Report Title:

Tax Credit; Hotel Construction and Remodeling

Description:

Raises the hotel construction and remodeling tax credit from 4% to 8% after the effective date of this Act. Lowers rate back to 4% on 7/1/09. Repeals the tax credit on 7/1/12. (HD1)

THE SENATE

S.B. NO.

1186

TWENTY-THIRD LEGISLATURE, 2005

S.D. 2

STATE OF HAWAII

H.D. 1


 

A BILL FOR AN ACT

 

RELATING TO HOTEL CONSTRUCTION AND REMODELING TAX CREDIT.

 

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 Laws of Hawaii 2001, raised the percentage of the tax credit for construction and remodeling of hotels from four to ten per cent for costs incurred prior to July 1, 2003, 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 that extension of this tax credit is warranted.

SECTION 2. Section 235-110.4, Hawaii Revised Statutes, is amended to read as follows:

"§235-110.4 Hotel construction and remodeling tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter and chapter 237D, an income tax credit, which 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.

The amount of the credit shall be [four] eight per cent of the construction or renovation costs incurred during the taxable year for each qualified full service hotel facility located in Hawaii, and shall not include the construction or renovation costs for which another credit was claimed under this chapter for the taxable year[.]; provided that the construction or renovation costs are incurred before July 1, 2009.

In the case of a partnership, S corporation, estate, or trust, [association of apartment owners of a qualified hotel facility, time share owners association, or any developer of a time share project,] the tax credit allowable is for construction or renovation costs incurred by the entity for the taxable year. The cost upon which the tax credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined pursuant to section 235-110.7(a).

If a deduction is taken under section 179 (with respect to election to expense depreciable business assets) of the Internal Revenue Code, no tax credit shall be allowed for that portion of the construction or renovation cost for which the deduction is taken.

The basis of eligible property for depreciation or accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed. In the alternative, the taxpayer shall treat the amount of the credit allowable and claimed as a taxable income item for the taxable year in which it is properly recognized under the method of accounting used to compute taxable income.

(b) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year.

(c) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of credit over liability shall be refunded to the taxpayer; provided that no refunds or payment on account of the tax credits allowed by this section shall be made for amounts less than $1. All claims for a tax 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 may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(d) The director of taxation shall prepare any forms that may be necessary to claim a credit under this section. The director may also require the taxpayer to furnish information to ascertain the validity of the claim for credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.

[(e) The tax credit allowed under this section shall be available for taxable years beginning after December 31, 1998, and shall not be available for taxable years beginning after December 31, 2005.

(f) To qualify for the income tax credit, the taxpayer shall be in compliance with all applicable federal, state, and county statutes, rules, and regulations.

(g)] (e) As used in this section:

"Construction or renovation cost" means any costs incurred after December 31, 1998, for plans, design, construction, and equipment related to new construction, alterations, or modifications to a qualified full service hotel facility.

"Net income tax liability" means income tax liability reduced by all other credits allowed under this chapter.

"Qualified full service hotel facility" means a [hotel/hotel-condo] hotel as defined in section [486K-1, and includes a time share facility or project.] 467-1, and excludes time share interests as defined in section 514E-1.

"Taxpayer" means a taxpayer under this chapter[, and includes:

(1) Association of apartment owners; or

(2) Time share owners association].

[(h)] (f) No taxpayer that claims a credit under this section shall claim a credit under chapter 235D.

(g) If a qualified full service hotel facility begins the process of converting to a timeshare or to a condominium by submission to the department of commerce and consumer affairs of an application for conversion within ten years from the last tax year for which a credit was claimed under this section, there shall be a one hundred per cent recapture of the credit claimed for all tax years beginning after December 31, 2004.

Notwithstanding any other law to the contrary, the submission of a claim for credit under this section shall constitute a waiver of any statute of limitation for assessment or claim for recapture of the tax. The limitation period, as described in this subsection, in each case shall be extended for a period of one year following notification of the conversion to the department of commerce and consumer affairs on such form as the department of commerce and consumer affairs may prescribe.

If the taxpayer fails to notify the department of commerce and consumer affairs of the conversion in the manner prescribed by the department of commerce and consumer affairs, then the taxpayer shall be subject to a penalty equal to forty per cent of the claimed credits taken after the effective date of this Act. This penalty shall be in addition to any credit recapture under this section and any other penalties and interest that the department of commerce and consumer affairs may legally impose.

Immediately upon initiation of the process of converting a hotel to a timeshare or to a condominium, there shall arise a lien in favor of the State for the amount of the credits claimed after the effective date of this Act. The lien shall be extinguished upon payment of all amounts due under this section, including any penalties and interest, or upon the filing of the notification by the taxpayer on the forms as prescribed by the department of commerce and consumer affairs that the process of conversion has begun, whichever occurs first."

