HB400

SECTION 1. The legislature finds that child care is a critical component to alleviating the worker shortage crisis. The lack of child care in the State, along with its cost skyrocketing in recent years, is keeping people out of the workforce. Today, many families with young children must choose between spending a significant portion of their income on child care or leaving the workforce altogether to become a full-time caregiver. This dilemma is compounded by the reality that a lower cost child care option may potentially provide lower quality care.

The legislature further finds that employers in the State provide resources to employees that help those employees live their day to day lives, including paid time off, health care, and other benefits. The legislature believes that by incentivizing employers to provide child care as an employee benefit would attract more people back into the workforce and reduce the financial burden on families who are struggling to make ends meet.

The purpose of this Act is to establish:

(1) An employer-provided or -sponsored child care income tax credit for employers that provide or sponsor child care as an employee benefit; and

(2) An employer child care property income tax credit for the purchase or acquisition of child care property by an employer for employer-provided child care.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

"§235-A Employer-provided or -sponsored child care tax credit. (a) Notwithstanding any law to the contrary, there shall be allowed to each taxpayer subject to the taxes imposed by this chapter, an income tax credit as provided in this section 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. For each taxpayer that employs at least one employee in the State and provides employer-provided child care or employer-sponsored child care to those employees, the amount of the credit shall be equal to seventy-five per cent of the cost of operation to the employer less any amounts paid by the employees during the taxable year.

(b) In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for the cost of operation 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.

The sale, merger, acquisition, or bankruptcy of any taxpayer shall not create new eligibility in any succeeding taxpayer.

(c) The amount of the credit applied under this section against the tax imposed for a taxable year shall not exceed fifty per cent of the tax liability otherwise due without regard to any other credits allowed against the tax imposed. Any unused credit resulting from the limitations of this section may be carried forward, if necessary, for use in the five taxable years following the taxable year in which the cost of operation was incurred.

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.

(d) Employer-taxpayers shall maintain records necessary for certifying the cost of operation to the department. These records shall include:

(1) The names of the employees who utilize the employer-provided child care or employer-sponsored child care;

(2) The names of the child care providers; and

(3) Any other information deemed necessary to ascertain the validity of the claim for credit made under this section.

(e) The director:

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

(2) May audit and adjust the tax credit amount to conform to the information filed by the taxpayer; and

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

(f) As used in this section:

"Child care property" has the same meaning as in section 235-B.

"Cost of operation" means reasonable direct operational costs incurred by the employer-taxpayer as a result of providing employer-provided child care or employer-sponsored child care. "Cost of operation" does not include the cost of any property that is child care property.

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

"Employer-sponsored child care" means child care provided through 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 other 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, such facility may be located within a reasonable distance of the premises of the employer.

§235-B Employer child care property tax credit. (a) Notwithstanding any law to the contrary, there shall be allowed to each taxpayer subject to the taxes imposed by this chapter, an income tax credit as provided in this section 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 credit may be claimed for the taxable year in which the taxpayer first places in service the child care property and for each of the nine taxable years following that taxable year. For each taxpayer that employs at least one employee in the State, the aggregate amount of the credit shall equal one hundred per cent of the cost of child care property purchased or acquired by the taxpayer and first placed in service during the taxable year and the credit may be claimed at a rate of ten per cent per year for ten years.

The sale, merger, acquisition, or bankruptcy of any taxpayer shall not create new eligibility in any succeeding taxpayer.

(c) The amount of the credit applied under this section against the tax imposed for a taxable year shall not exceed fifty per cent of the tax liability otherwise due without regard to any other credits allowed against the tax imposed. Any unused credit resulting from the limitations of this section may be carried forward, if necessary, for use in the three taxable years following the taxable year in which the credit is claimed.

(d) The director of taxation:

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

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

(3) May audit and adjust the tax credit amount to conform to the information filed by the taxpayer; and

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

(e) As used in this section:

"Child care property" means all real and tangible personal property purchased or acquired for use exclusively in the construction, expansion, improvement, or operation of a facility for employer-provided child care.

"Employer-provided child care" has the same meaning as in section 235-A."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2022.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	400
THIRTY-SECOND LEGISLATURE, 2023
STATE OF HAWAII