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Maui, Hawaii is well renown
for its natural beauty, the aloha spirit, and
nearly perfect weather. Add to that, exquisite
beaches, world class resorts, majestic mountains,
and lush rain forests, and it is easy to see why
Condé Nast readers have chosen Maui as
the “best island” for 10 consecutive
years.
Aside from being a paradise
in which to live and play, Maui is quickly becoming
a business paradise for qualified “High
Tech” and/or “Research and Development”
companies.
In 2001, Hawaii substantially
expanded on technology tax incentives enacted
in previous years. Act 221 was designed to increase
the growth momentum in Hawaii for technology industries,
and to attract the attention of technology companies
and investors worldwide looking for expansion
and investment opportunities. Many of the incentives
had a five-year life.
Act 221 provides for a rich high tech investment
credit. Structured as a 100% return on cash investment
in a qualified high tech business (QHTB) on a
front loaded basis over 5 years—35% credit
in the year of investment, 25% in the following
year, 20% in the third year, then 10% each in
the forth and fifth following. The credit is designed
to give a full 100% return for investments up
to two million per year per QHTB. If QHTB fails
to qualify as such or if the investment is sold
or withdrawn, in any year during the 5-year period,
there will be a recapture of 10% of the total
tax credit claimed in the preceding two taxable
years. Note that this credit is nonrefundable
(Applied against Hawaii income tax liability only)
not only by individuals and corporations paying
Hawaii income tax, but also by banks and insurance
companies against their franchise and insurance
premium tax, respectively.
One main feature of this incentive
is the ability to allocate credits from one investor
to another through partnerships or limited liability
companies.
A QHTB is defined as a business that conducts
more than 50% of its total activities in “Qualified
research” (for the investment credit, more
than 75% of its qualified research must be done
in Hawaii). “Qualified research” is
a defined term and means research & development
work, computer software development, biotechnology,
sensor and optic technologies, ocean sciences,
astronomy, non fossil fuel energy-related technology,
or performing arts products. These categories
play on Hawaii’s unique geography, natural
resources, and culture.
Hawaii’s 20% refundable credit on top of
the federal 20% credit is already generous but
does one better by being refundable.
Effective July 1, 2004, QHTB
status is required as a condition to qualify for
this credit. As before, the research work must
be performed in Hawaii and must be expanded for
activities that constitute the carrying on of
a trade or business.
New procedures apply to both the 100% high tech
investment credit and 20% research and development
credit. Before March 31 of each year following
the year in which an investment in a QHTB is made,
or research activity conducted, every taxpayer
must file a certified statement to the department
of taxation of qualified investments or expenditures
made in the previous year and the amount of tax
credits claimed in the previous year.
Act 221 provides a 4% nonrefundable income tax
credit for renovation work on office buildings
that support high tech tenants by providing high
volume digital or analog telecommunications, physical
security systems, environmental systems, and backup
power systems.
Act 221 exempts public internet data centers (IDCs)
from the general exercise tax (GET) and public
service company (PSC) tax. IDCs are defined as
facilities designed to house data center, operate
continuously, have redundant utility systems,
and provide Internet-related data and complex
web hosting services.
General exercise tax related party exemption to
include IT services, use of software and hardware,
and database management services.
The stock option income tax exemption was expanded
by Act 221 to include stock options issued by
the holding company of a QHTB, and to include
equity interests in entities other than corporations.
The performing arts products activity previously
limited to the royalty exclusion is now expanded
to include all QHTB tax incentives.
The State of Hawaii offers some
of the most generous business incentives in the
country for qualified high tech companies, and
Maui has been voted the “No. 1 destination
by Condé Nast readers” for 10 years
in a row – making it an ideal place to work,
play and live, with a business environment designed
to help you succeed and prosper. Maui - the business
side of paradise.
For more information on these
and other incentives, please visit following websites:
State of Hawai`i Department
of Taxation Website
http://www.state.hi.us/tax/a2_b2_6hi_tech.htm
Chun, Kerr, Dodd, Beaman
& Wong, LLC
http://www.ckdbw.com/techtax.asp
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