THE SENATE	S.B. NO.	3125
THIRTY-THIRD LEGISLATURE, 2026		S.D. 1
STATE OF HAWAII

A BILL FOR AN ACT

RELATING TO INCOME TAX.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

PART I

SECTION 1. Section 235-51, Hawaii Revised Statutes, is amended by amending subsections (a), (b), and (c) to read as follows:

"(a) There is hereby imposed on the taxable income of every:

(1) Taxpayer who files a joint return under section 235‑93; and

(2) Surviving spouse,

a tax determined in accordance with the following table:

In the case of any taxable year beginning after December 31, 2017:

If the taxable income is: The tax shall be:

Not over $4,800 1.40% of taxable income

Over $4,800 but $67.00 plus 3.20% of

not over $9,600 excess over $4,800

Over $9,600 but $221.00 plus 5.50% of

not over $19,200 excess over $9,600

Over $19,200 but $749.00 plus 6.40% of

not over $28,800 excess over $19,200

Over $28,800 but $1,363.00 plus 6.80% of

not over $38,400 excess over $28,800

Over $38,400 but $2,016.00 plus 7.20% of

not over $48,000 excess over $38,400

Over $48,000 but $2,707.00 plus 7.60% of

not over $72,000 excess over $48,000

Over $72,000 but $4,531.00 plus 7.90% of

not over $96,000 excess over $72,000

Over $96,000 but $6,427.00 plus 8.25% of

not over $300,000 excess over $96,000

Over $300,000 but $23,257.00 plus 9.00% of

not over $350,000 excess over $300,000

Over $350,000 but $27,757.00 plus 10.00% of

not over $400,000 excess over $350,000

Over $400,000 $32,757.00 plus 11.00% of

excess over $400,000.

In the case of any taxable year beginning after December 31, 2024:

If the taxable income is: The tax shall be:

Not over $19,200 1.40% of taxable income

Over $19,200 but $269.00 plus 3.20% of

not over $28,800 excess over $19,200

Over $28,800 but $576.00 plus 5.50% of

not over $38,400 excess over $28,800

Over $38,400 but $1,104.00 plus 6.40% of

not over $48,000 excess over $38,400

Over $48,000 but $1,718.00 plus 6.80% of

not over $72,000 excess over $48,000

Over $72,000 but $3,350.00 plus 7.20% of

not over $96,000 excess over $72,000

Over $96,000 but $5,078.00 plus 7.60% of

not over $250,000 excess over $96,000

Over $250,000 but $16,782.00 plus 7.90% of

not over $350,000 excess over $250,000

Over $350,000 but $24,682.00 plus 8.25% of

not over $450,000 excess over $350,000

Over $450,000 but $32,932.00 plus 9.00% of

not over $550,000 excess over $450,000

Over $550,000 but $41,932.00 plus 10.00% of

not over $650,000 excess over $550,000

Over $650,000 $51,932.00 plus 11.00% of

excess over $650,000.

In the case of any taxable year beginning after December 31, 2026:

If the taxable income is: The tax shall be:

Not over $28,800 1.40% of taxable income

Over $28,800 but $403.00 plus 3.20% of

not over $38,400 excess over $28,800

Over $38,400 but $710.00 plus 5.50% of

not over $48,000 excess over $38,400

Over $48,000 but $1,238.00 plus 6.40% of

not over $72,000 excess over $48,000

Over $72,000 but $2,774.00 plus 6.80% of

not over $96,000 excess over $72,000

Over $96,000 but $4,406.00 plus 7.20% of

not over $250,000 excess over $96,000

Over $250,000 but $15,494.00 plus 7.60% of

not over $350,000 excess over $250,000

[Over $350,000 but $23,094.00 plus 7.90% of

not over $450,000 excess over $350,000

Over $450,000 but $30,994.00 plus 8.25% of

not over $550,000 excess over $450,000

Over $550,000 but $39,244.00 plus 9.00% of

not over $650,000 excess over $550,000

Over $650,000 but $48,244.00 plus 10.00% of

not over $800,000 excess over $650,000

Over $800,000 $63,244.00 plus 11.00% of

excess over $800,000.]

Over $350,000 but $23,094.00 plus 8.25% of

not over $450,000 excess over $350,000

Over $450,000 but $31,344.00 plus 9.00% of

not over $550,000 excess over $450,000

Over $550,000 but $40,344.00 plus 10.00% of

not over $650,000 excess over $550,000

Over $650,000 $50,344.00 plus 11.00% of

excess over $650,000.

In the case of any taxable year beginning after December 31, 2028:

If the taxable income is: The tax shall be:

Not over $38,400 1.40% of taxable income

Over $38,400 but $538.00 plus 3.20% of

not over $48,000 excess over $38,400

Over $48,000 but $845.00 plus 5.50% of

not over $72,000 excess over $48,000

Over $72,000 but $2,165.00 plus 6.40% of

not over $96,000 excess over $72,000

Over $96,000 but $3,701.00 plus 6.80% of

not over $250,000 excess over $96,000

Over $250,000 but $14,173.00 plus 7.20% of

not over $350,000 excess over $250,000

[Over $350,000 but $21,373.00 plus 7.60% of

not over $450,000 excess over $350,000

Over $450,000 but $28,973.00 plus 7.90% of

not over $550,000 excess over $450,000

Over $550,000 but $36,873.00 plus 8.25% of

not over $650,000 excess over $550,000

Over $650,000 but $45,123.00 plus 9.00% of

not over $800,000 excess over $650,000

Over $800,000 but $58,623.00 plus 10.00% of

not over $950,000 excess over $800,000

Over $950,000 $73,623.00 plus 11.00% of

excess over $950,000.]

