Bill Text: HI HB611 | 2010 | Regular Session | Amended

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Bill Title: Tax Credits; Tax Exemptions; Evaluation; Report

Spectrum: Partisan Bill (Democrat 4-0)

Status: (Enrolled - Dead) 2009-05-11 - Carried over to 2010 Regular Session. [HB611 Detail]

Download: Hawaii-2010-HB611-Amended.html

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Report Title:

Tax Credits; Tax Exemptions; Evaluation; Report

 

Description:

Amends the capital goods excise tax credit so that it applies only to property placed in service or purchased pursuant to a binding contract in taxable years beginning before July 1, 2009; suspends the credit for taxable years beginning on or after July 1, 2009, and ending on or before December 31, 2011; and adds a new part for property placed in service or purchased pursuant to a binding contract in taxable years beginning after December 31, 2011. Requires the department of taxation, with the assistance of the department of business, economic development, and tourism, to evaluate certain tax credits and tax exemptions and report to the legislature.  Requires the department of taxation to give recommendations and for the legislature to implement those recommendations prior to the mandate for those tax credits and tax exemptions to sunset.  Amends the application of professional employment organizations for the purposes of chapter 237, Hawaii Revised Statutes (general excise tax).  Effective 7/1/50.  (SD2)

 

HOUSE OF REPRESENTATIVES	H.B. NO.	611
TWENTY-FIFTH LEGISLATURE, 2009		H.D. 1
STATE OF HAWAII		S.D. 2

A BILL FOR AN ACT

 

 

RELATING TO TAXATION.

 

 

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

 

PART I

     SECTION 1.  The purpose of this part is to add a new part to chapter 235, Hawaii Revised Statutes, to clarify the application of the capital goods excise tax credit and to identify when section 235-110.7, Hawaii Revised Statutes, applies to property placed in service and when the new part added to chapter 235, Hawaii Revised Statutes, applies to property placed in service.

     This part also separates the new part added in chapter 235, Hawaii Revised Statutes, into several parts in an effort to provide clarity for taxpayers and practitioners that utilize the capital goods excise tax credit.  This part is not intended to change the application of section 235-110.7, Hawaii Revised Statutes, as it applies with regard to property placed in service in taxable years beginning before July 1, 2009.

     As currently enacted, section 235-110.7, Hawaii Revised Statutes, is onerous for taxpayers and practitioners to apply accurately and somewhat burdensome for the department of taxation to administer.

     This part improves the organization of section 235-110.7, Hawaii Revised Statutes, and clarifies the application of the capital goods excise tax credit for taxpayers that acquire and use certain depreciable tangible personal property in a trade or business.

     Specifically, this part removes, to the extent possible, references to Internal Revenue Code provisions that have been repealed or substantially amended, as well as adding or elaborating upon several definitions taken from the Internal Revenue Code, including, but not limited to, "basis", "eligible property", "new eligible property", and "tangible personal property".  This part also describes the necessary conditions that must occur in order for the capital goods excise tax credit to be properly claimed by taxpayers and the recapture requirements for previously claimed credits.

     In order to improve the organization and clarify the application of this frequently used income tax credit, the legislature finds that a new part should be added to chapter 235, Hawaii Revised Statutes, in order to clarify the application of the capital goods excise tax credit for practitioners and ease the burden for the department of taxation to administer the credit.

     This part also suspends the capital goods excise tax credit for calendar years 2010 and 2011.

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

"PART   .  CAPITAL GOODS EXCISE TAX CREDIT

     §235-A  Definitions.  For the purpose of this part:

     "Alternative energy property" consists of the following types of property:

     (1)  A boiler, the primary fuel for which shall be an alternate substance.  An alternate substance is any substance other than oil, natural gas, or any product of oil and natural gas;

     (2)  A burner, including necessary on-site equipment to bring the alternate substance to the burner, for a combustor other than a boiler if the primary fuel for the burner will be an alternate substance;

     (3)  Equipment for turning an alternate substance into a synthetic liquid, gaseous, or solid fuel;

     (4)  Equipment designed to modify existing equipment which uses oil or natural gas as fuel or as feedstock so that the existing equipment will use either a substance other than oil and natural gas or oil mixed with a substance other than oil and natural gas where the other substance provides not less than twenty‑five per cent of the fuel or feedstock;

     (5)  Equipment to convert coal, including lignite, or any non-marketable substance derived therefrom, into a substitute for a petroleum or natural gas derived feedstock for the manufacture of chemicals or other products, or coal, including lignite, or any substance derived therefrom, into methanol, ammonia, or a hydroprocessed coal liquid or solid;

     (6)  Pollution control equipment required by federal, state, or local law, ordinances, regulations, or rules to be installed on or in connection with equipment described in paragraphs (1) to (5);

     (7)  Equipment used for the unloading, transfer, storage, reclaiming from storage, and preparation, including, but not limited to, washing, crushing, drying, and weighing, at the point of use for an alternate substance for use in equipment described in paragraphs (1) to (6).  This includes equipment used for the storage of fuel derived from garbage at the site at which fuel was produced from garbage; and

     (8)  Equipment used to produce, distribute, or use energy from a geothermal deposit, but only, in the case of electricity generated by geothermal power, up to, but not including, the electrical transmission state.

     "Basis" means the cost of property.

     (1)  The basis of new eligible property which has been constructed, reconstructed, or erected for the taxpayer's use includes that portion of the cost of the property that is subject to the imposition and payment of tax at the rate of four per cent under chapter 237 or 238.

     (2)  Whether the cost or other basis of the construction, reconstruction, or erection is attributable to all or part of a property placed in service may be determined by engineering estimates or by cost accounting records.

     (3)  In the case of reconstructed property, the cost of the property does not include the adjusted basis of the reconstructed property at the time the reconstruction commences.  However, the reconstructed property may qualify as used eligible property, as defined in this section, and the cost of the property may include the adjusted basis of the reconstructed property at the time the reconstruction commences if the adjusted basis of the property is subject to the imposition and payment of tax at the rate of four per cent under chapter 237 or 238.

     (4)  If constructed, reconstructed, or erected property is placed in service over a span of more than one taxable year, the credit shall be allowed to the taxpayer for a particular taxable year with respect to so much of the eligible property that is subject to the imposition and payment of tax at the rate of four per cent under chapter 237 or 238.

     (5)  The basis of used eligible property is the cost of the property that is subject to the imposition and payment of tax at the rate of four per cent under chapter 237 or 238.

     (6)  In the case of a partnership, S corporation, estate, or trust, the credit allowable is for eligible property that is placed in service by the entity.  The basis upon which the credit is computed is determined at the entity level.  Each partner, S corporation shareholder, or beneficiary of an estate or trust shall separately take into account for its taxable year with or within which the entity's taxable year ends, the partner's, shareholder's, or beneficiary's share of the basis and resulting credit.

