SB2805 SD2

SECTION 1. The legislature finds that the Hawaii State Constitution mandates that the State "conserve and protect agricultural lands[.]" The legislature also finds that the best way to protect agricultural lands is to increase the production and profitability of those lands.

Accordingly, the purpose of this Act is to incentivize significant investment in agricultural production and support the expansion of agricultural crops that take longer to become productive, including orchard and fruit crops, by providing an agricultural investment tax credit.

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

"§235- Agricultural investment tax credit. (a) There shall be allowed to each qualified taxpayer subject to the taxes imposed by this chapter an agricultural investment 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 investment was made; provided the credit is properly claimed.

In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for costs incurred by the entity for the taxable year. The costs upon which the tax credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined by rule.

If a deduction is taken under section 179 of the Internal Revenue Code of 1986, as amended, no tax credit shall be allowed for those costs for which the deduction is taken.

No other tax credit or deduction may be claimed under this chapter for qualified agricultural costs for which a credit is claimed under this section for the taxable year.

(b) The amount of the credit shall be per cent of the qualified agricultural costs incurred by a qualified taxpayer, up to a maximum of $ .

(c) To receive the tax credit under this section, the taxpayer shall first prequalify the agricultural, silvicultural, or aquacultural project with the agribusiness development corporation prior to incurring qualified agricultural costs.

(d) Every taxpayer claiming a tax credit under this section, no later than ninety days following the end of each taxable year in which qualified agricultural costs were incurred, shall submit a written, sworn statement to the agribusiness development corporation that identifies:

(1) All qualified agricultural costs, if any, incurred in the previous taxable year;

(2) The nature and location of the agricultural, silvicultural, or aquacultural activity;

(3) The amount of tax credits claimed pursuant to this section, if any, in the previous taxable year; and

(4) Any other information required by the agribusiness development corporation to determine eligibility for the credit.

(e) The agribusiness development corporation shall:

(1) Maintain records of the names of the qualified taxpayers and agricultural, silvicultural, or aquacultural projects thereof claiming the tax credit;

(2) Maintain records of the total amount of qualified agricultural costs for each taxpayer claiming a credit;

(3) Verify the amount of the qualified agricultural costs claimed;

(4) Total all qualified agricultural costs claimed; and

(5) Certify the total amount of the tax credit for each taxable year.

Upon each determination, the agribusiness development corporation shall issue a certificate to the taxpayer verifying the qualified agricultural costs and the credit amount certified for each taxable year. The taxpayer shall file the certificate with the taxpayer's tax return to the department of taxation. Notwithstanding the authority of the agribusiness development corporation under this section, the director of taxation may audit and adjust the tax credit amount to conform to the facts.

(f) The total amount of tax credits allowed under this section shall not exceed $ 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 $ cap having been exceeded for that taxable year shall be eligible to claim the credit in the subsequent taxable year.

(g) 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.

(h) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year. 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; provided that no credit carried forward under this subsection shall be used as a credit more than five years after the taxable year in which qualified agricultural costs are 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.

(i) For the purposes of this section:

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

"Qualified agricultural costs" means expenditures for:

(1) The plans, design, engineering, construction, renovation, repair, maintenance, and equipment for:

(A) Roads or utilities, primarily for agricultural purposes;

(B) Agricultural processing facilities where the majority of the crops or livestock processed, harvested, treated, washed, handled, or packaged are from agricultural businesses; and

(C) Water wells, reservoirs, dams, water storage facilities, water pipelines, ditches, or irrigation systems in the State, primarily for agricultural purposes;

(2) Feasibility studies, regulatory processing, and legal and accounting services related to the items under paragraph (1);

(3) Equipment, primarily for agricultural purposes, used to cultivate, grow, harvest, or process agricultural products by an agricultural business;

(4) Regulatory processing, studies, and legal and other consultant services related to obtaining or retaining sufficient water for agricultural activities; and

(5) The costs relating to the planting of orchard or fruit-bearing crops on not less than acres, including:

(A) The purchase of planting materials, including seeds, transplants, cuttings, and grafted plants;

(B) The clearing of and removal of trees and debris; and

(C) Tillage, including the preparation and restoration of the soil to correct any nutrient deficiency, planting, weed control, fertilizing, irrigation, and pest management.

"Qualified taxpayer" means any person with a commercial agricultural, silvicultural, or aquacultural project with qualified agricultural costs of not less than $ , on not less than acres, including:

(1) The care and production of livestock and livestock products, poultry and poultry products, apiary products, and plant and animal production for nonfood uses;

(2) The planting, cultivating, harvesting, and processing of crops; and

(3) The farming or ranching of any plant or animal species in a controlled salt, brackish, or freshwater environment."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2050; provided that this Act shall apply to taxable years beginning after December 31, 2025, and shall be repealed on January 1, 2031.

THE SENATE	S.B. NO.	2805
THIRTY-THIRD LEGISLATURE, 2026		S.D. 2
STATE OF HAWAII