REPORT TITLE:
Technology Omnibus


DESCRIPTION:
Consolidates high tech agencies under a special advisor for
technology development; creates tax credits for technology
training or job creation and investment in technology business;
prohibits the imposition of taxes on internet commerce; and
provides other incentives for Hawaii high tech companies. (SB1583
HD1)

 
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                                                        1583
THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 1999                                H.D. 1
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO TECHNOLOGY.


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

 1                              PART I.
 
 2      SECTION 1.  The legislature finds that Hawaii is one of the
 
 3 most geographically isolated communities on earth, and for many
 
 4 years, our economic opportunities were limited by this isolation.
 
 5 Recent advances in telecommunications, information technology,
 
 6 and the explosive growth of the internet, however, present
 
 7 significant new opportunities for the State to develop and
 
 8 diversify its economy, opening the global market to Hawaii
 
 9 businesses.
 
10      Fiber optic cables, connecting Hawaii with the mainland
 
11 United States and Asia, and new communications satellites have
 
12 dramatically increased both the volume of information sent and
 
13 the range of transmittal.  While transmission capacity increases,
 
14 costs continue to fall.  Today, internet commerce represents a
 
15 small fraction of all business transacted, but industry watchers
 
16 estimate that within the next seven years, half of all business
 
17 and consumer purchases will be done by computer.  In this new
 
18 era, connection is everything.
 
19      The legislature further finds that Hawaii's opportunities
 

 
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 1 also represent new challenges.  Businesses -- particularly the
 
 2 small, start-ups associated with high technology -- no longer
 
 3 need to factor in Hawaii's geographic isolation, but must still
 
 4 consider the cost of doing business in the State.  They also face
 
 5 a confusing, often overlapping, group of state agencies that
 
 6 provide support for technology-related business.  Providing
 
 7 targeted assistance to these businesses, as well as a clear focus
 
 8 of responsibility within state government for aggressive
 
 9 development and support of high technology resources will better
 
10 serve the burgeoning technology industry.
 
11      The legislature also finds that education will be forever
 
12 changed as businesses and workers alike demand new skills and
 
13 rapid-response delivery of these skills.  Our schools must move
 
14 beyond the traditional book and classroom delivery and embrace a
 
15 technologically connected model for learning.  In 1998, the
 
16 legislature appropriated funds to provide high-speed internet
 
17 access to the university and all state agencies, including
 
18 schools.  As a result, establishing schools and libraries as
 
19 community access points can be accelerated.
 
20      If Hawaii is to become a state known for leading its people
 
21 effectively into the twenty-first century, the legislature
 
22 believes progress and change must begin immediately.  The purpose
 

 
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 1 of this Act is to support the growth and development of high
 
 2 technology industries in Hawaii by:
 
 3      (1)  Consolidating the State's high technology agencies,
 
 4           divisions, and offices under the coordination and
 
 5           direction of a special advisor for technology
 
 6           development and creating a governor's special advisory
 
 7           council for technology development to assist the
 
 8           advisor;
 
 9      (2)  Offering a tax incentive through a technology training
 
10           or job creation tax credit to offset the cost of
 
11           training, retraining, and related job creation costs;
 
12      (3)  Offering a tax incentive for investment in new high
 
13           technology businesses;
 
14      (4)  Integrating technology with Hawaii's tourism and
 
15           marketing industries;
 
16      (5)  Prohibiting the imposition of taxes on internet
 
17           commerce;
 
18      (6)  Establishing the Hawaii internet exchange to serve as a
 
19           catalyst for the development of internet-focused
 
20           businesses;
 
21      (7)  Focusing work force development programs to ensure a
 
22           pool of technology professionals; and
 

 
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 1      (8)  Accelerating high speed access to the internet for the
 
 2           University of Hawaii and the public schools, and
 
 3           establishing educational technology programs within
 
 4           public schools.
 
 5                             PART II.
 
 6      SECTION 2.  Over the years, the legislature has created a
 
 7 number of state agencies charged with promoting the development
 
 8 of a variety of technological industries.  While these agencies
 
 9 provide valuable services, they lack focus and in some cases
 
10 their original missions have changed considerably.  Consolidation
 
11 of these agencies under a single entity to coordinate their
 
12 activities will provide a more focused effort in attracting high
 
13 technology businesses to Hawaii.
 
14      SECTION 3.  The Hawaii Revised Statutes is amended by adding
 
15 two new sections to be appropriately designated and to read as
 
16 follows:
 
17      "§   -     Special advisor for technology development.  (a)
 
18 There is established within the office of the governor a special
 
19 advisor for technology development to be appointed by the
 
20 governor as provided in section 26-34.
 