              A partner's share of the basis shall be determined in accordance with the ratio in effect on the date on which the eligible property is placed in service in which the partners divide the general profits of the partnership.  The basis of partnership eligible property that is subject to a special allocation that is recognized under section 704(a) and 704(b) (with respect to partner's distributive share) of the Internal Revenue Code shall be recognized for purposes of the credit, and an upward basis adjustment pursuant to section 754 (with respect to manner of electing optional adjustment to basis of partnership property) of the Internal Revenue Code is not eligible for the credit.  A basis adjustment under section 754 (with respect to manner of electing optional adjustment to basis of partnership property) of the Internal Revenue Code is not eligible for the credit because the adjustment is not a transaction that is subject to the imposition and payment of tax at the rate of four per cent under chapter 237 or 238.

              Each S corporation shareholder's basis of eligible property is the shareholder's allocated share of the corporation's basis in the eligible property.  A beneficiary's share of the basis is apportioned between the entity and the beneficiaries, based on the income of the entity allocable to each on the date the eligible property is placed in service.  The term "beneficiary" includes an heir, legatee, or devisee.

     (7)  If a deduction is taken under section 179 (with respect to election to expense certain depreciable business assets) of the Internal Revenue Code the portion of the basis of property for which the deduction is taken is not considered in determining the amount of credit allowable.

     (8)  For purposes of determining the amount of credit available, the basis for vehicles subject to section 280F (with respect to limitation on depreciation for luxury automobiles; limitation where certain property used for personal purposes) of the Internal Revenue Code used predominantly for business purposes is limited to an amount equal to the amount necessary to obtain the maximum depreciation deduction allowed in the first year for both luxury passenger automobiles and trucks, vans and sport utility vehicles under section 280F (with respect to limitation on depreciation for luxury automobiles; limitation where certain property used for personal purposes) of the Internal Revenue Code.  Use is predominantly for business purposes if over fifty per cent of the total use is for business purposes.  This limitation applies before any percentage reduction for personal use, as discussed in paragraph (9).

              If more than one taxpayer has an interest in a vehicle subject to section 280F (with respect to limitation on depreciation for luxury automobiles; limitation where certain property used for personal purposes) of the Internal Revenue Code they are treated as one taxpayer for purposes of the basis limitation.  The limitation shall be apportioned among the taxpayers according to their interests in the passenger automobile.

     (9)  Listed property shall not be treated as eligible property, and the credit shall be denied if the listed property does not satisfy the more-than-fifty per cent business use test.  If the qualified business use satisfies the more-than-fifty per cent business use test, but is not used one hundred per cent for business, the amount of credit is limited to the percentage of business use.  The amount of credit allowable in the taxable year in which the listed property is placed in service is unaffected by any increase in the business use percentage in a subsequent year; provided that, if there is a reduction in the business use of property, then the credit taken with respect to the listed property may be subject to recapture as provided in section 235‑C.

     "Biomass property" means property that is a boiler, the primary fuel for which is an alternate substance, a burner, including necessary on-site equipment to bring the alternate substance to the burner, for a combustor other than a boiler if the primary fuel will be an alternate substance, or equipment for converting an alternate substance into a qualified fuel, including equipment used to store fuel derived from garbage at the site at which the fuel was produced from garbage.  For purposes of defining biomass property, an alternate substance means any substance other than an inorganic substance and coal, including lignite, or any coal product.  Biomass property also includes pollution control equipment that is required to be installed on or in connection with the above equipment, as well as equipment used for the unloading, transfer, storage, reclaiming from storage, and preparation at point of use of an alternate substance for use in that equipment.

     "Building" means any structure or edifice that encloses a space within its walls, and is usually covered by a roof.  The term also includes any such structure that is constructed by or for a lessee, even if the structure must be removed, or ownership of the structure reverts to the lessor at the termination of the lease.

     "Bulk storage" means the storage of a commodity in a large mass before its consumption or use.

     "Cogeneration equipment" means property which is an integral part of a system for using the same fuel to produce both qualified energy and electricity at an industrial or commercial facility.  For purposes of this definition, the term "industrial" means the purification of water and the desalinization of water.

     "Cost" means the (1) actual invoice price of the tangible personal property, or (2) basis from which a deduction is taken under section 167 (with respect to depreciation) or 168 (with respect to accelerated cost recovery system) of the Internal Revenue Code, whichever is less.

     "Credit" means the capital goods excise tax credit.

     "Eligible property":

     (1)  Eligible property is defined as:

         (A)  Property that is tangible personal property or other tangible property;

         (B)  Recovery property, within the meaning of section 168 (with respect to accelerated cost recovery system) of the Internal Revenue Code without regard to useful life, or any other property with respect to which depreciation is allowable to the taxpayer; and

         (C)  Property which has an estimated useful life or recovery period, determined as of the time the property is placed in service, of three years or more.  A property shall have the same estimated useful life or recovery period as that which is used for depreciation or accelerated cost recovery system purposes.

     (2)  Property that is eligible for the credit is:

         (A)  New eligible property; or

         (B)  Used eligible property.

     (3)  Tangible personal property, other than a central air conditioning or a heating unit, may qualify as eligible property regardless of whether it is used as an integral part of an activity or constitutes a research or storage facility used in connection with the activity, as required for other tangible property.

     (4)  Eligible property shall be either recovery property within the meaning of section 168 (with respect to accelerated cost recovery system) of the Internal Revenue Code without regard to useful life, or any other property with respect to which depreciation is allowed by the taxpayer.

         (A)  If only part of a property is depreciable, only a pro rata portion of the property may qualify as eligible property.

         (B)  Property does not qualify as eligible property to the extent that a deduction for depreciation thereon is disallowed under section 274 (with respect to disallowance of certain entertainment, etc., expenses) of the Internal Revenue Code.

     (5)  Generally, any boiler, used in Hawaii, which is primarily fueled by petroleum or petroleum products, including natural gas, qualifies as eligible property.

     (6)  Energy property qualifies as eligible property.

     (7)  Certain classes of property that generally do not qualify as eligible property and thereby are not eligible for the credit include:

         (A)  A building or its structural components.

         (B)  Property purchased for use in a foreign trade zone as defined in chapter 212.

         (C)  Property used by an organization which is exempt from the tax imposed by this chapter, unless the property is used predominantly in an unrelated trade or business, the income from which is subject to tax under this chapter.

         (D)  Intangible property.

         (E)  Property used for lodging.

     (8)  Exceptions to paragraph (7):

         (A)  A nonlodging commercial facility that is available to persons not using the lodging facility on the same basis as it is available to tenants of the lodging facility may qualify as eligible property.