Over $350,000 but $21,373.00 plus 8.25% of

not over $450,000 excess over $350,000

Over $450,000 but $29,623.00 plus 9.00% of

not over $550,000 excess over $450,000

Over $550,000 but $38,623.00 plus 10.00% of

not over $650,000 excess over $550,000

Over $650,000 $48,623.00 plus 11.00% of

excess over $650,000.

(b) There is hereby imposed on the taxable income of every head of a household a tax determined in accordance with the following table:

In the case of any taxable year beginning after December 31, 2017:

If the taxable income is: The tax shall be:

Not over $3,600 1.40% of taxable income

Over $3,600 but $50.00 plus 3.20% of

not over $7,200 excess over $3,600

Over $7,200 but $166.00 plus 5.50% of

not over $14,400 excess over $7,200

Over $14,400 but $562.00 plus 6.40% of

not over $21,600 excess over $14,400

Over $21,600 but $1,022.00 plus 6.80% of

not over $28,800 excess over $21,600

Over $28,800 but $1,512.00 plus 7.20% of

not over $36,000 excess over $28,800

Over $36,000 but $2,030.00 plus 7.60% of

not over $54,000 excess over $36,000

Over $54,000 but $3,398.00 plus 7.90% of

not over $72,000 excess over $54,000

Over $72,000 but $4,820.00 plus 8.25% of

not over $225,000 excess over $72,000

Over $225,000 but $17,443.00 plus 9.00% of

not over $262,500 excess over $225,000

Over $262,500 but $20,818.00 plus 10.00% of

not over $300,000 excess over $262,500

Over $300,000 $24,568.00 plus 11.00% of

excess over $300,000.

In the case of any taxable year beginning after December 31, 2024:

If the taxable income is: The tax shall be:

Not over $14,400 1.40% of taxable income

Over $14,400 but $202.00 plus 3.20% of

not over $21,600 excess over $14,400

Over $21,600 but $432.00 plus 5.50% of

not over $28,800 excess over $21,600

Over $28,800 but $828.00 plus 6.40% of

not over $36,000 excess over $28,800

Over $36,000 but $1,289.00 plus 6.80% of

not over $54,000 excess over $36,000

Over $54,000 but $2,513.00 plus 7.20% of

not over $72,000 excess over $54,000

Over $72,000 but $3,809.00 plus 7.60% of

not over $187,500 excess over $72,000

Over $187,500 but $12,587.00 plus 7.90% of

not over $262,500 excess over $187,500

Over $262,500 but $18,512.00 plus 8.25% of

not over $337,500 excess over $262,500

Over $337,500 but $24,699.00 plus 9.00% of

not over $412,500 excess over $337,500

Over $412,500 but $31,449.00 plus 10.00% of

not over $487,500 excess over $412,500

Over $487,500 $38,949.00 plus 11.00% of

excess over $487,500.

In the case of any taxable year beginning after December 31, 2026:

If the taxable income is: The tax shall be:

Not over $21,600 1.40% of taxable income

Over $21,600 but $302.00 plus 3.20% of

not over $28,800 excess over $21,600

Over $28,800 but $533.00 plus 5.50% of

not over $36,000 excess over $28,800

Over $36,000 but $929.00 plus 6.40% of

not over $54,000 excess over $36,000

Over $54,000 but $2,081.00 plus 6.80% of

not over $72,000 excess over $54,000

Over $72,000 but $3,305.00 plus 7.20% of

not over $187,500 excess over $72,000

Over $187,500 but $11,621.00 plus 7.60% of

not over $262,500 excess over $187,500

[Over $262,500 but $17,321.00 plus 7.90% of

not over $337,500 excess over $262,500

Over $337,500 but $23,246.00 plus 8.25% of

not over $412,500 excess over $337,500

Over $412,500 but $29,433.00 plus 9.00% of

not over $487,500 excess over $412,500

Over $487,500 but $36,183.00 plus 10.00% of

not over $600,000 excess over $487,500

Over $600,000 $47,433.00 plus 11.00% of

excess over $600,000.]

Over $262,500 but $17,321.00 plus 8.25% of

not over $337,500 excess over $262,500

Over $337,500 but $23,508.00 plus 9.00% of

not over $412,500 excess over $337,500

Over $412,500 but $30,258.00 plus 10.00% of

not over $487,500 excess over $412,500

Over $487,500 $37,758.00 plus 11.00% of

excess over $487,500.

In the case of any taxable year beginning after December 31, 2028:

If the taxable income is: The tax shall be:

Not over $28,800 1.40% of taxable income

Over $28,800 but $403.00 plus 3.20% of

not over $36,000 excess over $28,800

Over $36,000 but $634.00 plus 5.50% of

not over $54,000 excess over $36,000

Over $54,000 but $1,624.00 plus 6.40% of

not over $72,000 excess over $54,000

Over $72,000 but $2,776.00 plus 6.80% of

not over $187,500 excess over $72,000

Over $187,500 but $10,630.00 plus 7.20% of

not over $262,500 excess over $187,500

[Over $262,500 but $16,030.00 plus 7.60% of

not over $337,500 excess over $262,500

Over $337,500 but $21,730.00 plus 7.90% of

not over $412,500 excess over $337,500

Over $412,500 but $27,655.00 plus 8.25% of

not over $487,500 excess over $412,500

Over $487,500 but $33,842.00 plus 9.00% of

not over $600,000 excess over $487,500

Over $600,000 but $43,967.00 plus 10.00% of

not over $712,500 excess over $600,000

Over $712,500 $55,217.00 plus 11.00% of

excess over $712,500.]