21      (b)  The duties of the special advisor shall include, but
 
22 not be limited to:
 

 
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 1      (1)  Developing, coordinating, and implementing short- and
 
 2           long-range state policies and directions to enhance the
 
 3           development of high technology industries in Hawaii;
 
 4      (2)  Coordinating all state high technology agencies while
 
 5           developing a plan for reorganization or consolidation
 
 6           of these agencies in the interests of greater
 
 7           efficiency and cost effectiveness;
 
 8      (3)  Advising the private sector in the development of high
 
 9           technology activities and resources, and providing
 
10           technical or other assistance to private industry upon
 
11           request;
 
12      (4)  Creating, disseminating, and updating a listing of all
 
13           high technology assistance programs in the State and
 
14           where they can be reached;
 
15      (5)  Pursuing appropriate public-private sector business
 
16           partnerships;
 
17      (6)  Coordinating the State's promotion and marketing of the
 
18           high technology industry, including a review of current
 
19           marketing efforts;
 
20      (7)  Arranging for the conduct of research through
 
21           contractual services with the University of Hawaii or
 
22           any agency or other qualified persons;
 

 
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 1      (8)  Encouraging the development of educational, training,
 
 2           and career programs in high technology industries; and
 
 3      (9)  Performing other necessary or desirable functions to
 
 4           facilitate the intent of this section.
 
 5      (c)  In carrying out the duties of this section, the special
 
 6 advisor for technology development may utilize the services of
 
 7 the State's high technology agencies, including those of the
 
 8 University of Hawaii, as appropriate.
 
 9      §   -     Governor's special advisory council for technology
 
10 development; establishment; appointment, number, and term of
 
11 members; duties.  (a)  There is established within the office of
 
12 the governor, for administrative purposes, an advisory council to
 
13 be known as the governor's special advisory council for
 
14 technology development, which shall review and make
 
15 recommendations on matters relating to the marketing and
 
16 promotion of Hawaii as a location for high technology companies.
 
17 The council shall be composed of         members appointed in
 
18 accordance with section 26-34, and shall include representatives
 
19 of the high technology industry, business leaders, educators,
 
20 government leaders, and legislators.
 
21      (b)  The members shall be appointed by the governor for four
 
22 years, except that the terms of the members first appointed shall
 

 
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 1 be for two and four years, respectively, as designated by the
 
 2 governor at the time of appointment.  The council shall elect a
 
 3 chairperson from among its members.
 
 4      (c)  In appointing members, the governor shall select
 
 5 persons who have knowledge of the high technology industry, the
 
 6 educational needs of the industry, or in the marketing and
 
 7 promotion of high technology industries.  The members of the
 
 8 council shall serve without compensation but shall be reimbursed
 
 9 for expenses, including travel expenses, necessary for the
 
10 performance of their duties.
 
11      (d)  The council shall assist the special advisor for
 
12 technology development in developing and coordinating the
 
13 marketing and promotion of the high technology industry in
 
14 Hawaii.
 
15      (e)  This section is repealed on January 1, 1999."
 
16      SECTION 4.  There is appropriated out of the general
 
17 revenues of the State of Hawaii the sum of $           , or so
 
18 much thereof as may be necessary for fiscal year 1999-2000, and
 
19 the same sum, or so much thereof as may be necessary, for fiscal
 
20 year 2000-2001, for the special advisor for technology
 
21 development and the governor's special advisory council for
 
22 technology development.  The sums appropriated shall be expended
 

 
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 1 by the office of the governor for the purposes of section 3.
 
 2                             PART III.
 
 3      SECTION 5.  While the advantages of Hawaii's proximity to
 
 4 Pacific and Asian markets are a lure for technology business in
 
 5 Hawaii, the costs of doing business are high.  Opportunities must
 
 6 be created for high technology companies through tax credits, tax
 
 7 exemptions, and by proving additional investment capital through
 
 8 targeted assistance to technology start-ups.
 
 9      SECTION 6.  Chapter 241, Hawaii Revised Statutes, is amended
 
10 by adding a new section to be appropriately designated and to
 
11 read as follows:
 
12      "§241-     Tax credit for funds invested in qualified high
 
13 technology businesses.  (a)  Any bank, building and loan
 
14 association, development company, financial corporation,
 
15 financial services loan company, trust company, mortgage loan
 
16 company, financial holding company, small business investment
 
17 company, or subsidiary may claim a tax credit for funds invested
 
18 in qualified high technology businesses in this State under this
 
19 section.  The credit shall be equal to twenty-five per cent of
 
20 the total investment in a qualified high technology business in
 
21 this State.
 
22      (b)  The tax credit claimed pursuant to this section shall
 

 
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 1 be deductible from the bank, building and loan association,
 
 2 development company, financial corporation, financial services
 
 3 loan company, trust company, mortgage loan company, financial
 
 4 holding company, small business investment company, or
 
 5 subsidiary's tax liability, if any, for the tax year in which it
 
 6 is properly claimed.  If the tax credit claimed by a bank,
 
 7 building and loan association, development company, financial
 
 8 corporation, financial services loan company, trust company,
 
 9 mortgage loan company, financial holding company, small business
 
10 investment company, or subsidiary exceed the amount of tax
 
11 payment due, the excess of credit over payments due shall be
 
12 carried over as additional credits for a period not exceeding ten
 
13 years.
 