         (B)  Property used by a hotel, motel, or other similar establishment in connection with the trade or business of furnishing lodging where more than one half of the accommodation in the hotel, motel, or other similar establishment is used by transients may qualify as eligible property.  An accommodation shall be considered to accommodate transients if the rental period is normally less than thirty days.

         (C)  Coin-operated vending machines and coin-operated washing machines and dryers may qualify as eligible property.

     "Energy property" means certain property intended to reduce the amount of oil, natural gas, or other energy consumed in heating or cooling a building or used in an industrial process.      Energy property includes:

     (1)  Alternative energy property;

     (2)  Solar or wind energy property;

     (3)  Specially defined energy property;

     (4)  Recycling equipment;

     (5)  Hydroelectric generating property;

     (6)  Cogeneration equipment; and

     (7)  Biomass property.

     "Hydroelectric generating property" means property installed at a hydroelectric site that is:

     (1)  Equipment for increased capacity to generate electricity by water up to, but not including, the electrical transmission stage; and

     (2)  Structures for housing the generating equipment, fish passageways, and dam rehabilitation property, required by reason of the installation of equipment described in paragraph (1).

     "Integral part" means property used directly in one of the activities specified as a condition under which other tangible property may be considered eligible property.

     "Lease" is defined as it is for federal income tax purposes.

     "Listed property" means passenger automobiles and other property used as a means of transportation; property generally used for purposes of entertainment, recreation, or amusement; computers and related peripheral equipment; and other property as determined by the department of taxation.

     "Manufacturing, production, and extraction" means:

     (1)  Construction, reconstruction, or making of property out of scrap, salvage, junk, new, or raw material by processing, manipulating, refining, or changing the form of an article, or by combining or assembling two or more articles;

     (2)  Cultivation of the soil;

     (3)  Raising of livestock; or

     (4)  Mining of minerals.

     "More-than-fifty per cent business use test" means that certain business use of listed property, referred to as "qualified business use," must exceed fifty per cent.  For purposes of determining the more-than-fifty per cent business use test, use in a trade or business does not include use in an investment or other activity conducted for the production of income.  However, if the more-than-fifty-per-cent-business-use test has been met, the percentage of investment use may be added in when figuring the total business use for purposes of calculating the amount of credit allowable.

     "New eligible property" means property that qualifies under at least one of the following conditions:

     (1)  The property is eligible property, the original use of which commences with the taxpayer after the date the taxpayer acquires it;

     (2)  The property is eligible property that is:

         (A)  Sold and leased back by the same taxpayer within three months of the date the property was originally placed in service in Hawaii by the taxpayer; or

         (B)  Leased to the same taxpayer within three months of the date the property was originally placed in service by that taxpayer; or

     (3)  The property is eligible property, the construction, reconstruction, or erection of which is placed in service by the taxpayer, but only with respect to that portion of the basis as is discussed in paragraphs (1) to (5) of the definition of "basis".  It is not necessary that the materials entering into the construction, reconstruction, or erection be new in use.  Construction, reconstruction, or erection begins when physical work is started on the construction, reconstruction, or erection.

     "Original use" means the first use to which the property is put, whether or not it is the taxpayer's first use of the property.

     "Other tangible property" is tangible property, other than tangible personal property that qualifies as eligible property by meeting one of the following three conditions:

     (1)  The property is used as an integral part of manufacturing, production, extraction, or furnishing transportation, communication, electrical energy, gas water, or sewage disposal services;

     (2)  The property is used as a research or storage facility used in connection with an activity referred to in paragraph (1); or

     (3)  The property is a facility used in connection with an activity referred to in paragraph (1) for the bulk storage of fungible commodities, including commodities in a liquid or gaseous state.

     "Placed in service" means property that is placed in service in Hawaii in the earliest of the following taxable years:

     (1)  The taxable year in which the period for depreciation with respect to the property begins;

     (2)  The taxable year in which, under the accelerated cost recovery system, a claim for recovery allowances with respect to the property begins; or

     (3)  The taxable year in which the property is placed in a condition or state of readiness in Hawaii and available for a specifically assigned function by the taxpayer.

In a sale-leaseback transaction, the property shall be considered to be placed in service on the date the property was first placed in service in Hawaii by the seller-lessee.

     "Property used for lodging" means property that is used predominantly to furnish lodging; or in connection with the furnishing of lodging.

     (1)  Property used predominantly to furnish lodging includes that which is used in the living quarters of a lodging facility such as, for example, beds, other furniture, refrigerators, ranges, and other equipment.

     (2)  A lodging facility includes an apartment house, hotel, motel, dormitory or other facility, or part of a facility, where sleeping accommodations are provided and let; provided that the term does not include a facility which is used primarily as a means of transportation such as, for example, an aircraft or vessel, or to provide medical or convalescent services, even though sleeping accommodations are provided.

     (3)  Property used predominantly in connection with the furnishing of lodging includes that which is used to operate a lodging facility or to serve tenants, whether furnished by the owner of the lodging facility or another person; provided that property used in furnishing, to the management of a lodging facility or its tenants, electrical energy, water, sewage disposal services, gas, telephone services, or other similar utility services shall not be treated as property used in connection with the furnishing of lodging.

     "Purchase" means an acquisition of property.

     "Qualified business use" means use of listed property that meets the more-than-fifty per cent business use test.

     "Qualified energy" means steam, heat, or other forms of useful energy, other than electric energy, to be used for industrial, commercial, or space-heating purposes other than in the production of electricity.

     "Recapture period" means the period beginning on the first day of the month the eligible property is placed in service in Hawaii, and extending for a full three years.

     "Recycling equipment" means any equipment that is used exclusively to sort and prepare solid waste for recycling or in the recycling of solid waste.  The term recycling equipment does not include any equipment used in a process after the first marketable product is produced or in the case of recycling iron or steel, any equipment used to reduce the waste to a molten state, and in any process thereafter.

     (1)  Any equipment used in the recycling of material that includes some virgin materials shall not be treated as failing to meet the exclusive requirements of this definition if the amount of the virgin materials is ten per cent or less.

     (2)  The term recycling equipment includes any equipment that is used in the conversion of solid waste into a fuel or into useful energy such as steam, electricity, or hot water.

     "Sale-leaseback" is defined as it is for federal income tax purposes.

     "Sixty-six and two-thirds per cent rule" means that if a partner's, shareholder's, or beneficiary's interest in the entity is reduced below sixty-six and two-thirds per cent of their interest at the time the credit was taken, a pro rata share of the partner's, shareholder's, or beneficiary's interest in the entity's eligible property shall cease to be eligible property with respect to the partner, shareholder, or beneficiary, and credit recapture shall be required.

     "Solar or wind energy property" means any equipment that uses solar or wind energy to generate electricity, heat or cool, or provide hot water for use in a structure, or provide solar process heat.

     "Specially defined energy property" means property that is installed in an existing industrial or commercial facility to reduce the amount of energy consumed in the existing industrial or commercial process.

