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit is claimed. Failure to meet the filing requirements of this subsection shall constitute a waiver of the right to claim the credit.

(d) The taxpayer shall certify to the department of taxation in each applicable year for which the credit is taken the amount of the qualified project construction costs to be incurred over the applicable four-year period, and the year in which the four-year period commences.

(e) The taxpayer shall be the owner, developer, lessee, or permittee of the real property relating to the qualified project.

(f) In the case of a partnership, S corporation, estate, or trust, the credit is for qualified project construction costs incurred by the entity for the taxable year. The costs upon which the tax credit is computed shall be determined at the entity level. Distribution and share of the tax credit shall be determined pursuant to section 235-110.7.

(g) If a deduction is taken under section 179 (with respect to election to expense depreciable business assets) of the Internal Revenue Code of 1986, as amended, no credit shall be allowed for that portion of the qualified project construction costs for which the deduction is taken.

(h) If the credit under section 235-110.4 or 235-110.51 is claimed by the taxpayer for any taxable year for the qualified project construction costs, no credit shall be claimed by the taxpayer under this section for the qualified project construction costs.

(i) As used in this section:

"Qualified project" means a single or multiple phase development or renovation project situated on one or more parcels of real property which are contiguous, adjoining, or in close proximity to each other. "Qualified project" does not include residential projects.

"Qualified project construction costs" means any costs incurred after December 31, 2002, and before January 1, 2007, for plans, design, construction, infrastructure, amenities, equipment, alterations, modifications, telecommunications, and information technology relating to a qualified project."

SECTION 3. Section 235-110.4, Hawaii Revised Statutes, is amended by amending the definition of "qualified hotel facility" in subsection (g) to read as follows:

""Qualified hotel facility" means [a]:

(1) Hotel/hotel-condo as defined in section 486K-1, and includes a time share facility or project[.];

(2) Any property on which commercial or recreational use is permitted to support or service a hotel/hotel-condo or resort use; or

(3) Offsite improvements necessary to service destination resort areas where a hotel/hotel-condo is situated."

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2002.