HOUSE OF REPRESENTATIVES
TWENTY-SEVENTH LEGISLATURE, 2013
STATE OF HAWAII
A BILL FOR AN ACT
relating to energy.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that, in addition to ethanol, pyrolysis oil, renewable diesel, bio-gasoline and bio-jet fuel are examples of potential fuels that could be produced in Hawaii from locally grown agricultural feedstock.
Despite Hawaii's favorable climate and biomass growth potential, commercial-scale biofuels production is constrained, largely because of limited land availability. The non-contiguous nature of land parcels and competing land uses make maximizing biofuel production per unit of land and water critical. First generation feedstocks including sugar and oilseed crops combined with conventional fermentation or transesterification conversion technology presently produce no greater than one hundred gallons per acre. Second generation biofuels produced from dedicated energy crops, however, produce roughly five times the volume of output on a per acre basis. Further, second-generation conversion technologies can produce high-energy-density fuels that are compatible with existing infrastructure. Given the State's limited land, these second generation technologies offer the best hope of substantially increasing local biofuel production while minimizing the impact on land and resources. With these second-generation benefits, however, comes increased capital costs and investment risk. A biofuel production facility credit targeting second-generation production could help ameliorate this risk while helping to jumpstart a new, bio-based industry for the Hawaii.
Applying a tax credit to biofuel production facilities that commence construction on or after January 1, 2014, would help to foster new investment and construction in the State. Facilities that have already commenced construction have likely secured the necessary financing and would be moving forward regardless of the credit. Applying a tax credit to new construction would help jumpstart an advanced, high-tech industry while creating demand from other sectors of the local economy, including construction, which have been badly hit by the economic slowdown.
Advanced feedstock and conversion technologies will help minimize the land, water, and resource footprint of biofuel operations while generating a portfolio of energy outputs and value-added co-products. Encouraging advanced technology would enhance sustainability, attract higher levels of capital investment, and help establish Hawaii as a center for bio-based innovation.
At present, a tax credit is allowed based on the percentage of nameplate capacity up to a limit of less than fifteen million gallons. Amending the language to provide for a 30 cents per one hundred fifteen thousand British thermal units of renewable biofuels would enhance administrative efficiency and provide incentive for the production of higher-density fuels. Further, removing the fifteen million gallon per year facility cap would allow larger-scale facilities to also benefit from the incentive. Maintaining the statutory requirement that the facility must operate at or above seventy-five per cent capacity in order to claim the credit would also help to ensure the credit helps bring the greatest volume of fuels to market.
Finally, incorporating a sunrise date that applies a tax credit to taxable years after December 31, 2014, would help to provide assurance to investors and project developers that support would be available, while not unnecessarily tying up state funds.
The purpose of this Act is to modify the existing ethanol facility tax credit to include other liquid biofuels and to enable larger facilities to be eligible for the tax incentive, without changing the level of incentive or cap per facility. Amending the current statute to incorporate biofuels and to foster advanced technology is key to supporting a broader range of high-density biofuels producers, enhancing land use and production efficiency, attracting high-tech investment to the State, spurring agricultural and economic development, and minimizing the State's petroleum dependence and emissions.
SECTION 2. Section 235-110.3, Hawaii Revised Statutes, is amended to read as follows:
production facility tax credit. (a) Each year during the credit
period, there shall be allowed to each taxpayer subject to the taxes imposed by
this chapter, [ an ethanol] a biofuel production facility tax
credit that shall be applied to the taxpayer's net income tax liability, if
any, imposed by this chapter for the taxable year in which the credit is
For each [
qualified ethanol] qualifying
biofuel production facility, the annual dollar amount of the [ ethanol]
biofuel production facility tax credit during the eight-year period
shall be equal to [ thirty per cent of its nameplate capacity if the
nameplate capacity is greater than five hundred thousand but less than fifteen
million gallons.] 30 cents per one hundred fifteen thousand British
thermal units of biofuels; provided that the biofuel production facility's
capacity is not less than five hundred seventy-five billion British thermal
units of biofuel per year; provided further that the amount of the tax credit
claimed under this section by a taxpayer shall not exceed $3,000,000 per
taxable year. A taxpayer may claim this credit for each qualifying [ ethanol]
biofuel production facility; provided that:
(1) The claim for this credit by any taxpayer of a
ethanol] biofuel production facility shall not exceed
one hundred per cent of the total of all investments made by the taxpayer in
the qualifying [ ethanol] biofuel production facility during the
(2) The qualifying [
production facility operated at a level of production of at least seventy-five
per cent of its nameplate capacity on an annualized basis;
(3) The qualifying biofuel production facility is located within the State and, if available, uses agricultural feedstock for at least seventy-five per cent of its production output;
(3)] (4) The qualifying [ ethanol]
biofuel production facility [ is in production on or before January 1,
2017;] commences construction on or after January 1, 2014; and
(4)] (5) No taxpayer that claims the
credit under this section shall claim any other tax credit under this chapter
for the same taxable year.
