SB405

SECTION 1. The legislature finds that water pollution from nonpoint contamination sources that flow off the land directly, rather than through pipes or ditches, poses a threat to the State's streams, groundwater, and ocean. As a nonpoint contamination source, cesspools are substandard systems that discharge raw, untreated sewage into the ground. Cesspool pollution from disposed, untreated wastewater creates significant risk to finite groundwater, drinking water, streams, the ocean and other aquatic resources across the State.

The legislature additionally finds that cesspools in Hawaii release approximately fifty-three million gallons of untreated sewage into the ground each day. There are approximately eighty-eight thousand cesspools in the State, with nearly fifty thousand located on Hawaii island, approximately fourteen thousand on Kauai, over twelve thousand on Maui, over eleven thousand on Oahu, and over fourteen hundred on Molokai. Presently, forty-three thousand cesspools pose a risk to the State's water resources.

The legislature further finds that cesspools near drinking water wells or within two hundred feet of surface waters and cesspools that are connected to multiple residential dwellings present a higher risk of harm to public health and the environment and should be prioritized by the department of health for upgrade. The department of health indicates that there are approximately six thousand seven hundred cesspools in those priority locations. Therefore, priority should be given to cesspool owners who request financial assistance to upgrade, convert, or connect cesspools that: affect public drinking water wells; are within two hundred feet of the shoreline, streams, or wetlands; or are connected to multiple residential dwellings.

To address the ongoing threat of water contamination caused by cesspools, the legislature passed Act 125, Session Laws of Hawaii 2017 (Act 125), which requires the replacement of all cesspools by 2050. Additionally, the legislature passed Act 132, Session Laws of Hawaii 2018, which requires the department of health to convene the cesspool conversion working group to create a comprehensive plan for cesspool conversion statewide, pursuant to the mandates established by Act 125. The legislature recognizes that, to protect the State's finite water resources and achieve the goals mandated by Act 125, decreasing the financial burden on homeowners with cesspools is of utmost importance.

Accordingly, the purpose of this Act is to offer financial assistance to owners of cesspools who:

(1) Upgrade or convert a qualified cesspool into a director of health-approved wastewater system; or

(2) Connect a qualified cesspool to a sewer system,

by establishing a cesspool upgrade, conversion, or connection income tax credit.

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

"§235- Cesspool upgrade, conversion, or connection; income tax credit. (a) There shall be allowed to each taxpayer subject to the tax imposed under this chapter, a cesspool upgrade, conversion, or connection income 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.

(b) In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for qualified expenses incurred by the entity for the taxable year. The expenses 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) The cesspool upgrade, conversion, or connection income tax credit shall be equal to the qualified expenses of the taxpayer, up to a maximum of $10,000; provided that, in the case of a qualified cesspool that is a residential large capacity cesspool, the amount of the credit shall be equal to the qualified expenses of the taxpayer, up to a maximum of $10,000 per residential dwelling connected to the cesspool, as certified by the department of health pursuant to subsection (e). There shall be allowed a maximum of one cesspool upgrade, conversion, or connection income tax credit per qualified cesspool. The cesspool upgrade, conversion, or connection income tax credit shall be available only for the taxable year in which the taxpayer's qualified expenses are certified by the appropriate government agency.

(d) The total amount of tax credits allowed under this section shall not exceed $5,000,000 for all taxpayers in any taxable year; provided that any taxpayer who is not eligible to claim the credit in a taxable year due to the $5,000,000 cap having been exceeded for that taxable year shall be eligible to claim the credit in the subsequent taxable year.

(e) The department of health shall:

(1) Certify all qualified cesspools for the purposes of this section; provided that the department of health, in its discretion, may certify not more than two residential large capacity cesspools as qualified cesspools;

(2) Collect and maintain a record of all qualified expenses certified by an appropriate government agency for the taxable year; and

(3) Certify to each taxpayer the amount of credit the taxpayer may claim; provided that if, in any year, the annual amount of certified credits reaches $5,000,000 in the aggregate, the department of health shall immediately discontinue certifying credits and notify the department of taxation.

The director of health may adopt rules under chapter 91 as necessary to implement the certification requirements under this section.

(f) The director of taxation:

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

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

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

(g) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of the credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. All claims for the tax credit under this section, including amended claims, shall be 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 the foregoing provision shall constitute a waiver of the right to claim the credit.

(h) As used in this section:

"Cesspool" means an individual wastewater system consisting of an excavation in the ground whose depth is greater than its widest surface dimension, that receives untreated wastewater, and retains or is designed to retain the organic matter and solids discharged into it, but permits the liquid to seep through its bottom or sides to gain access to the underground geographic formation.

"Qualified cesspool" means a cesspool that is certified by the department of health as being:

(1) Located within:

(A) Two hundred feet of a shoreline, perennial stream, or wetland; or

(B) A source water assessment program area (two year time of travel from a cesspool to a public drinking water source); or

(2) A residential large capacity cesspool.

"Qualified expenses" means costs that are necessary and directly incurred by the taxpayer for upgrading or converting a qualified cesspool into a director of health-approved wastewater system, or connecting a qualified cesspool to a sewer system, and that are certified as such by the appropriate government agency.

"Residential large capacity cesspool" means a cesspool that is connected to more than one residential dwelling.

"Sewer system" means a system of piping, with appurtenances, for collecting and conveying wastewater from source to discharge following treatment.

"Wastewater" means any liquid waste, whether or not treated and whether animal, mineral, or vegetable, including agricultural, industrial, and thermal wastes."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2023.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	405
THIRTY-SECOND LEGISLATURE, 2023
STATE OF HAWAII