14      (c)  For the purpose of this section:
 
15      "Qualified high technology business" has the same meaning as
 
16 in section 235-   .
 
17      "Qualified research expenses" has the same meaning as in
 
18 section 235-   ."
 
19                             PART IV.
 
20      SECTION 7.  The purpose of this part is to foster the
 
21 development of knowledge-based industries by integrating those
 
22 industries with Hawaii's economy in a way that enhances and
 

 
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 1 strengthens the tourism industry.
 
 2      SECTION 8.  Section 201-97, Hawaii Revised Statutes, is
 
 3 amended to read as follows:
 
 4      "[[]§201-97[]]  Integration and development of the tourism
 
 5 industry.  The office shall be responsible for planning for the
 
 6 integrated and coordinated development and expansion of the
 
 7 tourism industry of the State.  The office shall investigate and
 
 8 recommend to appropriate governmental officers, agencies,
 
 9 legislative committees, and private groups ways and means of
 
10 coordinating promotional activities on behalf of tourism with the
 
11 development of recreational and other facilities, and with
 
12 existing and potential information and communications technology
 
13 networks and services in the State, for improved tourism
 
14 development.  The office shall also review the expenditure of
 
15 governmental funds for tourism-related activities and shall
 
16 prepare an annual report on the expenditures, together with any
 
17 recommendations the office may have.  The annual report shall be
 
18 submitted to the legislature as part of the annual report
 
19 required under section 201-98."
 
20      SECTION 9.  Section 201B-6, Hawaii Revised Statutes, is
 
21 amended by amending subsection (a) to read as follows:
 
22      "(a)  The authority shall be responsible for developing a
 

 
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 1 strategic tourism marketing plan, which shall be updated every
 
 2 three years[, that] and includes the following:
 
 3      (1)  Identification and evaluation of current and future
 
 4           tourism needs for the different regions of the State;
 
 5      (2)  Goals and objectives in accordance with identified
 
 6           needs;
 
 7      (3)  Statewide promotional efforts and programs;
 
 8      (4)  Targeted markets;
 
 9      (5)  Efforts to enter into brand marketing projects that
 
10           make effective use of cooperative advertising programs;
 
11      (6)  Measures of effectiveness for the authority's
 
12           promotional programs; and
 
13      (7)  Coordination of marketing plans of all destination
 
14           marketing organizations receiving state funding prior
 
15           to finalization of the authority's marketing plan.
 
16      The authority shall develop and include in its marketing
 
17 plan goals and objectives for marketing the State to the
 
18 techno-tourism niche as well as for integrating marketing
 
19 objectives with existing and potential state telecommunication
 
20 and information resources in the public and private sectors."
 
21                              PART V.
 
22      SECTION 10.  Economic development opportunities are
 

 
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 1 changing.  The playing field is now the world and not the next
 
 2 state or country.  The internet is the catalyst and the enabling
 
 3 infrastructure is technology and telecommunications.  The
 
 4 legislature finds that exempting internet commerce from state
 
 5 taxation for three years and an internet exchange will be a key
 
 6 element that allows Hawaii's businesses to establish a global
 
 7 presence.
 
 8      SECTION 11.  Chapter 231, Hawaii Revised Statutes, is
 
 9 amended by adding a new section to be appropriately designated
 
10 and to read as follows:
 
11      "§231-     Hawaii Internet Tax Freedom Act.  (a)  No income
 
12 tax under chapter 235, general excise tax under chapter 237, or
 
13 use tax under chapter 238, shall be imposed on internet
 
14 electronic commerce.
 
15      (b)  As used in this section:
 
16      "Electronic commerce" means any transaction conducted over
 
17 the internet or through internet access, comprising the sale,
 
18 lease, license, offer, or delivery of property, goods, services,
 
19 or information, whether or not for consideration, and includes
 
20 the provision of internet access.
 
21      "Internet" means collectively the myriad of computer and
 
22 telecommunications facilities, including equipment and operating
 

 
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 1 software which comprise the interconnected world-wide network of
 
 2 networks that employ the transmission control protocol/internet
 
 3 protocol, or any predecessor or successor protocols to that
 
 4 protocol, to communicate information of all kinds by wire or
 
 5 radio.
 
 6      "Internet access" means a service that enables users to
 
 7 access content, information, electronic mail, or other services
 
 8 offered over the internet, and may also include access to
 
 9 proprietary content, information, and other services as part of a
 
10 package of services offered to user.  The term does not include
 
11 telecommunication services as defined in section 269-1.
 
12      (c)  This section is repealed on January 1, 2002."
 