     "Specified percentage" means whichever of these two rules applies:  the sixty-six and two-thirds per cent rule; or the thirty‑three and one-third per cent rule.

     "Structural component" means parts of a building such as walls, partitions, floors, ceilings, and permanent coverings; all components of a central air conditioning or heating system; plumbing and plumbing fixtures; electric wiring and lighting fixtures; chimneys; stairs, escalators, and elevators.  The term structural component does not include property that is contained in or attached to a building such as production machinery, the sole justification for the installation of which is to meet temperature or humidity requirements that are essential for the operation of other machinery of the processing of materials or foodstuffs.  Machinery may also meet this sole justification test even though it incidentally provides for the comfort of employees, or serves, to an insubstantial degree, areas where the temperature or humidity requirements are not essential.

     "Substantial interest" means when a transferor, or in a case where the transferor is a partnership, estate or trust, or S corporation, the partner, beneficiary, or shareholder, is considered to have retained a substantial interest in the trade or business if, after the change in form, the transferor's interest in the trade or business is:

     (1)  Substantial in relation to the total income interest of all the owners; or

     (2)  Equal to or greater than the transferor's interest before the change in form.

     A taxpayer shall not be considered to have retained a substantial interest where the only basis for claiming substantial interest is that the values of the interests exchanged are equal.  The determination of whether a taxpayer has retained a substantial interest in the trade or business is to be made immediately after the change in the form of conducting the trade or business, and after each time the taxpayer disposes of a portion of the taxpayer's interest in the new enterprise.

     "Tangible personal property" means any tangible property except land and improvements thereto, such as buildings or other inherently permanent structures, including items that are structural, components of the buildings, or structures.

     "Thirty-three and one-third per cent rule" means that once there has been a recapture by reason of the sixty-six and two‑thirds per cent rule, there is no further recapture until the partner's, shareholder's, or beneficiary's interest is reduced to less than thirty-three and one-third per cent of its interest at the time the credit was taken.  Thereafter, any reduction in interest, however small, shall again subject the partner, shareholder, or beneficiary to the recapture provisions.

     "Transportation business" means airlines, bus companies, shipping or trucking companies, and oil pipeline companies.

     "Used eligible property" means property that is eligible property as defined in this section and the property is not new eligible property as defined in this section.

     §235‑B  Capital goods excise tax credit allowed.  (a)  For property placed in service in taxable years beginning after December 31, 2011, there shall be allowed to each taxpayer subject to the tax imposed by this chapter a capital goods excise 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, if the following conditions are met:

     (1)  The taxpayer purchases or imports eligible property;

     (2)  The purchase or import of eligible property results in a transaction that is subject to the imposition and payment of tax at the rate of four per cent under chapter 237 or 238;

     (3)  The eligible property is used by the taxpayer in a trade or business; and

     (4)  The eligible property is placed in service in Hawaii.

     (b)  The amount of the tax credit shall be four per cent of the basis of eligible property used by the taxpayer in a trade or business and placed in service in Hawaii.  Any credit claimed under this section shall be subject to the following limitations:

     (1)  In the case of eligible property for which a credit for sales or use taxes paid to another state is allowable under section 238-3(i), the amount of the tax credit allowed under this section shall not exceed the amount of use tax actually paid under chapter 238 relating to the tangible personal property.

     (2)  If a deduction is taken under section 179 (with respect to election to expense certain depreciable business assets) of the Internal Revenue Code, no tax credit shall be allowed for that portion of the basis of property for which the deduction was taken.

     (3)  If a taxpayer is eligible for both the income tax credit under section 235-12.5, and the capital goods excise tax credit for a particular solar or wind energy property, the credit under section 235-12.5, shall be deducted from the taxpayer's net income tax liability before the capital goods excise tax credit.

     (c)  In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for eligible property that is placed in service in Hawaii by the entity.  The basis upon which the tax credit is computed shall be determined at the entity level.

     (d)  If the capital goods excise tax credit allowed under subsection (a) exceeds the taxpayer's net 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 credit allowed by this section shall be made for amounts less than $1.

     (e)  All claims for tax credits under this section, including any amended claims, shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credits may be claimed.  Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

     (f)  The credit shall be allowed only for the first taxable year in which the property is placed in service by the taxpayer.  If in the first taxable year in which a taxpayer places property in service no portion of the property qualifies as eligible property, no credit shall be allowed to the taxpayer with respect to the property.  If a portion of the property qualifies as eligible property in the first year in which the property is placed in service, then a credit only as to the portion that qualifies shall be allowed to the taxpayer.  If constructed, reconstructed, or erected property, qualifying as eligible property, is placed in service over a span of more than one taxable year, the credit shall be allowed to the taxpayer for a particular taxable year with respect to so much of the eligible property that is placed in service and subject to the imposition and payment of tax at the rate of four per cent under chapter 237 or 238 in that taxable year.

     (g)  Application for the capital goods excise tax credit shall be upon forms provided by the department of taxation.

     (h)  The taxpayer shall treat the amount of 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.  Alternatively, the basis of eligible property for depreciation or the accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed.

     §235-C  Recapture of credit.  (a)  Recapture of the previously claimed credit applies where a recapture event occurs under paragraph (2) and the percentage of credit provided in paragraph (1) shall be included as income under chapter 235 or 241 in the year a recapture event occurs.

     (1)  Where the recovery property or depreciable property ceases to be eligible property within the following period, which constitutes a full year after being placed in service in Hawaii, the accompanying percentage shall be the recapture percentage:

          Recapture period        Recapture percentage

          One full year                 100

          Two full years                 66

          Three full years               33

          Four full years                 0

     (2)  A recapture event occurs when:

         (A)  Property ceases to be eligible property with respect to a taxpayer when:

              (i)  The property ceases to be owned by taxpayer.  Recapture shall be triggered upon disposition of the property.

             (ii)  The property ceases to be eligible property.  The cessation shall be treated as having occurred on the first day of the taxable year.

         (B)  All or a portion of the credit taken in an earlier year for listed property may be subject to recapture during the recapture period if:

              (i)  The percentage of business use falls below the percentage of business use for the year the listed property was placed in service; or

             (ii)  The listed property is converted from business to personal use and does not satisfy the more-than-fifty per cent business use test.

         (C)  All or a portion of previously taken credit as determined in paragraph (1) may be subject to recapture if, during the recapture period, the basis of eligible property used to calculate the credit decreases, either through a refund in the purchase price or usage of the property for personal purposes.

     (b)  Application of recapture rules to partnerships, S corporations, estates, or trusts shall be as follows:

     (1)  In the case of a partnership, S corporation, estate, or trust, the recapture rule applies to a partner, shareholder, or beneficiary who originally received the benefit of a credit if within the recapture period:

         (A)  The S corporation, partnership, estate, or trust disposes of eligible property;

         (B)  If eligible property otherwise ceases to be eligible property in the hands of the entity; or

         (C)  The partner's, shareholder's, or beneficiary's interest in the entity is reduced, for example, by sale of interest in the entity, below a specified percentage as defined in section 235-A.

