SB361

SECTION 1. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Carbon sequestration tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter, a carbon sequestration tax credit that shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed. The amount of the credit shall be equal to $ per metric ton of qualified carbon oxide that is:

(1) Captured by the taxpayer using carbon capture equipment placed in service at an industrial facility or direct air capture facility in the State; and

(2) Disposed of by the taxpayer in secure geological storage and not used by the taxpayer as a tertiary injectant.

(b) In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for qualified carbon oxide captured and stored by the entity for the taxable year. 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 rule.

(c) If the tax credit under this section exceeds the taxpayer's income tax liability in any taxable year that the credit is claimed, the excess of the tax credit over liability may be used as a credit against the taxpayer's net income tax liability in subsequent years until exhausted. All claims, including any amended claims, for tax credits under this section shall be properly filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to comply with any of the foregoing provision shall constitute a waiver of the right to claim the credit.

(d) The department of health shall adopt rules pursuant to chapter 91 for the purposes of certifying the metric tons of qualified carbon oxide captured and disposed of by a taxpayer.

(e) Every taxpayer claiming a tax credit under this section for a qualified carbon oxide shall, no later than ninety days following the end of each taxable year in which the qualified carbon oxide was captured and disposed, submit information deemed necessary under the rules adopted pursuant to subsection (d) to the department of health.

(f) The department of health shall:

(1) Maintain records of the names of the taxpayers claiming the tax credit under subsection (a) and the respective amount of qualified carbon oxide captured and disposed;

(2) Verify the amount of qualified carbon oxide captured and disposed, and certify the amount of the tax credit for each taxpayer for the taxable year; and

(3) Issue a certificate to the taxpayer verifying the amount of the qualified carbon oxide captured and disposed and the tax credit amount certified for the taxable year; provided that the department of health shall issue the certificate to the taxpayer no later than seven months after the submission of the information to the department pursuant to subsection (e).

(g) The taxpayer shall file the certificate issued under subsection (f) with the taxpayer's tax return with the department of taxation. The director of taxation may audit and adjust the certification to conform to the facts.

(h) The director of taxation:

(1) Shall prepare any forms as may be necessary to claim a credit under this section;

(2) May require the taxpayer to furnish information to ascertain the validity of the claim for credit made under this section; and

(3) May adopt rules pursuant to chapter 91 necessary to effectuate the purposes of this section.

(i) For purposes of this section:

"Carbon capture equipment" has the same meaning as in title 26 Code of Federal Regulations section 1.45Q-2(c).

"Direct air capture facility" means any facility that uses carbon capture equipment to capture carbon dioxide directly from the ambient air. "Direct air capture facility" does not include any facility that captures carbon dioxide that is deliberately released from naturally occurring subsurface springs or using photosynthesis.

"Industrial facility" has the same meaning as in title 26 Code of Federal Regulations section 1.45Q-2(d).

"Net income tax liability" means income tax liability reduced by all other credits allowed under this chapter.

"Qualified carbon oxide" means:

(1) Any carbon dioxide or other carbon oxide that:

(A) Is captured from an industrial source by carbon capture equipment;

(B) Would otherwise be released into the atmosphere as industrial emission of greenhouse gas or lead to such release; and

(2) In the case of a direct air capture facility, any carbon dioxide that:

(A) Is captured directly from the ambient air; and

(B) Is measured at the source of capture and verified at the point of disposal.

"Secure geological storage" has the same meaning as used in title 26 Code of Federal Regulations section 1.45Q-3(b)(1)(i).

"Tertiary injectant" means qualified carbon oxide that is injected into and stored in a qualified enhanced oil or natural gas recovery project and contributes to the extraction of crude oil or natural gas. "Tertiary injectant" includes the same meaning as used in title 26 United States Code section 193(b)(1)."

SECTION 2. New statutory material is underscored.

SECTION 3. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2023.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	361
THIRTY-SECOND LEGISLATURE, 2023
STATE OF HAWAII