(b) As used in this section:
"Agricultural feedstock" includes but is not limited to: sugar cane; byproducts from sugar cane; sweet sorghum; sugar beets; biomass; renewable oils; fiber; algae; woody biomass; and other biological materials.
"Biofuel" means ethanol; pyrolysis oil; renewable diesel; bio-gasoline; bio-jet fuel; or any other liquid fuel that meets the relevant biofuel specifications of ASTM International and is produced from agricultural feedstock.
"Credit period" means a maximum
period of eight years beginning from the first taxable year in which the
ethanol] biofuel production facility begins
production even if actual production is not at seventy-five per cent of
"Investment" means a nonrefundable
capital expenditure related to the development and construction of any new
ethanol] biofuel production facility, including
processing equipment, waste treatment systems, pipelines, and liquid storage
tanks at the facility or remote locations, including expansions or
modifications. Direct capital expenditures in agricultural infrastructure,
including irrigation and drainage systems, land clearing and leveling,
establishment of crops, planting, and cultivation where the qualifying biofuel
production facility and agricultural operations are integrated shall be
eligible. Capital expenditures shall be those direct and certain indirect
costs determined in accordance with section 263A of the Internal Revenue Code,
relating to uniform capitalization costs, but shall not include expenses for
compensation paid to officers of the taxpayer, pension and other related costs,
rent for land, the costs of repairing and maintaining the equipment or
facilities, training of operating personnel, utility costs during construction,
property taxes, costs relating to negotiation of commercial agreements not
related to development or construction, or service costs that can be identified
specifically with a service department or function or that directly benefit or
are incurred by reason of a service department or function. For the purposes
of determining a capital expenditure under this section, the provisions of section
263A of the Internal Revenue Code shall apply as it read on March 1, 2004. For
purposes of this section, investment excludes land costs and includes any
investment for which the taxpayer is at risk, as that term is used in section
465 of the Internal Revenue Code (with respect to deductions limited to amount
"Nameplate capacity" means the
qualifying ethanol production facility's production design capacity, in gallons
of motor fuel grade ethanol per year.]
"Net income tax liability" means net income tax liability reduced by all other credits allowed under this chapter.
production" means [ ethanol] biofuel produced from [ renewable,
organic feedstocks, or waste materials, including municipal solid waste. All
qualifying production shall be fermented, distilled, gasified, or produced by
physical chemical conversion methods such as reformation and catalytic
conversion and dehydrated at the facility.] renewable feedstocks
produced within the State; provided that the renewable transportation fuel
shall be sold in the State.
production facility" or "facility" means a facility located in
Hawaii [ which] that produces [ motor] fuel grade [ ethanol
meeting the minimum specifications by the American Society of Testing and
Materials standard D-4806, as amended.] biofuel from renewable
feedstocks and that meets the relevant ASTM International specifications for
that particular fuel or other industry specifications for the production of:
(1) Methanol, ethanol, or other alcohols;
(3) Biodiesel or renewable diesel;
(4) Biofuels derived from biological materials, including algae; or
(5) Renewable jet fuel, renewable gasoline, or liquid or gaseous fuels.
(c) In the case of a taxable year in which the
cumulative claims for the credit by the taxpayer of a qualifying [
biofuel production facility exceeds the cumulative investment made in
the qualifying [ ethanol] biofuel production facility by the
taxpayer, only that portion that does not exceed the cumulative investment
shall be claimed and allowed.
(d) The department of business, economic development, and tourism shall:
(1) Maintain records of the total amount of investment made by each taxpayer in a facility;
(2) Verify the amount [
of the qualifying
investment;] and type of biofuel produced;
(3) Total all qualifying [
investments] biofuel production facilities that the department of
business, economic development, and tourism certifies; and
(4) Certify the total amount of the tax credit for each taxable year and the cumulative amount of the tax credit during the credit period.
Upon each determination, the department of
business, economic development, and tourism shall issue a certificate to the
taxpayer verifying the qualifying [
investment amounts,] volume of
biofuel production, the credit amount certified for each taxable year, and
the cumulative amount of the tax credit during the credit period. The taxpayer
shall file the certificate with the taxpayer's tax return with the department
of taxation. Notwithstanding the department of business, economic development,
and tourism's certification authority under this section, the director of
taxation may audit and adjust certification to conform to the facts.