Over $262,500 but $16,030.00 plus 8.25% of

not over $337,500 excess over $262,500

Over $337,500 but $22,217.00 plus 9.00% of

not over $412,500 excess over $337,500

Over $412,500 but $28,967.00 plus 10.00% of

not over $487,500 excess over $412,500

Over $487,500 $36,467.00 plus 11.00% of

excess over $487,500.

(c) There is hereby imposed on the taxable income of (1) every unmarried individual (other than a surviving spouse, or the head of a household) and (2) on the taxable income of every married individual who does not make a single return jointly with the individual's spouse under section 235-93 a tax determined in accordance with the following table:

In the case of any taxable year beginning after December 31, 2017:

If the taxable income is: The tax shall be:

Not over $2,400 1.40% of taxable income

Over $2,400 but $34.00 plus 3.20% of

not over $4,800 excess over $2,400

Over $4,800 but $110.00 plus 5.50% of

not over $9,600 excess over $4,800

Over $9,600 but $374.00 plus 6.40% of

not over $14,400 excess over $9,600

Over $14,400 but $682.00 plus 6.80% of

not over $19,200 excess over $14,400

Over $19,200 but $1,008.00 plus 7.20% of

not over $24,000 excess over $19,200

Over $24,000 but $1,354.00 plus 7.60% of

not over $36,000 excess over $24,000

Over $36,000 but $2,266.00 plus 7.90% of

not over $48,000 excess over $36,000

Over $48,000 but $3,214.00 plus 8.25% of

not over $150,000 excess over $48,000

Over $150,000 but $11,629.00 plus 9.00% of

not over $175,000 excess over $150,000

Over $175,000 but $13,879.00 plus 10.00% of

not over $200,000 excess over $175,000

Over $200,000 $16,379.00 plus 11.00% of

excess over $200,000.

In the case of any taxable year beginning after December 31, 2024:

If the taxable income is: The tax shall be:

Not over $9,600 1.40% of taxable income

Over $9,600 but $134.00 plus 3.20% of

not over $14,400 excess over $9,600

Over $14,400 but $288.00 plus 5.50% of

not over $19,200 excess over $14,400

Over $19,200 but $552.00 plus 6.40% of

not over $24,000 excess over $19,200

Over $24,000 but $859.00 plus 6.80% of

not over $36,000 excess over $24,000

Over $36,000 but $1,675.00 plus 7.20% of

not over $48,000 excess over $36,000

Over $48,000 but $2,539.00 plus 7.60% of

not over $125,000 excess over $48,000

Over $125,000 but $8,391.00 plus 7.90% of

not over $175,000 excess over $125,000

Over $175,000 but $12,341.00 plus 8.25% of

not over $225,000 excess over $175,000

Over $225,000 but $16,466.00 plus 9.00% of

not over $275,000 excess over $225,000

Over $275,000 but $20,966.00 plus 10.00% of

not over $325,000 excess over $275,000

Over $325,000 $25,966.00 plus 11.00% of

excess over $325,000.

In the case of any taxable year beginning after December 31, 2026:

If the taxable income is: The tax shall be:

Not over $14,400 1.40% of taxable income

Over $14,400 but $202.00 plus 3.20% of

not over $19,200 excess over $14,400

Over $19,200 but $355.00 plus 5.50% of

not over $24,000 excess over $19,200

Over $24,000 but $619.00 plus 6.40% of

not over $36,000 excess over $24,000

Over $36,000 but $1,387.00 plus 6.80% of

not over $48,000 excess over $36,000

Over $48,000 but $2,203.00 plus 7.20% of

not over $125,000 excess over $48,000

Over $125,000 but $7,747.00 plus 7.60% of

not over $175,000 excess over $125,000

[Over $175,000 but $11,547.00 plus 7.90% of

not over $225,000 excess over $175,000

Over $225,000 but $15,497.00 plus 8.25% of

not over $275,000 excess over $225,000

Over $275,000 but $19,622.00 plus 9.00% of

not over $325,000 excess over $275,000

Over $325,000 but $24,122.00 plus 10.00% of

not over $400,000 excess over $325,000

Over $400,000 $31,622.00 plus 11.00% of

excess over $400,000.]

Over $175,000 but $11,547.00 plus 8.25% of

not over $225,000 excess over $175,000

Over $225,000 but $15,672.00 plus 9.00% of

not over $275,000 excess over $225,000

Over $275,000 but $20,172.00 plus 10.00% of

not over $325,000 excess over $275,000

Over $325,000 $25,172.00 plus 11.00% of

excess over $325,000.

In the case of any taxable year beginning after December 31, 2028:

If the taxable income is: The tax shall be:

Not over $19,200 1.40% of taxable income

Over $19,200 but $269.00 plus 3.20% of

not over $24,000 excess over $19,200

Over $24,000 but $422.00 plus 5.50% of

not over $36,000 excess over $24,000

Over $36,000 but $1,082.00 plus 6.40% of

not over $48,000 excess over $36,000

Over $48,000 but $1,850.00 plus 6.80% of

not over $125,000 excess over $48,000

Over $125,000 but $7,086.00 plus 7.20% of

not over $175,000 excess over $125,000

[Over $175,000 but $10,686.00 plus 7.60% of

not over $225,000 excess over $175,000

Over $225,000 but $14,486.00 plus 7.90% of

not over $275,000 excess over $225,000

Over $275,000 but $18,436.00 plus 8.25% of

not over $325,000 excess over $275,000

Over $325,000 but $22,561.00 plus 9.00% of

not over $400,000 excess over $325,000

Over $400,000 but $29,311.00 plus 10.00% of

not over $475,000 excess over $400,000

Over $475,000 $36,811.00 plus 11.00% of

excess over $475,000.]

