HB1203

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

"§235- Employer child care tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter, an employer child care 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 tax credit shall be equal to:

(1) Thirty per cent of the cost of operation to an employer less any amounts paid for by employees during a taxable year; or

(2) Twenty per cent of the costs incurred by an employer as a result of providing employer-sponsored child care at a child care facility within a reasonable distance from the employer's workplace premises.

In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for the cost of operation incurred by the entity for the taxable year.

(b) The tax credit allow under this section shall be subject to the following conditions and limitations:

(1) The credit shall not exceed fifty per cent of the amount of the taxpayer's income tax liability for the taxable year as computed without regard to any other credits;

(2) Any credit claimed but not used in any taxable year may be carried forward for five years from the close of the taxable year in which the cost of operation was incurred; and

(3) The employer shall certify to the department the names of the employees, name of the child care provider, and such other information as may be required by the department to ensure that credits are granted only to employers who provide or sponsor approved child care pursuant to this section.

(c) In addition to the tax credit provided under this section, a taxpayer shall be allowed a credit against the tax imposed under this chapter for the taxable year in which the taxpayer first places in service qualified child care property and for each of the ensuing nine taxable years following such taxable year. The aggregate amount of the credit shall equal one hundred per cent of the cost of all qualified child care property purchased or acquired by the taxpayer and first placed in service during a taxable year, and such credit may be claimed at a rate of ten per cent per year over a period of ten taxable years.

(d) The tax credit allowable under subsection (c) shall be subject to the following conditions and limitations:

(1) Any such credit claimed in any taxable year but not used in such taxable year may be carried forward for three years from the close of such taxable year; provided that the sale, merger, acquisition, or bankruptcy of any taxpayer shall not create new eligibility for the credit in any succeeding taxpayer;

(2) In no event shall the amount of any such tax credit, including any carryover of such credit from a prior taxable year, exceed fifty per cent of the taxpayer's income tax liability as determined without regard to any other credits; and

(3) For every year in which a taxpayer claims such credit, the taxpayer shall attach a schedule to the taxpayer's Hawaii income tax return setting forth the following information with respect to such tax credit:

(A) A description of the child care facility;

(B) The amount of qualified child care property acquired during the taxable year and the cost of such property;

(D) The amount of qualified child care property acquired in prior taxable years and the cost of such property;

(E) Any tax credit utilized by the taxpayer in prior taxable years;

(F) The amount of tax credit carried over from prior years;

(G) The amount of tax credit used by the taxpayer in the current taxable year;

(H) The amount of tax credit to be carried forward to subsequent tax years; and

(I) A description of any recapture event occurring during the taxable year, a calculation of the resulting reduction in tax credits allowable for the recapture year and future taxable years, and a calculation of the resulting increase in tax for the recapture year.

(e) If a recapture event occurs with respect to qualified child care property:

(1) The credit otherwise allowable under subsection (c) with respect to such property for the recapture year and all subsequent taxable years shall be reduced by the applicable recapture percentage; and

(2) All credits previously claimed with respect to such property under subsection (c) shall be recaptured as follows:

(A) Any carryover attributable to such credits under subsection (d)(1) shall be reduced, but not below zero, by the recapture amount;

(B) The tax credit otherwise allowable under subsection (c) for the recapture year, if any, as reduced under paragraph (1), shall be further reduced, but not below zero, by the excess of the recapture amount over the amount taken into account under subparagraph (A); and

(C) The tax imposed under this section for the recapture year shall be increased by the excess of the recapture amount over the amounts taken into account under subparagraphs (A) and (B), as applicable.

(f) If the tax credit under this section exceeds the taxpayer's net income tax liability, the excess of credits over payments due shall be refunded to the taxpayer; provided that no refunds or payments on account of the tax credits allowed by this section shall be made for amounts less than $1.

(g) The director of taxation shall:

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

(2) Adopt rules pursuant to chapter 91 to effectuate the purposes of this section.

