HOUSE OF REPRESENTATIVES |
H.B. NO. |
1685 |
THIRTIETH LEGISLATURE, 2020 |
H.D. 1 |
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STATE OF HAWAII |
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A BILL FOR AN ACT
RELATING TO TAXATION.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to part VI to be appropriately designated and to read as follows:
"§235- Cybersecurity and artificial intelligence business investment tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter a cybersecurity and artificial intelligence business investment 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 investment was made and the following four years; provided that the credit is properly claimed. The tax credit shall be as follows:
(1) In the year the investment was made, per cent of the investment made by the taxpayer in each qualified business, up to a maximum credit amount of $700,000;
(2) In the first year following the year in which the investment was made, cent of the investment made by the taxpayer in each qualified business, up to a maximum credit amount of $500,000;
(3) In the second year following the investment, per cent of the investment made by the taxpayer in each qualified business, up to a maximum credit amount of $400,000;
(4) In the third year following the investment, per cent of the investment made by the taxpayer in each qualified business, up to a maximum credit amount of $200,000; and
(5) In the fourth year following the investment, per cent of the investment made by the taxpayer in each qualified business, up to a maximum credit amount of $200,000.
(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 for any of the five years that the credit
is taken, the excess of the tax credit over liability may be used as a credit
against the taxpayer's income tax liability in subsequent years until
exhausted. Every claim, including
amended 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) If at the close of any taxable year in the
five-year period in subsection (a):
(1) The business no longer qualifies as a qualified business;
(2) The business or an interest in the business has been sold by the taxpayer investing in the qualified business; or
(3) The taxpayer has withdrawn the taxpayer's investment wholly or partially from the qualified business;
the credit claimed under this section shall be
recaptured. The recapture shall be equal
to per cent of the amount of the total tax credit
claimed under this section in the preceding two taxable years. The amount of the credit recaptured shall
apply only to the investment in the particular qualified business that meets
the requirements of paragraph (1), (2), or (3).
The recapture provisions of this subsection shall not apply to a tax
credit claimed for a qualified business that does not fall within the
provisions of paragraph (1), (2), or (3).
The amount of the recaptured tax credit determined under this subsection
shall be added to the taxpayer's tax liability for the taxable year in which
the recapture occurs under this subsection.
(e) Every taxpayer, before March 31 of each year
in which an investment in a qualified business was made in the previous taxable
year, shall submit a written, certified statement to the director of taxation
identifying:
(1) Qualified investments, if any, expended in the previous taxable year; and
(2) The amount of tax credits claimed pursuant to this section, if any, in the previous taxable year.
(f) The department shall:
(1) Maintain records of the names and addresses of the taxpayers claiming the credits under this section and the total amount of the qualified investment costs upon which the tax credit is based;
(2) Verify the nature and amount of the qualifying investments;
(3) Total all qualifying and cumulative investments that the department certifies; and
(4) Certify the amount of the tax credit for each taxable year and cumulative amount of the tax credit.
Upon
each determination made under this subsection, the department shall issue a
certificate to the taxpayer verifying information submitted to the department,
including qualifying investment amounts, 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.
The
director of taxation may assess and collect a fee to offset the costs of
certifying tax credits claims under this section. All fees collected under this section shall
be deposited into the tax administration special fund established under section
235-20.5.
(g) Common law principles, including the doctrine
of economic substance and business purpose, shall apply to any investment. There exists a presumption that a transaction
satisfies the doctrine of economic substance and business purpose to the extent
that the special allocation of the cybersecurity and artificial intelligence
business tax credit has an investment tax credit allocation ratio of 1.5 or
less of credit for every dollar invested.
Transactions
for which an investment tax credit allocation ratio greater than 1.5 but not
more than 2.0 of credit for every dollar invested and claimed may be reviewed
by the department for applicable doctrine of economic substance and business
purpose.
Businesses
claiming a tax credit for transactions with investment tax credit allocation
ratios greater than 2.0 of credit for every dollar invested shall substantiate
economic merit and business purpose consistent with this section.
(h) As used in this section:
"Investment
tax credit allocation ratio" means, with respect to a taxpayer that has
made an investment in a qualified business, the ratio of:
(1) The amount of the credit under this section that is, or is to be, received by or allocated to the taxpayer over the life of the investment, as a result of the investment; to
(2) The amount of the investment in the
qualified business.
"Net
income tax liability" means net income tax liability reduced by all other
credits allowed under this chapter.
"Qualified
business" means a business, employing or owning capital or property, or
maintaining an office, in this State; provided that:
(1) More than per cent of its total business activities are the development of cybersecurity and artificial intelligence; provided further that the business conducts more than per cent of these development activities in this State; or
(2) More than per cent of its gross income is derived from the development of cybersecurity and artificial intelligence; provided further that this income is received from:
(A) Products sold from, manufactured in, or produced in this State; or
(B) Services performed in this State."
SECTION 2. Chapter 241, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§241- Cybersecurity and artificial intelligence business investment tax credit. The cybersecurity and artificial intelligence business investment tax credit provided under section 235- shall be operative for this chapter on the effective date of this Act."
SECTION 3. Chapter 431, article 7, part II, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§431:7- Cybersecurity and artificial intelligence business investment tax credit. The cybersecurity and artificial intelligence business investment tax credit provided under section 235- shall be operative for this chapter on the effective date of this Act."
SECTION 4. Section 235-20.5, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:
"(a) There is
established a tax administration special fund, into which shall be deposited:
(1) Fees collected under sections 235-20, 235-110.9, [and]
235-110.91[;], and 235- ;
(2) Revenues collected by the special enforcement section
pursuant to section 231-85; provided that in each fiscal year, of the total
revenues collected by the special enforcement section, all revenues in excess
of $2,000,000 shall be deposited into the general fund; and
(3) Fines assessed pursuant to section 237D-4.
(b) The moneys in the fund shall be used for the
following purposes:
(1) Issuing comfort letters, letter rulings, written opinions,
and other guidance to taxpayers;
(2) Issuing
certificates under sections 235-110.9 [and], 235-110.91[;],
and 235- ;
(3) Administering
the operations of the special enforcement section;
(4) Funding
support staff positions in the special enforcement section; and
(5) Developing, implementing, and providing taxpayer education programs, including tax publications."
SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 6. This Act shall take effect on July 1, 2112; provided that:
(1) Sections 1, 2, and 3 of this Act shall apply to taxable years beginning after December 31, 2019, for investments made pursuant to section 235- , Hawaii Revised Statutes, on or after the effective date of this Act; and
(2) Section 4 of this Act shall apply to taxable years beginning after December 31, 2019.
Report Title:
Taxation; Technology; Cybersecurity; Artificial Intelligence
Description:
Establishes an income tax credit for investment in qualified businesses that develop cybersecurity and artificial intelligence. Takes effect on 7/1/2112. (HD1)
The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.