13      SECTION 12.  Section 304-8.9, Hawaii Revised Statutes, is
 
14 amended to read as follows:
 
15      "§304-8.9  Systemwide information technology and services
 
16 special fund.  There is established a special fund to be known as
 
17 the systemwide information technology and services special fund,
 
18 from which all moneys shall be used in support of systemwide
 
19 information technology and services including personnel,
 
20 equipment costs, and other expenses, as well as, planning,
 
21 design, and implementation of information technology
 
22 infrastructure within the university.  All moneys for the fund
 

 
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 1 shall be provided from revenues collected from users of
 
 2 information technology and services and any information
 
 3 technology user fee established pursuant to section 304-4.
 
 4 Notwithstanding section 304-7.8 or any other law to the contrary,
 
 5 the University of Hawaii office of technology transfer may expend
 
 6 amounts up to $2,000,000 for the purposes of the systemwide
 
 7 information technology and services special fund in any fiscal
 
 8 year."
 
 9      SECTION 13.  There is appropriated out of the general
 
10 revenues of the State of Hawaii the sum of $          , or so
 
11 much thereof as may be necessary for fiscal year 1999-2000, and
 
12 the same sum, or so much thereof as may be necessary for fiscal
 
13 year 2000-2001, for the establishment of a University of Hawaii
 
14 teleconferencing center in an appropriate location in
 
15 California's "Silicon Valley".  The purpose of the center shall
 
16 be to establish a teleconferencing link with the Silicon Valley
 
17 area to provide outreach classes and telecommunications
 
18 capability to that area.  The sum appropriated shall be expended
 
19 by the University of Hawaii for the purposes of this section.
 
20                             PART VI.
 
21      SECTION 14.  The legislature finds that a training program
 
22 to improve the skills of new and existing workers for jobs in new
 

 
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 1 and emerging industries would help stimulate the economy.
 
 2 Industries such as biotechnology, health care, information
 
 3 technology, environmental science and technology, and
 
 4 telecommunications must often import their workers because the
 
 5 State's existing workforce lack necessary skills.  A state-funded
 
 6 training program would lessen the need to import workers and
 
 7 increase the opportunities for Hawaii's residents to move upward
 
 8 in the job market by improving the skills.
 
 9      SECTION 15.  The Hawaii Revised Statutes is amended by
 
10 adding a new section to be appropriately designated and to read
 
11 as follows:
 
12      "§   -     Millenium workforce development training program.
 
13 (a)  There is established a millenium workforce development
 
14 training program, hereinafter referred to as the program, which
 
15 shall be placed with the department of labor and industrial
 
16 relations for administrative purposes.  The program shall provide
 
17 education and training at the post-high-school to graduate
 
18 levels, and shall include public, private, and for-profit
 
19 educational institutions.  In the design and delivery of
 
20 training, the program may cooperate or contract with other
 
21 public, private, and for-profit institutions.
 
22      (b)  The program shall seek and encourage partnerships with
 

 
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 1 the private sector members from industries such as biotechnology,
 
 2 information technology, environmental science and technology, and
 
 3 telecommunications, as may be appropriate, to provide pre-
 
 4 employment or employment training, or on-the-job training for
 
 5 local residents.
 
 6      (c)  The department of labor and industrial relations shall
 
 7 establish and lead a public and private partnership task group,
 
 8 which shall include representatives from the department of
 
 9 business, economic development, and tourism, the University of
 
10 Hawaii at Manoa, the University of Hawaii community colleges, and
 
11 private sector representatives to advise on the program design,
 
12 industry, recruitment, and training delivery activities of
 
13 participating entities."
 
14      SECTION 16.  (a)  There is appropriated out of the general
 
15 revenues of the State of Hawaii the sum of $        , or so much
 
16 thereof as may be necessary for fiscal year 1999-2000, and the
 
17 same sum, or so much thereof as may be necessary for fiscal year
 
18 2000-2001, to provide funds to the department of labor and
 
19 industrial relations to establish a millenium workforce
 
20 development program.  The sum appropriated shall be expended by
 
21 the department of labor and industrial relations for the purposes
 
22 of this part.
 

 
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 1      (b)  The director of labor and industrial relations may:
 
 2      (1)  Employ;
 
 3      (2)  Dismiss; and
 
 4      (3)  Compensate;
 
 5 at pleasure and without regard to chapters 76 and 77, Hawaii
 
 6 Revised Statutes, such persons as the director finds necessary
 
 7 for the performance of this part.
 
 8                             PART VII.
 
 9      SECTION 17.  The legislature finds that Hawaii's students
 
10 will require high-speed access to the internet.  Hawaii, because
 
11 of its remote geographic location, pays a significant cost for
 
12 high-speed access.  A university on the continental United States
 
13 pays $20,000 per year for high speed access to the internet
 
14 whereas the same access would cost $2,500,000 per year for the
 
15 University of Hawaii.  Hawaii's students must have equal access
 
16 to the internet to ensure global competitiveness.  
 