Over $175,000 but $10,686.00 plus 8.25% of

not over $225,000 excess over $175,000

Over $225,000 but $14,811.00 plus 9.00% of

not over $275,000 excess over $225,000

Over $275,000 but $19,311.00 plus 10.00% of

not over $325,000 excess over $275,000

Over $325,000 $24,311.00 plus 11.00% of

excess over $325,000."

SECTION 2. Section 235-55.6, Hawaii Revised Statutes, is amended to read as follows:

"§235-55.6 Expenses for household and dependent care services necessary for gainful employment. (a) Allowance of credit.

(1) In general. For each resident taxpayer, who files an individual income tax return for a taxable year, and who is not claimed or is not otherwise eligible to be claimed as a dependent by another taxpayer for federal or Hawaii state individual income tax purposes, who maintains a household which includes as a member one or more qualifying individuals (as defined in subsection (b)(1)), there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the applicable percentage of the employment-related expenses (as defined in subsection (b)(2)) paid by the individual during the taxable year. If the tax credit claimed by a resident taxpayer exceeds the amount of income tax payment due from the resident taxpayer, the excess of the credit over payments due shall be refunded to the resident taxpayer; provided that tax credit properly claimed by a resident individual who has no income tax liability shall be paid to the resident individual; and provided further that no refunds or payment on account of the tax credit allowed by this section shall be made for amounts less than $1.

(2) Applicable percentage. For purposes of paragraph (1), the taxpayer's applicable percentage shall be [determined as follows:

Adjusted gross income Applicable percentage

Not over $25,000 25%

Over $25,000 but 24%

not over $30,000

Over $30,000 but 23%

not over $35,000

Over $35,000 but 22%

not over $40,000

Over $40,000 but 21%

not over $45,000

Over $45,000 but 20%

not over $50,000

Over $50,000 15%.]

equal to per cent reduced by one percentage point for each $3,000, or fraction thereof, by which the taxpayer's adjusted gross income exceeds $          ; provided that the applicable percentage shall not be reduced below fifteen per cent.

(b) Definitions of qualifying individual and employment-related expenses. For purposes of this section:

(1) Qualifying individual. The term "qualifying individual" means:

(A) A dependent of the taxpayer who is under the age of thirteen and with respect to whom the taxpayer is entitled to a deduction under section 235‑54(a),

(B) A dependent of the taxpayer who is physically or mentally incapable of caring for oneself, or

(C) The spouse of the taxpayer, if the spouse is physically or mentally incapable of caring for oneself.

(2) Employment-related expenses.

(A) In general. The term "employment-related expenses" means amounts paid for the following expenses, but only if such expenses are incurred to enable the taxpayer to be gainfully employed for any period for which there are one or more qualifying individuals with respect to the taxpayer:

(i) Expenses for household services, and

(ii) Expenses for the care of a qualifying individual.

Such term shall not include any amount paid for services outside the taxpayer's household at a camp where the qualifying individual stays overnight.

(B) Exception. Employment-related expenses described in subparagraph (A) which are incurred for services outside the taxpayer's household shall be taken into account only if incurred for the care of:

(i) A qualifying individual described in paragraph (1)(A), or

(ii) A qualifying individual (not described in paragraph (1)(A)) who regularly spends at least eight hours each day in the taxpayer's household.

(C) Dependent care centers. Employment-related expenses described in subparagraph (A) which are incurred for services provided outside the taxpayer's household by a dependent care center (as defined in subparagraph (D)) shall be taken into account only if:

(i) Such center complies with all applicable laws, rules, and regulations of this State, if the center is located within the jurisdiction of this State; or

(ii) Such center complies with all applicable laws, rules, and regulations of the jurisdiction in which the center is located, if the center is located outside the State; and

(iii) The requirements of subparagraph (B) are met.

(D) Dependent care center defined. For purposes of this paragraph, the term "dependent care center" means any facility which:

(i) Provides care for more than six individuals (other than individuals who reside at the facility), and

(ii) Receives a fee, payment, or grant for providing services for any of the individuals (regardless of whether such facility is operated for profit).

(c) Dollar limit on amount creditable. The amount of the employment-related expenses incurred during any taxable year which may be taken into account under subsection (a) shall not exceed:

(1) $10,000 if there is one qualifying individual with respect to the taxpayer for such taxable year, or

(2) $20,000 if there are two or more qualifying individuals with respect to the taxpayer for such taxable year.

The amount determined under paragraph (1) or (2) (whichever is applicable) shall be reduced by the aggregate amount excludable from gross income under section 129 (with respect to dependent care assistance programs) of the Internal Revenue Code for the taxable year.

(d) Earned income limitation.

(1) In general. Except as otherwise provided in this subsection, the amount of the employment-related expenses incurred during any taxable year which may be taken into account under subsection (a) shall not exceed:

(A) In the case of an individual who is not married at the close of such year, such individual's earned income for such year, or

(B) In the case of an individual who is married at the close of such year, the lesser of such individual's earned income or the earned income of the individual's spouse for such year.