     (2)  In making a recapture determination, there may be taken into account any prior recapture determination made with respect to the partner, shareholder, or beneficiary in connection with the same property.

     (c)  Application of recapture rules to valid S corporation election shall be as follows:

     (1)  If a C corporation makes a valid election under section 235-2.45 and part VII to be an S corporation, then on the last day of the taxable year immediately preceding the first taxable year for which the election is effective, any eligible property the basis of which was taken into account to compute the C corporation's credit allowable in taxable years before the first taxable year for which the election is effective and which has not been disposed of or otherwise ceased to be eligible property with respect to the C corporation before the last day shall be considered as having ceased to be eligible property with respect to the C corporation and the recapture rule shall apply.  However, the recapture rule shall not apply if the S corporation and each of its shareholders on the first day of the first taxable year for which the election under section 235-2.45 and part VII is to be effective, or on the date of the election, whichever is later, execute an agreement as is described in paragraph (2).

     (2)  The agreement shall:

         (A)  Be signed by the shareholders; and on behalf of the S corporation by a person who is duly authorized;

         (B)  State that if eligible property for which the credit was taken is later disposed of by, or ceases to be eligible property with respect to, the S corporation during the recapture period and during a taxable year for which the S election is effective, each signer agrees to notify the director of taxation of a disposition or cessation and to be jointly and severally liable to pay the director of taxation an amount equal to the increase in tax provided by the recapture rule;

         (C)  State the name, address, and taxpayer identification number of each party to the agreement;

         (D)  Be filed with the department of taxation for the taxable year immediately preceding the first taxable year for which the S election is effective; and

         (E)  Be filed with the department of taxation on or before the due date, including extensions of time, of the return, unless the director of taxation permits, upon a showing of good cause, the agreement to be filed on a later date.

     (3)  A shareholder's share of the amount of credit recapture shall be determined as if the property had ceased to be eligible property as of the last day of the taxable year immediately preceding the first taxable year for which the S election is effective; provided that the recapture percentage shall be determined as if the property ceased to be eligible property on the date the property actually ceased to be eligible property.

     (d)  During the recapture period, all or a portion of previously taken credit as determined in subsection (a)(1) shall be subject to recapture if the eligible property is transferred out of the State.

     (e)  Exceptions to the recapture rule shall be as follows:

     (1)  A transfer by reason of death is not considered to be a disposition of eligible property subject to the recapture rule.  This exception to the recapture rule applies to transfers by reason of the death of a sole proprietor, partner, S corporation shareholder, or beneficiary of an estate or trust.

     (2)  A disposition of eligible property in a transaction to which section 381(a) (with respect to carryovers in certain corporate acquisitions) of the Internal Revenue Code applies is not considered to be a disposition of eligible property, subject to the recapture rule; provided that, if the acquiring corporation disposes of the eligible property before the close of the recapture period, there shall be an early disposition and the recapture rule shall be triggered.

     (3)  Recapture is not required as a result of a mere change in the form of conducting a trade or business if:

         (A)  The property is retained as eligible property in the same trade or business;

         (B)  The transferor, or in a case where the transferor is a partnership, estate or trust, or S corporation, the partner, beneficiary, or shareholder, of eligible property retains a substantial interest in the trade or business;

         (C)  Substantially all the property, whether or not eligible property, necessary to the trade or business is transferred in the change in form; and

         (D)  The basis of eligible property in the hands of the transferee is determined in whole or in part by reference to the basis of eligible property in the hands of the transferor.

     (4)  Paragraph (3) shall not apply to the transfer of eligible property if section 381 (with respect to carryovers in certain corporate acquisitions) of the Internal Revenue Code applies to the transfer.

     (5)  Neither an election to be treated as an S corporation, nor a termination or loss of S corporation status automatically triggers recapture.  However, recapture may result if one or more of the recapture events discussed in paragraph (6) occurs.  In determining whether a reduction in a shareholder's interest will result in recapture, the sixty-six and two-thirds per cent and thirty-three and one-third per cent rules apply even if the corporation is no longer an S corporation.

     (6)  Property ceases to be eligible property with respect to a transferor, or in a case where the transferor is a partnership, estate or trust, or S corporation, the partner, beneficiary or shareholder, and the transferor shall make a recapture determination if during the recapture period:

         (A)  The transferee disposes of eligible property;

         (B)  Eligible property otherwise ceases to be eligible property in the hands of the transferee; or

         (C)  The transferor, or in a case where the transferor is a partnership, estate or trust, or S corporation, the partner, beneficiary, or shareholder, does not retain a substantial interest in the trade or business directly or indirectly through ownership in other entities; provided that the other entities' bases in the interests are determined in whole or in part by reference to the bases of the interest in the hands of the transferor.

     (f)  A transfer between spouses incident to divorce is not considered to be a disposition, subject to the recapture rule.  Subsequent to a transfer between spouses or incident to divorce, a disposition by the transferee during the recapture period may result in recapture to the same extent as if the disposition had been made by the transferor at that later date.

     (g)  The recapture rule shall not apply to eligible property that is disposed of or otherwise ceases to be eligible property with respect to the taxpayer as a result of its destruction or damage by fire, storm, shipwreck, or other casualty, or theft.

     (h)  In the case of a partnership, a downward basis adjustment pursuant to section 754 (with respect to manner of electing optional adjustment to basis of partnership property) of the Internal Revenue Code is not subject to recapture.  Use of the property is not considered to be terminated for purposes of the credit."

     SECTION 3.  Section 235-110.7, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  [There] For property placed in service or purchased pursuant to a binding contract in taxable years beginning before July 1, 2009, there shall be allowed to each taxpayer subject to the tax imposed by this chapter a capital goods excise 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.  Except as provided in the preceding sentence, for taxable years beginning on or after July 1, 2009, and ending before January 1, 2012, there shall not be allowed a capital goods excise tax credit to any taxpayer.

     The amount of the tax credit shall be determined by the application of the following rates against the cost of the eligible depreciable tangible personal property used by the taxpayer in a trade or business and placed in service within Hawaii after December 31, 1987.  For calendar years beginning after:  December 31, 1987, the applicable rate shall be three per cent; December 31, 1988, and thereafter, the applicable rate shall be four per cent.  For taxpayers with fiscal taxable years, the applicable rate shall be the rate for the calendar year in which the eligible depreciable tangible personal property used in the trade or business is placed in service within Hawaii.

     In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for eligible depreciable tangible personal property which is placed in service by the entity.  The cost upon which the tax credit is computed shall be determined at the entity level.  Distribution and share of credit shall be determined by rules.