(h) For the purposes of this section:

"Cost of operation" means reasonable direct operational costs incurred by an employer as a result of providing employer-provided child care facilities; provided that the term "cost of operation" excludes the cost of any property that is qualified child care property.

"Employer" means any employer upon whom an income tax is imposed by this chapter.

"Employer-provided" means child care offered on the premises of the employer.

"Employer-sponsored" means a contractual arrangement with a child care facility that is paid for by the employer.

"Premises of the employer" means any location within the State and located on the workplace premises of the employer providing the child care or one of the employers providing the child care in the event that the child care property is owned jointly or severally by the taxpayer and one or more employers; provided that if such workplace premises are impracticable or otherwise unsuitable for the on-site location of such child care facility, as determined by the director of human services, such facility may be located within a reasonable distance of the employer's workplace premises.

"Qualified child care property" means all real property and tangible personal property purchased or acquired on or after December 31, 1999, or which property is first placed in service on or after December 31, 1999, for use exclusively in the construction, expansion, improvement, or operation of an employer-provided child care facility; provided that:

(1) The facility is licensed and approved by the department of human services;

(2) At least ninety-five per cent of the children who use the facility are children of employees of:

(A) The taxpayer and other employers in the event that the child care property is owned jointly or severally by the taxpayer and one or more employers; or

(B) A corporation that is a member of the taxpayer's affiliated group, as defined by section 1504(a) of the federal Internal Revenue Code of 1986; and

(C) The taxpayer has not previously claimed any tax credit for the cost of operation for such qualified child care property placed in service prior to taxable years beginning on or after January 1, 2000.

"Qualified child care property" includes but is not limited to amounts expended on land acquisition, improvements, buildings, and building improvements and furniture, fixtures, and equipment.

"Recapture amount" means, with respect to property as to which a recapture event has occurred, an amount equal to the applicable recapture percentage of the aggregate credits claimed under subsection (c) for all taxable years preceding the recapture year, whether or not such credits were used.

"Recapture event" means any disposition of qualified child care property by the taxpayer, or any other event or circumstance under which property ceases to be qualified child care property with respect to the taxpayer, except for:

(1) Any transfer by reason of death;

(2) Any transfer between spouses or incident to divorce;

(3) Any change in the form of conducting the taxpayer's trade or business so long as the property is retained in such trade or business as qualified child care property and the taxpayer retains a substantial interest in such trade or business; or

(4) Any accident or casualty.

"Recapture percentage" means the applicable percentage set forth as follows:

(1) If the recapture event occurs within five years after the qualified child care property is placed in service, the percentage shall be one hundred per cent;

(2) If the recapture event occurs within six years after the qualified child care property is placed in service, the percentage shall be ninety per cent;

(3) If the recapture event occurs within seven years after the qualified child care property is placed in service, the percentage shall be eighty per cent;

(4) If the recapture event occurs within eight years after the qualified child care property is placed in service, the percentage shall be seventy per cent;

(5) If the recapture event occurs within nine years after the qualified child care property is placed in service, the percentage shall be sixty per cent;

(6) If the recapture event occurs within ten years after the qualified child care property is placed in service, the percentage shall be fifty per cent;

(7) If the recapture event occurs within eleven years after the qualified child care property is placed in service, the percentage shall be forty per cent;

(8) If the recapture event occurs within twelve years after the qualified child care property is placed in service, the percentage shall be thirty per cent;

(9) If the recapture event occurs within thirteen years after the qualified child care property is placed in service, the percentage shall be twenty per cent;

(10) If the recapture event occurs within fourteen years after the qualified child care property is placed in service, the percentage shall be ten per cent; and

(11) Any period after the close of fourteen years after the qualified child care property is placed in service, the percentage shall be zero.

"Recapture year" means the taxable year in which a recapture event occurs with respect to qualified child care property."

SECTION 2. New statutory material is underscored.

SECTION 3. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2022.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	1203
THIRTY-SECOND LEGISLATURE, 2023
STATE OF HAWAII