SECTION 3. Section 235-110.4, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter and chapter 237D, an income tax credit, which 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.

The amount of the credit shall be [eight] four per cent of the construction or renovation costs incurred during the taxable year for each qualified full service hotel facility located in Hawaii, and shall not include the construction or renovation costs for which another credit was claimed under this chapter for the taxable year; provided that the construction or renovation costs are incurred before July 1, [2009.] 2012.

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

If a deduction is taken under section 179 (with respect to election to expense depreciable business assets) of the Internal Revenue Code, no tax credit shall be allowed for that portion of the construction or renovation cost for which the deduction is taken.

The basis of eligible property for depreciation or accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed. In the alternative, the taxpayer shall treat the amount of the credit allowable and claimed as a taxable income item for the taxable year in which it is properly recognized under the method of accounting used to compute taxable income."

SECTION 4. Section 235-110.4, Hawaii Revised Statutes, is repealed.

["§235-110.4 Hotel construction and remodeling tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter and chapter 237D, an income tax credit, which 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.

The amount of the credit shall be four per cent of the construction or renovation costs incurred during the taxable year for each qualified full service hotel facility located in Hawaii, and shall not include the construction or renovation costs for which another credit was claimed under this chapter for the taxable year; provided that the construction or renovation costs are incurred before July 1, 2012.

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

If a deduction is taken under section 179 (with respect to election to expense depreciable business assets) of the Internal Revenue Code, no tax credit shall be allowed for that portion of the construction or renovation cost for which the deduction is taken.

The basis of eligible property for depreciation or accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed. In the alternative, the taxpayer shall treat the amount of the credit allowable and claimed as a taxable income item for the taxable year in which it is properly recognized under the method of accounting used to compute taxable income.

(b) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year.

(c) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of credit over liability shall be refunded to the taxpayer; provided that no refunds or payment on account of the tax credits allowed by this section shall be made for amounts less than $1. All claims for a tax 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 may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(d) The director of taxation shall prepare any forms that may be necessary to claim a credit under this section. The director may also require the taxpayer to furnish information to ascertain the validity of the claim for credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.

(e) As used in this section:

"Construction or renovation cost" means any costs incurred after December 31, 1998, for plans, design, construction, and equipment related to new construction, alterations, or modifications to a qualified full service hotel facility.

"Net income tax liability" means income tax liability reduced by all other credits allowed under this chapter.

"Qualified full service hotel facility" means a hotel as defined in section 467-1, and excludes time share interests as defined in section 514E-1.

"Taxpayer" means a taxpayer under this chapter.

(f) No taxpayer that claims a credit under this section shall claim a credit under chapter 235D.

(g) If a qualified full service hotel facility begins the process of converting to a timeshare or to a condominium by submission to the department of commerce and consumer affairs of an application for conversion within ten years from the last tax year for which a credit was claimed under this section, there shall be a one hundred per cent recapture of the credit claimed for all tax years beginning after December 31, 2004.

Notwithstanding any other law to the contrary, the submission of a claim for credit under this section shall constitute a waiver of any statute of limitation for assessment or claim for recapture of the tax. The limitation period, as described in this subsection, in each case shall be extended for a period of one year following notification of the conversion to the department of commerce and consumer affairs on such form as the department of commerce and consumer affairs may prescribe.

If the taxpayer fails to notify the department of commerce and consumer affairs of the conversion in the manner prescribed by the department of commerce and consumer affairs, then the taxpayer shall be subject to a penalty equal to forty per cent of the claimed credits taken after the effective date of this Act. This penalty shall be in addition to any credit recapture under this section and any other penalties and interest that the department of commerce and consumer affairs may legally impose.

Immediately upon initiation of the process of converting a hotel to a timeshare or to a condominium, there shall arise a lien in favor of the State for the amount of the credits claimed after the effective date of this Act. The lien shall be extinguished upon payment of all amounts due under this section, including any penalties and interest, or upon the filing of the notification by the taxpayer on the forms as prescribed by the department of commerce and consumer affairs that the process of conversion has begun, whichever occurs first."]

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect upon its approval; provided that:

(1) The amount of the tax credit under section 235-110.4(a), Hawaii Revised Statutes, shall be four per cent for any hotel construction and renovation costs incurred after November 1, 2001, and prior to the effective date of this Act;

(2) Section 3 shall take effect on July 1, 2009, and shall apply to any hotel construction and renovation costs incurred after June 30, 2009, and prior to July 1, 2012; and

(3) Section 4 shall take effect on July 1, 2012.