     In the case of eligible depreciable tangible personal property for which a credit for sales or use taxes paid to another state is allowable under section 238-3(i), the amount of the tax credit allowed under this section shall not exceed the amount of use tax actually paid under chapter 238 relating to such tangible personal property.

     If a deduction is taken under section 179 (with respect to election to expense certain depreciable business assets) of the Internal Revenue Code of 1954, as amended, no tax credit shall be allowed for that portion of the cost of property for which the deduction was taken."

     SECTION 4.  In codifying the new sections added by section 2 of this part, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this part.

PART II

     SECTION 5.  The legislature finds that tax credits and tax exemptions provide an important set of tools for Hawaii's economic diversification.  At the same time, especially during economic downturns, it is incumbent on state policymakers to thoroughly evaluate existing tax credits and tax exemptions to determine whether they are fulfilling the purposes for which they were adopted, as well as providing solid returns on public investment.

     The purposes of this part are to institute an ongoing program of evaluation of those tax credits and tax exemptions that have no sunset dates, require the department of taxation and department of business, economic development, and tourism, to compile the necessary information to enable the legislature to evaluate tax credits and exemptions with consistent standards, and to sunset those credits and exemptions that the department of taxation and legislature do not believe should be extended.  Over time, as economic conditions change, different combinations of tax credits and tax exemptions serve as the State's key tools to promote or discourage particular behavior among residents and businesses.

     For existing tax credits and tax exemptions that have a sunset date, the purpose of this part is to require the department of taxation, with the assistance of the department of business, economic development, and tourism, to compile accurate information on their usage and whether they are fulfilling the purposes for which they were adopted, as well as providing solid returns on public investment.  The department of business, economic development, and tourism shall provide the department of taxation with data on the dynamic economic impact of each tax credit and tax exemption identified in this part.  The data to be provided by the department of business, economic development, and tourism shall be modeled to provide comparable evaluation data as the department of business, economic development, and tourism's renewable energies credit analysis, or the State of New Mexico's film credit analysis.

     SECTION 6.  Section 235-20.5, Hawaii Revised Statutes, is amended to read as follows:

     "§235-20.5  Tax administration special fund; established.  There is established a tax administration special fund, into which shall be deposited fees collected under sections 235-20, 235‑110.9, and 235-110.91, and penalties collected under section 2 of Act 206, [[]Session Laws of Hawaii 2007[]].  The moneys in the fund shall be expended by the department to offset the costs associated with:

     (1)  Issuing comfort letters;

     (2)  Administering the tax credit under [section] sections 235-110.9[,] and 235-110.91, including issuing certificates; and

     (3)  [Issuing certificates under section 235-110.91.] Compiling usage and other relevant economic data to analyze the costs and benefits of the State's tax laws."

     SECTION 7.  Section 237-24.3, Hawaii Revised Statutes, is amended to read as follows:

     "§237-24.3  Additional amounts not taxable.  In addition to the amounts not taxable under section 237-24, this chapter shall not apply to:

     (1)  Amounts received from the loading, transportation, and unloading of agricultural commodities shipped for a producer or produce dealer on one island of this State to a person, firm, or organization on another island of this State.  [The] For purposes of this paragraph, the terms "agricultural commodity", "producer", and "produce dealer" shall be defined in the same manner as they are defined in section 147-1; provided that agricultural commodities need not have been produced in the State;

     (2)  Amounts received from the loading, transportation, and unloading of agricultural products shipped for a producer on one island of this State to a person, firm, or organization on another island of this State.  For purposes of this paragraph, the terms "agricultural products" and "producer" shall be defined in the same manner as they are defined in section 237-5;

    [(2)] (3)  Amounts received from sales of:

         (A)  Intoxicating liquor as the term "liquor" is defined in chapter 244D;

         (B)  Cigarettes and tobacco products as defined in chapter 245; and

         (C)  Agricultural, meat, or fish products;

          to any person or common carrier in interstate or foreign commerce, or both, whether ocean-going or air, for consumption out-of-state on the shipper's vessels or airplanes;

    [(3)] (4)  Amounts received by the manager, submanager, or board of directors of:

         (A)  An association of owners of a condominium property regime established in accordance with chapter 514A or 514B; or

         (B)  A nonprofit homeowners or community association incorporated in accordance with chapter 414D or any predecessor thereto and existing pursuant to covenants running with the land,

          in reimbursement of sums paid for common expenses;

    [(4)] (5)  Amounts received or accrued from:

         (A)  The loading or unloading of cargo from ships, barges, vessels, or aircraft, whether or not the ships, barges, vessels, or aircraft travel between the State and other states or countries or between the islands of the State;

         (B)  Tugboat services including pilotage fees performed within the State, and the towage of ships, barges, or vessels in and out of state harbors, or from one pier to another; and

         (C)  The transportation of pilots or governmental officials to ships, barges, or vessels offshore; rigging gear; checking freight and similar services; standby charges; and use of moorings and running mooring lines;

    [(5)] (6)  Amounts received by an employee benefit plan by way of contributions, dividends, interest, and other income; and amounts received by a nonprofit organization or office, as payments for costs and expenses incurred for the administration of an employee benefit plan; provided that this exemption shall not apply to any gross rental income or gross rental proceeds received after June 30, 1994, as income from investments in real property in this State; and provided further that gross rental income or gross rental proceeds from investments in real property received by an employee benefit plan after June 30, 1994, under written contracts executed prior to July 1, 1994, shall not be taxed until the contracts are renegotiated, renewed, or extended, or until after December 31, 1998, whichever is earlier.  For the purposes of this paragraph, "employee benefit plan" means any plan as defined in section 1002(3) of title 29 of the United States Code, as amended;

    [(6)] (7)  Amounts received for purchases made with United States Department of Agriculture food coupons under the federal food stamp program, and amounts received for purchases made with United States Department of Agriculture food vouchers under the Special Supplemental Foods Program for Women, Infants and Children;

    [(7)] (8)  Amounts received by a hospital, infirmary, medical clinic, health care facility, pharmacy, or a practitioner licensed to administer the drug to an individual for selling prescription drugs or prosthetic devices to an individual; provided that this paragraph shall not apply to any amounts received for services provided in selling prescription drugs or prosthetic devices.  As used in this paragraph:

              "Prescription drugs" are those drugs defined under section 328-1 and dispensed by filling or refilling a written or oral prescription by a practitioner licensed under law to administer the drug and sold by a licensed pharmacist under section 328-16 or practitioners licensed to administer drugs; and

              "Prosthetic device" means any artificial device or appliance, instrument, apparatus, or contrivance, including their components, parts, accessories, and replacements thereof, used to replace a missing or surgically removed part of the human body, which is prescribed by a licensed practitioner of medicine, osteopathy, or podiatry and which is sold by the practitioner or which is dispensed and sold by a dealer of prosthetic devices; provided that "prosthetic device" shall not mean any auditory, ophthalmic, dental, or ocular device or appliance, instrument, apparatus, or contrivance;

    [(8)] (9)  Taxes on transient accommodations imposed by chapter 237D and passed on and collected by operators holding certificates of registration under that chapter;

    [(9)] (10)  Amounts received as dues by an unincorporated merchants association from its membership for advertising media, promotional, and advertising costs for the promotion of the association for the benefit of its members as a whole and not for the benefit of an individual member or group of members less than the entire membership;

   [(10)] (11)  Amounts received by a labor organization for real property leased to:

         (A)  A labor organization; or

         (B)  A trust fund established by a labor organization for the benefit of its members, families, and dependents for medical or hospital care, pensions on retirement or death of employees, apprenticeship and training, and other membership service programs.