17      In addition, students must be afforded opportunities in new
 
18 educational technologies, such as the E Academy concept, which
 
19 will provide relevant, challenging, and meaningful course
 
20 offerings for students interested in pursuing a career in the
 
21 advanced technology fields.  This educational program will
 
22 provide Hawaii's students with meaningful and relevant
 

 
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 1 preparation for both immediate opportunities in entry level
 
 2 technology positions, and advanced studies in post secondary
 
 3 information technology, science, engineering, and math.
 
 4      SECTION 18.  Section 226-107, Hawaii Revised Statutes, is
 
 5 amended to read as follows:
 
 6      "§226-107  Quality education.  Priority guidelines to
 
 7 promote quality education:
 
 8      (1)  Pursue effective programs which reflect the varied
 
 9           district, school, and student needs to strengthen basic
 
10           skills achievement.
 
11      (2)  Continue emphasis on general education "core"
 
12           requirements to provide common background to students
 
13           and essential support to other university programs.
 
14      (3)  Initiate efforts to improve the quality of education by
 
15           improving the capabilities of the education work force.
 
16      (4)  Promote increased opportunities for greater autonomy
 
17           and flexibility of educational institutions in their
 
18           decisionmaking responsibilities.
 
19      (5)  Increase and improve the use of information technology
 
20           in education [and encourage] by the availability of
 
21           telecommunication equipment for:
 
22           (A)  The electronic exchange of information;
 

 
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 1           (B)  Statewide electronic mail; and
 
 2           (C)  Access to the internet.
 
 3           Encourage programs which increase the public's
 
 4           awareness and understanding of the impact of
 
 5           information technologies on our lives.
 
 6      (6)  Pursue the establishment of Hawaii's public and private
 
 7           universities and colleges as research and training
 
 8           centers of the Pacific.
 
 9      (7)  Develop resources and programs for early childhood
 
10           education.
 
11      (8)  Explore alternatives for funding and delivery of
 
12           educational services to improve the overall quality of
 
13           education.
 
14      (9)  Strengthen and expand educational programs and services
 
15           for students with special needs."
 
16      SECTION 19.  Chapter 302A, Hawaii Revised Statutes, is
 
17 amended by adding a new section to be appropriately designated
 
18 and to read as follows:
 
19      "§302A-     E-mail accounts for students.  (a)  The
 
20 department of education, in conjunction and coordination with the
 
21 University of Hawaii, shall provide e-mail accounts at no charge
 
22 to any student who applies to the department for such an account.
 

 
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 1      (b)  As used in this section, the term "student" means any
 
 2 person attending public or private school in ninth grade or
 
 3 above, including:
 
 4      (1)  Both degree and nondegree candidates;
 
 5      (2)  Individuals attending school on a full-time, part-time,
 
 6           or occasional basis, including continuing education or
 
 7           other nondegree courses;
 
 8      (3)  Individuals in educational, technical, or vocational
 
 9           programs; and
 
10      (4)  Individuals attending public or private, undergraduate
 
11           or postgraduate college and university programs.
 
12      (c)  The department of education, in cooperation with the
 
13 University of Hawaii, shall adopt rules pursuant to chapter 91 as
 
14 may be necessary to implement this section."
 
15      SECTION 20.  (a)  The department of education shall
 
16 establish E Academies throughout the State with onsite locations
 
17 based at selected public high schools in each departmental school
 
18 district.  The department of education shall also develop new
 
19 challenging high school course offerings in math, science, and
 
20 technology content areas and include the new courses in the
 
21 authorized course code and number guide, for the purposes of the
 
22 E Academies.  The department of education shall provide an
 

 
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 1 innovative training program for E Academy teachers, and conduct
 
 2 instructional assessment activities beginning in the 1999-2000
 
 3 school year.  
 
 4      (b)  As used in this section, "E Academy" means a virtual,
 
 5 site-based school which provides students with industry and
 
 6 academic standards-based instruction and assessments in 
 
 7 technology, science, math, and engineering.
 
 8      SECTION 21.  There is appropriated out of the general
 
 9 revenues of the State of Hawaii the sum of $           , or so
 
10 much thereof as may be necessary for fiscal year 1999-2000, and
 
11 the same sum, or so much thereof as may be necessary, for fiscal
 
12 year 2000-2001, to provide funds for the establishment of twelve
 
13 to fourteen E Academies statewide at selected schools in each of
 
14 the departmental school districts.  The sum appropriated shall be
 
15 expended by the department of education for the purposes of
 
16 section 18.
 
17                            PART VIII.
 
18      SECTION 22.  Chapter 235, Hawaii Revised Statutes, is
 
19 amended by adding a new section to be appropriately designated
 
20 and to read as follows:
 
21      "§235-     Stock options from qualified high technology
 
22 businesses exempt from taxation.  (a)  Notwithstanding any law to
 

 
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 1 the contrary, all income received from stock options from
 
 2 qualified high technology businesses that, except for this
 
 3 section, would otherwise be taxed as ordinary income or as
 
 4 capital gains shall be exempt from taxation under this chapter.
 
