§235-110.9  High technology businessinvestment tax credit.  (a)  There shall be allowed to each taxpayersubject to the taxes imposed by this chapter a high technology businessinvestment tax credit that shall be deductible from the taxpayer's net incometax liability, if any, imposed by this chapter for the taxable year in whichthe investment was made and the following four years provided the credit isproperly claimed.  The tax credit shall be as follows:

(1)  In the year the investment was made, thirty-fiveper cent;

(2)  In the first year following the year in which theinvestment was made, twenty-five per cent;

(3)  In the second year following the investment,twenty per cent;

(4)  In the third year following the investment, tenper cent; and

(5)  In the fourth year following the investment, tenper cent;

of the investment made by the taxpayer in eachqualified high technology business, up to a maximum allowed credit in the yearthe investment was made, $700,000; in the first year following the year inwhich the investment was made, $500,000; in the second year following the yearin which the investment was made, $400,000; in the third year following theyear in which the investment was made, $200,000; and in the fourth yearfollowing the year in which the investment was made, $200,000.

(b)  [Repeal and reenactment on January 1,2011.  L 2007, c 206, §8.]  The credit allowed under this section shall beclaimed against the net income tax liability for the taxable year.  For thepurpose of this section, "net income tax liability" means net incometax liability reduced by all other credits allowed under this chapter.  Byaccepting an investment for which the credit allowed under this section may beclaimed, a qualified high technology business consents to the public disclosureof the qualified high technology business' name and status as a beneficiary ofthe credit under this section.

(c)  If the tax credit under this sectionexceeds the taxpayer's income tax liability for any of the five years that thecredit is taken, the excess of the tax credit over liability may be used as acredit against the taxpayer's income tax liability in subsequent years untilexhausted.  Every claim, including amended claims, for a tax credit under thissection shall be filed on or before the end of the twelfth month following theclose of the taxable year for which the credit may be claimed.  Failure tocomply with the foregoing provision shall constitute a waiver of the right toclaim the credit.

(d)  If at the close of any taxable year in thefive-year period in subsection (a):

(1)  The business no longer qualifies as a qualifiedhigh technology business;

(2)  The business or an interest in the business hasbeen sold by the taxpayer investing in the qualified high technology business;or

(3)  The taxpayer has withdrawn the taxpayer'sinvestment wholly or partially from the qualified high technology business;

the credit claimed under this section shall berecaptured.  The recapture shall be equal to ten per cent of the amount of thetotal tax credit claimed under this section in the preceding two taxableyears.  The amount of the credit recaptured shall apply only to the investmentin the particular qualified high technology business that meets therequirements of paragraph (1), (2), or (3).  The recapture provisions of thissubsection shall not apply to a tax credit claimed for a qualified hightechnology business that does not fall within the provisions of paragraph (1),(2), or (3).  The amount of the recaptured tax credit determined under thissubsection shall be added to the taxpayer's tax liability for the taxable yearin which the recapture occurs under this subsection.

(e)  Every taxpayer, before March 31 of eachyear in which an investment in a qualified high technology business was made inthe previous taxable year, shall submit a written, certified statement to thedirector of taxation identifying:

(1)  Qualified investments, if any, expended in theprevious taxable year; and

(2)  The amount of tax credits claimed pursuant tothis section, if any, in the previous taxable year.

(f)  The department shall:

(1)  Maintain records of the names and addresses ofthe taxpayers claiming the credits under this section and the total amount ofthe qualified investment costs upon which the tax credit is based;

(2)  Verify the nature and amount of the qualifyinginvestments;

(3)  Total all qualifying and cumulative investmentsthat the department certifies; and

(4)  Certify the amount of the tax credit for eachtaxable year and cumulative amount of the tax credit.

Upon each determination made under thissubsection, the department shall issue a certificate to the taxpayer verifyinginformation submitted to the department, including qualifying investmentamounts, the credit amount certified for each taxable year, and the cumulativeamount of the tax credit during the credit period.  The taxpayer shall file thecertificate with the taxpayer's tax return with the department.

The director of taxation may assess and collecta fee to offset the costs of certifying tax credits claims under this section. All fees collected under this section shall be deposited into the taxadministration special fund established under section 235-20.5.

(g)  As used in this section:

"Investment tax credit allocationratio" means, with respect to a taxpayer that has made an investment in aqualified high technology business, the ratio of:

(1)  The amount of the credit under this section thatis, or is to be, received by or allocated to the taxpayer over the life of theinvestment, as a result of the investment; to

(2)  The amount of the investment in the qualifiedhigh technology business.

"Qualified high technology business"means a business, employing or owning capital or property, or maintaining anoffice, in this State; provided that:

(1)  More than fifty per cent of its total businessactivities are qualified research; and provided further that the businessconducts more than seventy-five per cent of its qualified research in thisState; or

(2)  More than seventy-five per cent of its grossincome is derived from qualified research; and provided further that thisincome is received from:

(A)  Products sold from, manufactured in, orproduced in this State; or

(B)  Services performed in this State.

"Qualified research" means the sameas defined in section 235-7.3.

(h)  Common law principles, including thedoctrine of economic substance and business purpose, shall apply to anyinvestment.  There exists a presumption that a transaction satisfies thedoctrine of economic substance and business purpose to the extent that thespecial allocation of the high technology business tax credit has an investmenttax credit ratio of 1.5 or less of credit for every dollar invested.

Transactions for which an investment tax creditallocation ratio greater than 1.5 but not more than 2.0 of credit for everydollar invested and claimed may be reviewed by the department for applicabledoctrines of economic substance and business purpose.

Businesses claiming a tax credit for transactionswith investment tax credit allocation ratios greater than 2.0 of credit forevery dollar invested shall substantiate economic merit and business purposeconsistent with this section.

(i)  For investments made on or after May 1,2009, notwithstanding any other law to the contrary, no allocations, special orotherwise, of credits under this section may exceed the amount of theinvestment made by the taxpayer ultimately claiming this credit; and investmenttax credit allocation ratios greater than 1.0 of credit for every dollarinvested shall not be allowed.  In addition, the credit shall be allowed onlyin accordance with subsection (a).

(j)  For investments made on or after May 1,2009, this section shall be subject to section 235-109.5.

(k)  This section shall not apply to taxableyears beginning after December 31, 2010. [L 1999, c 178, §24; am L 2000, c 297,§8; am L 2001, c 221, §9; am L 2004, c 215, §8; am L 2007, c 206, §4; am L2009, c 178, §4]

 

Note

 

  L 2001, c 221, §15(2) provides:

  "(2)  Section9 [amending §235-110.9] shall apply to taxable years beginning after December31, 2000, but shall not apply to taxable years after December 31, 2005;provided that a taxpayer may continue to claim the credits if the five-yearperiod to claim the credits commences in taxable years beginning before January1, 2006; ...."

  Annual survey from businesses receiving tax credit; reportsto legislature (repealed January 1, 2011).  L 2007, c 206, §§2, 5.

  The 2009 amendment applies to investments made, renovationcosts incurred, or eligible depreciable tangible property placed in service onor after May 1, 2009.  L 2009, c 178, §10.

 

Law Journals and Reviews

 

  Seed Capital is Not Enough:  Lessons from Hawai`i's Attemptto Develop a High-Technology Sector.  30 UH L. Rev. 401.