          As used in this paragraph, "labor organization" means a labor organization exempt from federal income tax under section 501(c)(5) of the Internal Revenue Code, as amended;

   [(11)] (12)  Amounts received from foreign diplomats and consular officials who are holding cards issued or authorized by the United States Department of State granting them an exemption from state taxes; and

   [(12)] (13)  Amounts received as rent for the rental or leasing of aircraft or aircraft engines used by the lessees or renters for interstate air transportation of passengers and goods.  For purposes of this paragraph, payments made pursuant to a lease shall be considered rent regardless of whether the lease is an operating lease or a financing lease.  The definition of "interstate air transportation" is the same as in 49 U.S.C. 40102."

     SECTION 8.  Tax credits and exemptions; evaluation; report.  (a)  The department of taxation and the department of business, economic development, and tourism shall perform an evaluation of the following tax credits or tax exemptions and submit an evaluation of the fiscal impacts and economic benefits of each credit and exemption required by this section to the legislature by no later than twenty days prior to the convening of the regular session of 2010; provided that if the department of taxation, with the assistance of the department of business, economic development, and tourism, does not submit a complete and accurate evaluation of the following tax credits and tax exemptions by no later than twenty days prior to the convening of the regular session of 2011, thereby curtailing the legislature's ability to assess the tax credit or tax exemption pursuant to the department of taxation's recommendations, then each of the applicable tax credits and tax exemptions shall not be available to be claimed for taxable years beginning after December 31, 2010:

     (1)  Section 235-15, Hawaii Revised Statutes (tax credits to promote the purchase of child passenger restraint systems);

     (2)  Section 235-110.2, Hawaii Revised Statutes (credit for school repair and maintenance);

     (3)  Section 237-24.3, Hawaii Revised Statutes (general excise tax; additional amounts not taxable);

     (4)  Section 237-24.9, Hawaii Revised Statutes (general excise tax; aircraft service and maintenance facility);

     (5)  Section 237-29.53, Hawaii Revised Statutes (general excise tax; exemption for contracting or services exported out of state);

     (6)  Section 237-29.55, Hawaii Revised Statutes (general excise tax; exemption for sale of tangible personal property for resale at wholesale);

     (7)  Section 237-29.8, Hawaii Revised Statutes (general excise tax; call centers; exemption; engaging in business; definitions); and

     (8)  Section 239-12, Hawaii Revised Statutes (public service company tax; call centers; exemption; engaging in business; definitions).

     (b)  The department of taxation and the department of business, economic development, and tourism shall perform an evaluation of the following tax credits or tax exemptions and submit an evaluation of the fiscal impacts and economic benefits of each credit and exemption required by this section to the legislature by no later than twenty days prior to the convening of the regular session of 2011; provided that if the department of taxation, with the assistance of the department of business, economic development, and tourism, does not submit a complete and accurate evaluation of the following tax credits and tax exemptions by no later than twenty days prior to the convening of the regular session of 2012, thereby curtailing the legislature's ability to assess the tax credit or tax exemption pursuant to the department of taxation's recommendations, then each of the applicable tax credits and tax exemptions shall not be available to be claimed for taxable years beginning after December 31, 2011:

     (1)  Section 235-110.6, Hawaii Revised Statutes (fuel tax credit for commercial fishers);

     (2)  Section 237-16.8, Hawaii Revised Statutes (general excise tax; exemption of certain convention, conference, and trade show fees);

     (3)  Section 237-23.5, Hawaii Revised Statutes (general excise tax; related entities; common paymaster; certain exempt transactions);

     (4)  Section 237-24.5, Hawaii Revised Statutes (general excise tax; additional exemptions);

     (5)  Section 237-24.7, Hawaii Revised Statutes (general excise tax; additional amounts not taxable);

     (6)  Section 237-24.75, Hawaii Revised Statutes (general excise tax; additional exemptions);

     (7)  Section 237-25, Hawaii Revised Statutes (general excise tax; exemptions of sales and gross proceeds of sales to federal government, and credit unions); and

     (8)  Section 237-29.5, Hawaii Revised Statutes (general excise tax; exemption for sales of tangible personal property shipped out of state).

     (c)  The department of taxation and the department of business, economic development, and tourism shall perform an evaluation of the following tax credits or tax exemptions and submit an evaluation of the fiscal impacts and economic benefits of each credit and exemption required by this section to the legislature by no later than twenty days prior to the convening of the regular session of 2012; provided that if the department of taxation, with the assistance of the department of business, economic development, and tourism, does not submit a complete and accurate evaluation of the following tax credits and tax exemptions by no later than twenty days prior to the convening of the regular session of 2013, thereby curtailing the legislature's ability to assess the tax credit or tax exemption pursuant to the department of taxation's recommendations, then each of the applicable tax credits and tax exemptions shall not be available to be claimed for taxable years beginning after December 31, 2012:

     (1)  Section 209E-10, Hawaii Revised Statutes (state business tax credit);

     (2)  Section 209E-11, Hawaii Revised Statutes (state general excise exemptions);

     (3)  Section 235-55.85, Hawaii Revised Statutes (refundable food/excise tax credit);

     (4)  Section 235-55.91, Hawaii Revised Statutes (credit for employment of vocational rehabilitation referrals);

     (5)  Section 235-71, Hawaii Revised Statutes (tax on corporations; rates; credit of shareholder of regulated investment company);

     (6)  Section 237-26, Hawaii Revised Statutes (general excise tax; exemption of certain scientific contracts with the United States);

     (7)  Section 237-27, Hawaii Revised Statutes (general excise tax; exemption of certain petroleum refiners);

     (8)  Section 237-27.5, Hawaii Revised Statutes (general excise tax; air pollution control facility);

     (9)  Section 237-27.6, Hawaii Revised Statutes (general excise tax; solid waste processing, disposal, and electric generating facility; certain amounts exempt); and

    (10)  Section 244D-4.3, Hawaii Revised Statutes (liquor tax; exemption for sales of liquor out of state).