 5      (b)  For the purposes of this section:
 
 6      "Qualified high technology business" means:
 
 7      (1)  A business, employing or owning capital or property, or
 
 8           maintaining an office, in this State; and
 
 9      (2)  (A)  That has qualified research expenses paid or
 
10                incurred for research conducted in this State; or
 
11           (B)  That receives income derived from qualified
 
12                research expenses; provided that the income is
 
13                received from products sold from, manufactured, or
 
14                produced in the State; or services performed in
 
15                this State.
 
16      The term "qualified high technology business" does not
 
17 include any trade or business involving the performance of
 
18 services in the field of law, engineering, architecture,
 
19 accounting, actuarial science, performing arts, consulting,
 
20 athletics, financial services, or brokerage services, or any
 
21 trade or business where the principal asset of the trade or
 
22 business is the reputation or skill of one or more of its
 

 
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 1 employees; any banking, insurance, financing, leasing, rental,
 
 2 investing, or similar business; any farming business, including
 
 3 the business of raising or harvesting trees; any business
 
 4 involving the production or extraction of products of a character
 
 5 with respect to which a deduction is allowable under section 611
 
 6 (with respect to allowance of deduction for depletion), 613 (with
 
 7 respect to basis for percentage depletion), or 613A (with respect
 
 8 to limitation on percentage depleting in cases of oil and gas
 
 9 wells) of the Internal Revenue Code; any business operating a
 
10 hotel, motel, restaurant, or similar business; any trade or
 
11 business involving a hospital, a private office of a licensed
 
12 health care professional, a group practice of license health care
 
13 professionals, or nursing home.
 
14      "Qualified research expenses" means:
 
15      (1)  Research:
 
16           (A)  With respect to which expenditures may be treated
 
17                as expenses under Internal Revenue Code section
 
18                174 (with respect to research and experimental
 
19                expenditures);
 
20           (B)  Which is undertaken for the purpose of discovering
 
21                information:
 
22                (i)  Which is technological in nature; and
 

 
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 1               (ii)  The application of which is intended to be
 
 2                     useful in the development of a new or
 
 3                     improved business component of the taxpayer;
 
 4                     and
 
 5           (C)  Substantially all of the activities of which
 
 6                constitute elements of a process of
 
 7                experimentation for a purpose described in
 
 8                paragraph (3).
 
 9           This term does not include any activity described in
 
10           paragraph (4).
 
11      (2)  Tests to be applied separately to each business
 
12           component:
 
13           (A)  Paragraph (1) shall be applied separately with
 
14                respect to each business component of the
 
15                taxpayer.
 
16           (B)  The term "business component" means any product,
 
17                process, computer software, technique, formula, or
 
18                invention which is to be:
 
19                (i)  Held for sale, lease, or license; or
 
20               (ii)  Used by the taxpayer in a trade or business
 
21                     of the taxpayer.
 
22           (C)  Special rule for production processes.  Any plant
 

 
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 1                process, machinery, or technique for commercial
 
 2                production of a business component shall be
 
 3                treated as a separate business component (and not
 
 4                as part of the business component being produced).
 
 5      (3)  Purposes for which research may qualify for credit.
 
 6           For purposes of paragraph (1)(C):
 
 7           (A)  Research shall be treated as conducted for a
 
 8                purpose described in this paragraph if it relates
 
 9                to:
 
10                (i)  A new or improved function;
 
11               (ii)  Performance; or
 
12              (iii)  Reliability or quality.
 
13           (B)  Certain purposes not qualified.  Research in no
 
14                event shall be treated as conducted for a purpose
 
15                described in this paragraph if it relates to
 
16                style, taste, cosmetic, or seasonal design
 
17                factors.
 
18      (4)  Activities for which credit not allowed.  "Qualified
 
19           research expenses" shall not include the following:
 
20           (A)  Any research conducted after the beginning of
 
21                commercial production of the business component;
 
22           (B)  Any research related to the adaptation of an
 

 
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 1                existing business component to a particular
 
 2                customer's requirement or need;
 
 3           (C)  Any research related to the reproduction of an
 
 4                existing business component (in whole or in part)
 
 5                from a physical examination of the business
 
 6                component itself or from plans, blueprints,
 
 7                detailed specifications, or publicly available
 
 8                information with respect to the business
 
 9                component;
 
10           (D)  Any efficiency survey; activity relating to
 
11                management function or technique; market research,
 
12                testing, or development (including advertising or
 
13                promotions); routine data collection; or routine
 
14                or ordinary testing or inspection for quality
 
15                control;
 
16           (E)  Any research with respect to computer software
 
17                which is developed by (or for the benefit of) the
 
18                taxpayer primarily for internal use by the
 
19                taxpayer, other than for use in:
 
20                (i)  An activity which constitutes qualified
 
21                     research (determined with regard to this
 
22                     subparagraph); or
 

 
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 1               (ii)  A production process with respect to which
 
 2                     the requirements of paragraph (1) are met;
 
 3           (F)  Any research conducted outside the State;
 
 4           (G)  Any research in the social sciences, arts, or
 
 5                humanities; and
 
 6           (H)  Any research to the extent funded by any grant,
 
 7                contract, or otherwise by another person (or
 
 8                governmental entity)."
 