(2) Special rule for spouse who is a student or incapable of caring for oneself. In the case of a spouse who is a student or a qualified individual described in subsection (b)(1)(C), for purposes of paragraph (1), such spouse shall be deemed for each month during which such spouse is a full-time student at an educational institution, or is such a qualifying individual, to be gainfully employed and to have earned income of not less than:

(A) $200 if subsection (c)(1) applies for the taxable year, or

(B) $400 if subsection (c)(2) applies for the taxable year.

In the case of any husband and wife, this paragraph shall apply with respect to only one spouse for any one month.

(e) Special rules. For purposes of this section:

(1) Maintaining household. An individual shall be treated as maintaining a household for any period only if over half the cost of maintaining the household for the period is furnished by the individual (or, if the individual is married during the period, is furnished by the individual and the individual's spouse).

(2) Married couples must file joint return. If the taxpayer is married at the close of the taxable year, the credit shall be allowed under subsection (a) only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year.

(3) Marital status. An individual legally separated from the individual's spouse under a decree of divorce or of separate maintenance shall not be considered as married.

(4) Certain married individuals living apart. If:

(A) An individual who is married and who files a separate return:

(i) Maintains as the individual's home a household that constitutes for more than one-half of the taxable year the principal place of abode of a qualifying individual, and

(ii) Furnishes over half of the cost of maintaining the household during the taxable year, and

(B) During the last six months of the taxable year the individual's spouse is not a member of the household, the individual shall not be considered as married.

(5) Special dependency test in case of divorced parents, etc. If:

(A) Paragraph (2) or (4) of section 152(e) of the Internal Revenue Code of 1986, as amended, applies to any child with respect to any calendar year, and

(B) The child is under age thirteen or is physically or mentally incompetent of caring for the child's self,

in the case of any taxable year beginning in the calendar year, the child shall be treated as a qualifying individual described in subsection (b)(1)(A) or (B) (whichever is appropriate) with respect to the custodial parent (within the meaning of section 152(e)(1) of the Internal Revenue Code of 1986, as amended), and shall not be treated as a qualifying individual with respect to the noncustodial parent.

(6) Payments to related individuals. No credit shall be allowed under subsection (a) for any amount paid by the taxpayer to an individual:

(A) With respect to whom, for the taxable year, a deduction under section 151(c) of the Internal Revenue Code of 1986, as amended (relating to deduction for personal exemptions for dependents) is allowable either to the taxpayer or the taxpayer's spouse, or

(B) Who is a child of the taxpayer (within the meaning of section 151(c)(3) of the Internal Revenue Code of 1986, as amended) who has not attained the age of nineteen at the close of the taxable year.

For purposes of this paragraph, the term "taxable year" means the taxable year of the taxpayer in which the service is performed.

(7) Student. The term "student" means an individual who, during each of five calendar months during the taxable year, is a full-time student at an educational organization.

(8) Educational organization. The term "educational organization" means a school operated by the department of education under chapter 302A, an educational organization described in section 170(b)(1)(A)(ii) of the Internal Revenue Code of 1986, as amended, or a university, college, or community college.

(9) Identifying information required with respect to service provider. No credit shall be allowed under subsection (a) for any amount paid to any person unless:

(A) The name, address, taxpayer identification number, and general excise tax license number of the person are included on the return claiming the credit,

(B) If the person is located outside the State, the name, address, and taxpayer identification number, if any, of the person and a statement indicating that the service provider is located outside the State and that the general excise tax license and, if applicable, the taxpayer identification numbers are not required, or

(C) If the person is an organization described in section 501(c)(3) of the Internal Revenue Code and exempt from tax under section 501(a) of the Internal Revenue Code, the name and address of the person are included on the return claiming the credit.

In the case of a failure to provide the information required under the preceding sentence, the preceding sentence shall not apply if it is shown that the taxpayer exercised due diligence in attempting to provide the information so required.

(f) No credit shall be allowed under this section for any taxable year in the disallowance period. For purposes of this subsection, the disallowance period is:

(1) The period of ten taxable years after the most recent taxable year for which there was a final administrative or judicial decision that the taxpayer's claim for credit under this section was due to fraud; and

(2) The period of two taxable years after the most recent taxable year for which there was a final administrative or judicial decision disallowing the taxpayer's claim for credit.

[(f)] (g) Rules. The director of taxation shall prescribe such rules under chapter 91 as may be necessary to carry out the purposes of this section.

(h) As used in this section, "adjusted gross income" means adjusted gross income as defined by the Internal Revenue Code of 1986, as amended."

SECTION 3. Act 163, Session Laws of Hawaii 2023, is amended by amending section 5 to read as follows:

"SECTION 5. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2022; provided that on December 31, [2027,] , this Act shall be repealed and sections 235‑55.6(c), 235-55.75(a), and 235-55.85(b), Hawaii Revised Statutes, shall be reenacted in the form in which they read on the day prior to the effective date of this Act."

PART II

SECTION 4. Section 235-12.5, Hawaii Revised Statutes, is repealed.