     (d)  The department of taxation and the department of business, economic development, and tourism shall perform an evaluation of the following tax credits or tax exemptions and submit an evaluation of the fiscal impacts and economic benefits of each credit and exemption required by this section to the legislature by no later than twenty days prior to the convening of the regular session of 2013; provided that if the department of taxation, with the assistance of the department of business, economic development, and tourism, does not submit a complete and accurate evaluation of the following tax credits by no later than twenty days prior to the convening of the regular session of 2014, thereby curtailing the legislature's ability to assess the tax credit or tax exemption pursuant to the department of taxation's recommendations, then each of the applicable tax credits and tax exemptions shall not be available to be claimed for taxable years beginning after December 31, 2013; provided that the potential repeal of the tax credits in paragraphs (7) and (11) of this subsection and the tax exemption in paragraph (9) of this subsection shall not apply to those projects approved before January 1, 2014:

     (1)  Section 235-12.5, Hawaii Revised Statutes (renewable energy technologies; income tax credit);

     (2)  Section 235-55, Hawaii Revised Statutes (tax credits for resident taxpayers);

     (3)  Section 235-55.6, Hawaii Revised Statutes (expenses for household and dependent care services necessary for gainful employment);

     (4)  Section 235-55.7, Hawaii Revised Statutes (income tax credit for low-income household renters);

     (5)  Section 235-110.3, Hawaii Revised Statutes (ethanol facility tax credit);

     (6)  Section 235-110.7, Hawaii Revised Statutes (capital goods excise tax credit);

     (7)  Section 235-110.8, Hawaii Revised Statutes (low-income housing tax credit);

     (8)  Section 237-23, Hawaii Revised Statutes (general excise tax; exemptions, persons exempt, applications for exemption), except for section 237-23(a)(1), Hawaii Revised Statutes (public service companies);

     (9)  Section 237-29, Hawaii Revised Statutes (general excise tax; exemptions for certified or approved housing projects);

    (10)  Section 239-6.5, Hawaii Revised Statutes (public service company tax; tax credit for lifeline telephone service subsidy); and

    (11)  Section 241-4.7, Hawaii Revised Statutes (low-income housing; income tax credit).

     (e)  The reports submitted by the department of taxation and the department of business, economic development, and tourism under this Act shall provide usage and revenue data, economic analyses, and other information sufficient to enable the legislature to determine whether the tax credits and tax exemptions evaluated have achieved or are achieving their intended objectives, whether they are consistent with public policies, and whether they should be continued, modified, or repealed.

     If the department of taxation recommends that a tax credit or tax exemption should be modified, it shall include in its report, with the assistance of the departments listed in subsection (f)(2), the proposed draft legislation to implement the recommended modifications.

     If the department of taxation recommends that the law establishing a tax credit or tax exemption should be continued in its current form, it shall make appropriate recommendations, with assistance of the departments listed in subsection (f)(2), to improve the operation of the tax credit or tax exemption, including, but not limited to, recommendations for appropriate restrictions to be placed on the tax credit or tax exemption and whether to use a five-year or ten-year sunset provision.  In accordance with this section, the recommendation from the department of taxation to continue the tax credit or tax exemption in its current form or recommendation to modify the credit shall be received before the applicable tax credit or tax exemption is scheduled to sunset pursuant to this section.

     The reports submitted by the department of taxation under this Act shall also include recommendations for the evaluation of other tax credits and exemptions in the future.

     (f)  In evaluating the tax credits and tax exemptions the department of taxation shall:

     (1)  Obtain from the department of business, economic development, and tourism an economic impact analysis;

     (2)  Establish a technical advisory group, which may include the department of labor and industrial relations, department of agriculture, department of commerce and consumer affairs, department of transportation, department of human services, department of business, economic development, and tourism, and representatives of Hawaii's non-profit sector to help identify and develop the data elements needed for the analyses; and

     (3)  Collect, process, and analyze data from federal, state, and local government sources.

     SECTION 9.  The department of taxation shall perform an evaluation of the following tax credits or tax exemptions and submit a report of the evaluation to the legislature by no later than twenty days prior to the convening of the regular session as specified below:

     (1)  Section 235-17, Hawaii Revised Statutes (motion picture, digital media, and film production income tax credit), one year before the expiration date, as specified in that section;

     (2)  Section 235-110.51, Hawaii Revised Statutes (technology infrastructure renovation tax credit), one year before the expiration date, as specified in that section;

     (3)  Section 235-110.9, Hawaii Revised Statutes (high technology business investment tax credit), one year before the expiration date, as specified in that section; and

     (4)  Section 235-110.91, Hawaii Revised Statutes (tax credit for research activities), one year before the expiration date, as specified in that section.

     The tax credits identified in this subsection are not being extended in any manner.  The tax credits identified in this section are existing tax credits with expiration dates that shall be reviewed in a uniform and systematic manner prior to their respective repeal dates, similar to those tax credits evaluated that do not have expiration dates, to determine whether those tax credits have fulfilled the purposes for which they were enacted.

     SECTION 10.  The department of taxation shall perform an evaluation of the following tax exemptions and submit a report of the evaluation to the legislature by no later than twenty days prior to the convening of the 2010 regular session:

     (1)  Section 237-24, Hawaii Revised Statutes (general excise tax; amounts not taxable); and

     (2)  Section 237-28.1, Hawaii Revised Statutes (general excise tax; exemption of certain shipbuilding and ship repair business).

     The evaluation of the tax exemptions in this section shall achieve the objectives identified and set forth in subsections (e) and (f) of section 8 of this Act.

PART III

     SECTION 11.  Section 373K-2, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  Where any client company uses the services of assigned employees and co-employs assigned employees with a professional employment organization, the client company and the professional employment organization, with respect to the assigned employees, shall not be exempt from the requirements of any federal, state, or county law, including labor or employment laws, collective bargaining rights, anti-discrimination provisions, or other laws with respect to the protection and rights of employees, including chapters 377 and 378, that would apply to the assigned employees if the assigned employees were employees of the client company alone, and were not co-employees of the professional employment organization.

     These employee rights shall not be abrogated by any contract or agreement between the client company and the professional employment organization, or the professional employment organization and the assigned employee, which contains terms or conditions that could not be lawfully contained in a contract or agreement directly between the client company and the assigned employee in which no professional employment organization is involved.  [Notwithstanding any statute, local ordinance, executive order, rule, or regulation to the contrary, where the laws, rights, and protections referred to in this section define or require a determination of the "employer",] For purposes of chapter 237, the employer shall be deemed to be the client company and not the professional employment organization.  The department of labor and industrial relations shall notify the department of taxation in writing of any violation of this subsection."

     SECTION 12.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 13.  This Act shall take effect on July 1, 2050; provided that part I of this Act shall take effect upon approval.