 9                             PART IX.
 
10      SECTION 23.  The legislature finds and declares that the
 
11 high technology industry is a growing sector of the nation's
 
12 economy and that the State is lacking in training and educational
 
13 facilities which support the high technology industry.  The
 
14 legislature further finds and declares that support for the
 
15 development of such facilities will promote the economic growth
 
16 of the State by making the State a more attractive location for
 
17 the high technology industry and provide support for the State's
 
18 existing high technology industry, and that the high technology
 
19 industry, and the development of training and educational
 
20 facilities for the high technology industry constitutes an
 
21 industrial enterprise within the meaning of section 12, article
 
22 VII of the state constitution, and that it is in the public
 

 
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 1 interest to promote the development of a high technology industry
 
 2 in the State by authorizing the issuance of special purpose
 
 3 revenue bonds for the development of an industrial park which
 
 4 will provide training and certification for professionals and
 
 5 other individuals who will serve the high technology industry.
 
 6      SECTION 24.  The department of budget and finance, with the
 
 7 approval of the governor, is authorized to issue special purpose
 
 8 revenue bonds in a total amount not to exceed $100,000,000 in one
 
 9 or more series for the purpose of assisting Ohana Foundation
 
10 and/or one or more of its not-for-profit affiliates in financing
 
11 or refinancing costs related to the development of a high
 
12 technology park in Kakaako.  The legislature finds and determines
 
13 that the activities and facilities of Ohana Foundation and its
 
14 affiliates constitutes an industrial enterprise as defined in
 
15 part V, chapter 39A, Hawaii Revised Statutes, and that the
 
16 financing thereof constitutes assistance to an industrial
 
17 enterprise within the meaning of part V, chapter 39A, Hawaii
 
18 Revised Statutes, and section 12, article VII of the state
 
19 constitution.
 
20      SECTION 25.  The special purpose revenue bonds issued under
 
21 the part shall be issued pursuant to part V, chapter 39A, Hawaii
 
22 Revised Statutes.
 

 
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 1      SECTION 26.  The department of budget and finance is further
 
 2 authorized to issue from time to time refunding special purpose
 
 3 revenue bonds authorized in such principal amounts as the
 
 4 department shall determine to be necessary to refund the special
 
 5 purpose revenue bonds authorized in this part.  Such refunding
 
 6 special purpose revenue bonds issued under this part shall be
 
 7 issued pursuant to part V, chapter 39A, Hawaii Revised Statutes.
 
 8      SECTION 27.  The authorization to issue special purpose
 
 9 revenue bonds under this part shall lapse on June 30, 2003.
 
10                              PART X.
 
11      SECTION 28.  Chapter 235, Hawaii Revised Statutes, is
 
12 amended by adding a new section to be appropriately designated
 
13 and to read as follows:
 
14      "§235-     Royalties from high technology business excluded
 
15 from gross income.  (a)  In addition to the amounts in section
 
16 235-7, there shall be excluded from gross income, adjusted gross
 
17 income and taxable income, amounts received by an individual or a
 
18 qualified high technology business as royalties and other income
 
19 derived from patents and copyrights:
 
20      (1)  Owned by the individuals or qualified high technology
 
21           business; and
 
22      (2)  Developed and arising out of a qualified high
 

 
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 1           technology business.
 
 2      (b)  For the purposes of this section:
 
 3      "Qualified high technology business" means:
 
 4      (1)  A business employing or owning capital or property, or
 
 5           maintaining an office, in this State; and
 
 6      (2)  (A)  That has qualified research expenses paid or
 
 7                incurred for research conducted in this State; or
 
 8           (B)  That receives income derived from qualified
 
 9                research expenses; provided that the income is
 
10                received from products sold from, manufactured, or
 
11                produced in the State; or services performed in
 
12                this State.
 