["§235-12.5 Renewable energy technologies; income tax credit. (a) Each individual or corporate taxpayer that files an individual or corporate net income tax return for a taxable year may claim a tax credit under this section against the Hawaii state individual or corporate net income tax. The tax credit may be claimed for every eligible renewable energy technology system that is installed and placed in service in the State by a taxpayer during the taxable year. The tax credit may be claimed as follows:

(1) For each solar energy system: thirty-five per cent of the actual cost or the cap amount determined in subsection (b); provided that:

(A) For taxable years beginning after December 31, 2019, and except as provided in subparagraphs (B) and (C), no tax credit may be claimed for a solar energy system that is five megawatts in total output capacity or larger and requires a power purchase agreement approved by the public utilities commission;

(B) A solar energy system that is five megawatts in total output capacity or larger, installed and placed in service pursuant to a power purchase agreement approved or pending approval by a decision and order by the public utilities commission prior to December 31, 2019, shall continue to receive a tax credit equal to thirty-five per cent of the actual cost, or $500,000 per solar energy system that has a total output capacity of at least one thousand kilowatts per system of direct current, whichever is less; and

(C) For each solar energy system integrated with a pumped hydroelectric energy storage system, the tax credit may be claimed for thirty-five per cent of the actual cost or the cap amount determined in subsection (b), whichever is less; provided that applicable project approval filings have been made to the public utilities commission by December 31, 2021; or

(2) For each wind-powered energy system: twenty per cent of the actual cost or the cap amount determined in subsection (b), whichever is less;

provided further that multiple owners of a single system shall be entitled to a single tax credit; and provided further that the tax credit shall be apportioned between the owners in proportion to their contribution to the cost of the system.

In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for every eligible renewable energy technology system that is installed and placed in service in the State by the entity. The cost upon which the tax credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined pursuant to administrative rule.

(b) The amount of credit allowed for each eligible renewable energy technology system shall not exceed the applicable cap amount, which is determined as follows:

(1) If the primary purpose of the solar energy system is to use energy from the sun to heat water for household use, then the cap amounts shall be:

(A) $2,250 per system for single-family residential property;

(B) $350 per unit per system for multi-family residential property; and

(C) $250,000 per system for commercial property;

(2) For all other solar energy systems, the cap amounts shall be:

(A) $5,000 per system for single-family residential property; provided that if all or a portion of the system is used to fulfill the substitute renewable energy technology requirement pursuant to section 196-6.5(a)(3), the credit shall be reduced by thirty-five per cent of the actual system cost or $2,250, whichever is less;

(B) $350 per unit per system for multi-family residential property; and

(C) $500,000 per system for commercial property; and

(3) For all wind-powered energy systems, the cap amounts shall be:

(A) $1,500 per system for single-family residential property; provided that if all or a portion of the system is used to fulfill the substitute renewable energy technology requirement pursuant to section 196-6.5(a)(3), the credit shall be reduced by twenty per cent of the actual system cost or $1,500, whichever is less;

(B) $200 per unit per system for multi-family residential property; and

(C) $500,000 per system for commercial property.

(c) For the purposes of this section:

"Actual cost" means costs related to the renewable energy technology systems under subsection (a), including accessories and installation, but not including the cost of consumer incentive premiums unrelated to the operation of the system or offered with the sale of the system and costs for which another credit is claimed under this chapter.

"Household use" means any use to which heated water is commonly put in a residential setting, including commercial application of those uses.

"Renewable energy technology system" means a new system that captures and converts a renewable source of energy, such as solar or wind energy, into:

(1) A usable source of thermal or mechanical energy;

(2) Electricity; or

(3) Fuel.

"Solar or wind energy system" means any identifiable facility, equipment, apparatus, or the like that converts solar or wind energy to useful thermal or electrical energy for heating, cooling, or reducing the use of other types of energy that are dependent upon fossil fuel for their generation.

(d) For taxable years beginning after December 31, 2005, the dollar amount of any utility rebate shall be deducted from the cost of the qualifying system and its installation before applying the state tax credit.

(e) The director of taxation shall prepare any forms that may be necessary to claim a tax credit under this section, including forms identifying the technology type of each tax credit claimed under this section, whether for solar or wind. The director may also require the taxpayer to furnish reasonable information to ascertain the validity of the claim for credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.

(f) 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, unless otherwise elected by the taxpayer pursuant to subsection (g) or (h). 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 this subsection shall constitute a waiver of the right to claim the credit.

(g) For solar energy systems, a taxpayer may elect to reduce the eligible credit amount by thirty per cent and if this reduced amount exceeds the amount of income tax payment due from the taxpayer, the excess of the credit amount over payments due shall be refunded to the taxpayer; provided that tax credit amounts properly claimed by a taxpayer who has no income tax liability shall be paid to the taxpayer; and provided further that no refund on account of the tax credit allowed by this section shall be made for amounts less than $1.

The election required by this subsection shall be made in a manner prescribed by the director on the taxpayer's return for the taxable year in which the system is installed and placed in service. A separate election may be made for each separate system that generates a credit. An election once made is irrevocable.

(h) Notwithstanding subsection (g), for any renewable energy technology system, an individual taxpayer may elect to have any excess of the credit over payments due refunded to the taxpayer, if:

(1) All of the taxpayer's income is exempt from taxation under section 235-7(a)(2) or (3); or

(2) The taxpayer's adjusted gross income is $20,000 or less (or $40,000 or less if filing a tax return as married filing jointly);

provided that tax credits properly claimed by a taxpayer who has no income tax liability shall be paid to the taxpayer; and provided further that no refund on account of the tax credit allowed by this section shall be made for amounts less than $1.

A husband and wife who do not file a joint tax return shall only be entitled to make this election to the extent that they would have been entitled to make the election had they filed a joint tax return.

The election required by this subsection shall be made in a manner prescribed by the director on the taxpayer's return for the taxable year in which the system is installed and placed in service. A separate election may be made for each separate system that generates a credit. An election once made is irrevocable.

(i) No taxpayer shall be allowed a credit under this section for the portion of the renewable energy technology system required by section 196-6.5 that is installed and placed in service on any newly constructed single-family residential property authorized by a building permit issued on or after January 1, 2010.