If in any year, the annual amount of certified
credits reaches [
in the aggregate, the department of business, economic development, and tourism
[ shall] may immediately discontinue certifying credits and notify
the department of taxation. [ In no instance shall the total amount of
certified credits exceed $12,000,000 per year.] Alternatively, the
department of business, economic development, and tourism may increase the cap
according to the level of demand for qualified biofuel production; provided
that the department of business, economic development, and tourism shall report
to the legislature the rationale and justification for any such increase in its
next annual report to the legislature. Notwithstanding any other law to
the contrary, this information shall be available for public inspection and
dissemination under chapter 92F.
(e) If the 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 payments on account of the tax credit allowed by this section shall be made for amounts less than $1. All claims for a credit under this section must be properly 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.
(f) If a qualifying [
production facility or an interest therein is acquired by a taxpayer prior to
the expiration of the credit period, the credit allowable under subsection (a)
for any period after such acquisition shall be equal to the credit that would
have been allowable under subsection (a) to the prior taxpayer had the taxpayer
not disposed of the interest. If an interest is disposed of during any year
for which the credit is allowable under subsection (a), the credit shall be
allowable between the parties on the basis of the number of days during the
year the interest was held by each taxpayer. In no case shall the credit
allowed under subsection (a) be allowed after the expiration of the credit
(g) Once the total nameplate capacities of
qualifying ethanol production facilities built within the State reaches or
exceeds a level of forty million gallons per year, credits under this section
shall not be allowed for new ethanol production facilities. If a new
facility's production capacity would cause the statewide ethanol production
capacity to exceed forty million gallons per year, only the ethanol production
capacity that does not exceed the statewide forty million gallon per year level
shall be eligible for the credit. (h)] (g) Prior to construction
of any new qualifying [ ethanol] biofuel production facility, the
taxpayer shall provide written notice of the taxpayer's intention to begin
construction of a qualifying [ ethanol] biofuel production
facility. The information shall be provided to the department of taxation and
the department of business, economic development, and tourism on forms provided
by the department of business, economic development, and tourism, and shall
include information on the taxpayer, facility location, facility production
capacity, anticipated production start date, and the taxpayer's contact
information. Notwithstanding any other law to the contrary, this information
shall be available for public inspection and dissemination under chapter 92F.
(i)] (h) The taxpayer shall
provide written notice to the director of taxation and the director of
business, economic development, and tourism within thirty days following the
start of production. The notice shall include the production start date and
expected [ ethanol fuel] biofuel production for the next
twenty-four months. Notwithstanding any other law to the contrary, this
information shall be available for public inspection and dissemination under
(j) If a qualifying ethanol production
facility fails to achieve an average annual production of at least seventy-five
per cent of its nameplate capacity for two consecutive years, the stated
capacity of that facility may be revised by the director of business, economic
development, and tourism to reflect actual production for the purposes of
determining statewide production capacity under subsection (g) and allowable
credits for that facility under subsection (a). Notwithstanding any other law
to the contrary, this information shall be available for public inspection and
dissemination under chapter 92F. (k)] (i) Each calendar year
during the credit period, the taxpayer shall provide information to the
director of business, economic development, and tourism on the number of [ gallons]
British thermal units of [ ethanol] biofuel produced and
sold during the previous calendar year, how much was sold in Hawaii versus
overseas, [ feedstocks] the percentage of Hawaii-grown feedstock and
other feedstock used for [ ethanol] biofuel production, the
number of employees of the facility, and the projected number of [ gallons]
British thermal units of [ ethanol] biofuel production for
the succeeding year.
(l)] (j) In the case of a
partnership, S corporation, estate, or trust, the tax credit allowable is for
every qualifying [ ethanol] biofuel production facility. 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
(m)] (k) Following each year in
which a credit under this section has been claimed, the director of business,
economic development, and tourism shall [ submit a written] include in
its annual report to the governor and legislature [ regarding the
production and sale of ethanol. The report shall include:] the
(1) The number, location, and nameplate capacities of
ethanol] biofuel production facilities in the State;
(2) The total number of [
thermal units of [ ethanol] biofuel produced and sold during
the previous year; and
(3) The projected number of [
thermal units of [ ethanol] biofuel production for the
(n)] (l) The director of
taxation shall prepare forms that may be necessary to claim a credit under this
section. Notwithstanding the department of business, economic development, and
tourism's certification authority under this section, the director of
taxation may audit and adjust certification to conform to the facts. 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
SECTION 3. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.
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, 2014.
Renewable Fuels; Biofuels; Ethanol; Tax Credits
Replaces the ethanol facility tax credit with the biofuel production facility tax credit. Expands tax credit eligibility to include larger facilities and production of multiple types of biofuel. Changes the formula for calculating the amount of tax credit allowed and caps the amount of tax credits allowed. Limits the credit to Hawaii biofuel production facilities. Allows the Department of Business, Economic Development, and Tourism to increase the aggregate tax cap with reporting requirements. Applies to taxable years beginning after December 31, 2014.
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.