13      The term "qualified high technology business" does not
 
14 include any trade or business involving the performance of
 
15 services in the field of law, engineering, architecture,
 
16 accounting, actuarial science, performing arts, consulting,
 
17 athletics, financial services, or brokerage services, or any
 
18 trade or business where the principal asset of the trade or
 
19 business is the reputation or skill of one or more of its
 
20 employees; any banking, insurance, financing, leasing, rental,
 
21 investing, or similar business; any farming business, including
 
22 the business of raising or harvesting trees; any business
 

 
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 1 involving the production or extraction of products of a character
 
 2 with respect to which a deduction is allowable under section 611
 
 3 (with respect to allowance of deduction for depletion), 613 (with
 
 4 respect to basis for percentage depletion), or 613A (with respect
 
 5 to limitation on percentage depleting in cases of oil and gas
 
 6 wells) of the Internal Revenue Code; any business operating a
 
 7 hotel, motel, restaurant, or similar business; any trade or
 
 8 business involving a hospital, a private office of a licensed
 
 9 health care professional, a group practice of license health care
 
10 professionals, or nursing home.
 
11      "Qualified research expenses" means:
 
12      (1)  Research:
 
13           (A)  With respect to which expenditures may be treated
 
14                as expenses under Internal Revenue Code section
 
15                174 (with respect to research and experimental
 
16                expenditures);
 
17           (B)  Which is undertaken for the purpose of discovering
 
18                information:
 
19                (i)  Which is technological in nature; and
 
20               (ii)  The application of which is intended to be
 
21                     useful in the development of a new or
 
22                     improved business component of the taxpayer;
 

 
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 1                     and
 
 2           (C)  Substantially all of the activities of which
 
 3                constitute elements of a process of
 
 4                experimentation for a purpose described in
 
 5                paragraph (3).
 
 6           This term does not include any activity described in
 
 7           paragraph (4).
 
 8      (2)  Tests to be applied separately to each business
 
 9           component:
 
10           (A)  Paragraph (1) shall be applied separately with
 
11                respect to each business component of the
 
12                taxpayer.
 
13           (B)  The term "business component" means any product,
 
14                process, computer software, technique, formula, or
 
15                invention which is to be:
 
16                (i)  Held for sale, lease, or license; or
 
17               (ii)  Used by the taxpayer in a trade or business
 
18                     of the taxpayer.
 
19           (C)  Special rule for production processes.  Any plant
 
20                process, machinery, or technique for commercial
 
21                production of a business component shall be
 
22                treated as a separate business component (and not
 

 
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 1                as part of the business component being produced).
 
 2      (3)  Purposes for which research may qualify for credit.
 
 3           For purposes of paragraph (1)(C):
 
 4           (A)  Research shall be treated as conducted for a
 
 5                purpose described in this paragraph if it relates
 
 6                to:
 
 7                (i)  A new or improved function;
 
 8               (ii)  Performance; or
 
 9              (iii)  Reliability or quality.
 
10           (B)  Certain purposes not qualified.  Research in no
 
11                event shall be treated as conducted for a purpose
 
12                described in this paragraph if it relates to
 
13                style, taste, cosmetic, or seasonal design
 
14                factors.
 
15      (4)  But shall not include the following:
 
16           (A)  Any research conducted after the beginning of
 
17                commercial production of the business component;
 
18           (B)  Any research related to the adaptation of an
 
19                existing business component to a particular
 
20                customer's requirement or need;
 
21           (C)  Any research related to the reproduction of an
 
22                existing business component (in whole or in part)
 

 
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 1                from a physical examination of the business
 
 2                component itself or from plans, blueprints,
 
 3                detailed specifications, or publicly available
 
 4                information with respect to the business
 
 5                component;
 
 6           (D)  Any efficiency survey; activity relating to
 
 7                management function or technique; market research,
 
 8                testing, or development (including advertising or
 
 9                promotions); routine data collection; or routine
 
10                or ordinary testing or inspection for quality
 
11                control;
 
12           (E)  Any research with respect to computer software
 
13                which is developed by (or for the benefit of) the
 
14                taxpayer primarily for internal use by the
 
15                taxpayer, other than for use in:
 
16                (i)  An activity which constitutes qualified
 
17                     research (determined with regard to this
 
18                     subparagraph); or
 
19               (ii)  A production process with respect to which
 
20                     the requirements of paragraph (1) are met;
 
21           (F)  Any research conducted outside the State;
 
22           (G)  Any research in the social sciences, arts, or
 

 
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 1                humanities; and
 
 2           (H)  Any research to the extent funded by any grant,
 
 3                contract, or otherwise by another person (or
 
 4                governmental entity)."
 
 5                             PART XI.
 
 6      SECTION 29.  Statutory material to be repealed is bracketed.
 
 7 New statutory material is underscored.
 
 8      SECTION 30.  This Act shall take effect upon its approval;
 
 9 provided that:
 
10      (1)  Sections 4, 13, 16, and 21 shall take effect on July 1,
 
11           1999;
 
12      (2)  Sections 22 and 28 shall apply to taxable years
 
13           beginning after December 31, 1998; and
 
14      (3)  Section 6 shall apply to calendar year 1999 and for
 
15           calendar years thereafter, or if a fiscal year
 
16           taxpayer, section 6 shall apply to the fiscal year in
 
17           which January 1, 1999, occurs and fiscal years
 
18           thereafter.
 

 
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