(j) To the extent feasible, using existing resources to assist the energy-efficiency policy review and evaluation, the department shall assist with data collection on the following for each taxable year:

(1) The number of renewable energy technology systems that have qualified for a tax credit during the calendar year by:

(A) Technology type; and

(B) Taxpayer type (corporate and individual); and

(2) The total cost of the tax credit to the State during the taxable year by:

(A) Technology type; and

(B) Taxpayer type.

(k) This section shall apply to eligible renewable energy technology systems that are installed and placed in service on or after July 1, 2009."]

SECTION 5. Section 235-110.7, Hawaii Revised Statutes, is repealed.

["§235-110.7 Capital goods excise tax credit. (a) There shall be allowed to each taxpayer subject to the tax imposed by this chapter a capital goods excise tax credit, which 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 four per cent of the cost of the eligible depreciable tangible personal property used by the taxpayer in a trade or business and placed in service within Hawaii after December 31, 2009.

In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for eligible depreciable tangible personal property that is placed in service by the entity. 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 rules.

In the case of eligible depreciable tangible personal property for which a credit for sales or use taxes paid to another state is allowable under section 238-3(i), the amount of the tax credit allowed under this section shall not exceed the amount of use tax actually paid under chapter 238 relating to the tangible personal property.

If a deduction is taken under section 179 (with respect to election to expense certain depreciable business assets) of the Internal Revenue Code of 1954, as amended, no tax credit shall be allowed for that portion of the cost of property for which the deduction was taken.

(b) If the capital goods excise tax credit allowed under subsection (a) exceeds the taxpayer's net income tax liability, the excess of credit over liability shall be refunded to the taxpayer; provided that no refunds or payment on account of the tax credit allowed by this section shall be made for amounts less than $1.

All claims for tax credits under this section, including any amended claims, must be filed on or before the end of the twelfth month following the close of the taxable year for which the credits may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(c) Application for the capital goods excise tax credit shall be upon forms provided by the department of taxation.

(d) Sections 47 (with respect to dispositions of section 38 property and the recapture percentages) of the Internal Revenue Code of 1954, as amended, as of December 31, 1984, and 280F as operative for this chapter (with respect to limitation on investment tax credit and depreciation for luxury automobiles; limitation where certain property used for personal purposes) of the Internal Revenue Code of 1954, as amended, shall be operative for purposes of this section.

(e) As used in this section, the definition of section 38 property (with respect to investment in depreciable tangible personal property) as defined by section 48(a)(1)(A), (a)(1)(B), (a)(3), (a)(4), (a)(7), (a)(8), (a)(10)(A), (b), (c), (f), (l), (m), and (s) of the Internal Revenue Code of 1954, as amended as of December 31, 1984, is operative for the purposes of this section only.

(f) As used in this section:

"Cost" means the:

(1) Actual invoice price of the tangible personal property; or

(2) Basis from which depreciation is taken under section 167 (with respect to depreciation) or from which a deduction may be taken under section 168 (with respect to accelerated cost recovery system) of the Internal Revenue Code of 1954, as amended,

whichever is less.

"Eligible depreciable tangible personal property" is section 38 property as defined by the operative provisions of section 48 and having a depreciable life under section 167 or for which a deduction may be taken under section 168 of the Internal Revenue Code of 1954, as amended.

"Placed in service" means the earliest of the following taxable years:

(1) The taxable year in which, under the:

(A) Taxpayer's depreciation practice, the period for depreciation; or

(B) Accelerated cost recovery system, a claim for recovery allowances,

with respect to the property begins; or

(2) The taxable year in which the property is placed in a condition or state of readiness and availability for a specifically assigned function.

"Purchase" means an acquisition of property.

"Tangible personal property" means tangible personal property that is placed in service within Hawaii after December 31, 1987, and the purchase or importation of which resulted in a transaction that was subject to the imposition and payment of tax at the rate of four per cent under chapter 237 or 238. "Tangible personal property" does not include tangible personal property that is an integral part of a building or structure or tangible personal property used in a foreign-trade zone, as defined under chapter 212."]

SECTION 6. Section 235-110.9, Hawaii Revised Statutes, is repealed.

["§235-110.9 High technology business investment tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter a high technology business 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 and the following four years provided the credit is properly claimed. The tax credit shall be as follows:

(1) In the year the investment was made, thirty-five per cent;

(2) In the first year following the year in which the investment was made, twenty-five per cent;

(3) In the second year following the investment, twenty per cent;

(4) In the third year following the investment, ten per cent; and

(5) In the fourth year following the investment, ten per cent;

of the investment made by the taxpayer in each qualified high technology business, up to a maximum allowed credit in the year the investment was made, $700,000; in the first year following the year in which the investment was made, $500,000; in the second year following the year in which the investment was made, $400,000; in the third year following the year in which the investment was made, $200,000; and in the fourth year following the year in which the investment was made, $200,000.

(b) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year. For the purpose of this section, "net income tax liability" means net income tax liability reduced by all other credits allowed under this chapter.

(c) If the tax credit under this section exceeds the taxpayer's income tax liability for any of the five years that the credit is taken, the excess of the tax credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. Every claim, including amended claims, for a tax credit under this section 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) If at the close of any taxable year in the five-year period in subsection (a):

(1) The business no longer qualifies as a qualified high technology business;

(2) The business or an interest in the business has been sold by the taxpayer investing in the qualified high technology business; or

(3) The taxpayer has withdrawn the taxpayer's investment wholly or partially from the qualified high technology business;

the credit claimed under this section shall be recaptured. The recapture shall be equal to ten per cent of the amount of the total tax credit claimed under this section in the preceding two taxable years. The amount of the credit recaptured shall apply only to the investment in the particular qualified high technology business that meets the requirements of paragraph (1), (2), or (3). The recapture provisions of this subsection shall not apply to a tax credit claimed for a qualified high technology business that does not fall within the provisions of paragraph (1), (2), or (3). The amount of the recaptured tax credit determined under this subsection shall be added to the taxpayer's tax liability for the taxable year in which the recapture occurs under this subsection.

(e) Every taxpayer, before March 31 of each year in which an investment in a qualified high technology business was made in the previous taxable year, shall submit a written, certified statement to the director of taxation identifying:

(1) Qualified investments, if any, expended in the previous taxable year; and

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

(f) The department shall:

(1) Maintain records of the names and addresses of the taxpayers claiming the credits under this section and the total amount of the qualified investment costs upon which the tax credit is based;

(2) Verify the nature and amount of the qualifying investments;

(3) Total all qualifying and cumulative investments that the department certifies; and

(4) Certify the amount of the tax credit for each taxable year and cumulative amount of the tax credit.

Upon each determination made under this subsection, the department shall issue a certificate to the taxpayer verifying information submitted to the department, including qualifying investment amounts, the credit amount certified for each taxable year, and the cumulative amount of the tax credit during the credit period. The taxpayer shall file the certificate with the taxpayer's tax return with the department.

The director of taxation may assess and collect a fee to offset the costs of certifying tax credits claims under this section. All fees collected under this section shall be deposited into the tax administration special fund established under section 235-20.5.

(g) As used in this section:

"Investment tax credit allocation ratio" means, with respect to a taxpayer that has made an investment in a qualified high technology business, the ratio of:

(1) The amount of the credit under this section that is, or is to be, received by or allocated to the taxpayer over the life of the investment, as a result of the investment; to

(2) The amount of the investment in the qualified high technology business.

"Qualified high technology business" means a business, employing or owning capital or property, or maintaining an office, in this State; provided that:

(1) More than fifty per cent of its total business activities are qualified research; and provided further that the business conducts more than seventy-five per cent of its qualified research in this State; or

(2) More than seventy-five per cent of its gross income is derived from qualified research; and provided further that this income is received from:

(A) Products sold from, manufactured in, or produced in this State; or

(B) Services performed in this State.

"Qualified research" means the same as defined in section 235-7.3.

(h) Common law principles, including the doctrine of economic substance and business purpose, shall apply to any investment. There exists a presumption that a transaction satisfies the doctrine of economic substance and business purpose to the extent that the special allocation of the high technology business tax credit has an investment tax credit ratio of 1.5 or less of credit for every dollar invested.

Transactions for which an investment tax credit allocation ratio greater than 1.5 but not more than 2.0 of credit for every dollar invested and claimed may be reviewed by the department for applicable doctrines of economic substance and business purpose.

Businesses claiming a tax credit for transactions with investment tax credit allocation ratios greater than 2.0 of credit for every dollar invested shall substantiate economic merit and business purpose consistent with this section.

(i) For investments made on or after May 1, 2009, notwithstanding any other law to the contrary, no allocations, special or otherwise, of credits under this section may exceed the amount of the investment made by the taxpayer ultimately claiming this credit; and investment tax credit allocation ratios greater than 1.0 of credit for every dollar invested shall not be allowed. In addition, the credit shall be allowed only in accordance with subsection (a).

(j) This section shall not apply to taxable years beginning after December 31, 2010."]

SECTION 7. Section 235-110.32, Hawaii Revised Statutes, is repealed.

["[§235-110.32] Renewable fuels production tax credit. (a) Each year during the credit period, there shall be allowed to each taxpayer subject to the taxes imposed by this chapter a renewable fuels production tax credit that shall be applied to 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 producing renewable fuels, the annual dollar amount of the renewable fuels production tax credit during the ten-year credit period shall be equal to 20 cents per seventy-six thousand British thermal units of renewable fuels using the lower heating value sold for distribution in the State; provided that the taxpayer's production of renewable fuels is not less than two billion five hundred million British thermal units of renewable fuels per calendar year; provided further that the amount of the tax credit claimed under this section by a taxpayer shall not exceed $3,500,000 per taxable year; provided further that the tax credit shall only be claimed for fuels with lifecycle emissions below that of fossil fuels. No other tax credit may be claimed under this chapter for the costs incurred to produce the renewable fuels that are used to properly claim a tax credit under this section for the taxable year.

Each taxpayer, together with all of its related entities as determined under section 267(b) of the Internal Revenue Code and all business entities under common control, as determined under sections 414(b), 414(c), and 1563(a) of the Internal Revenue Code, shall not be eligible for more than a single ten-year credit period.

(b) In the case of a partnership, S corporation, estate, or trust, distribution and share of the renewable fuels production tax credit shall be determined pursuant to section 704(b) (with respect to a partner's distributive share) of the Internal Revenue Code of 1986, as amended. For a fiscal year taxpayer, the taxpayer shall report the credit in the taxable year in which the calendar year end is included.

(c) No later than thirty days following the close of the calendar year, every taxpayer claiming a credit under this section shall complete and file an independent, third-party certified statement, at the taxpayer's sole expense, with and in the form prescribed by the Hawaii state energy office, providing the following information:

(1) The type, quantity, and British thermal unit value, using the lower heating value, of each qualified fuel, broken down by the type of fuel, produced and sold during the previous calendar year;

(2) The feedstock used for each type of qualified fuel;

(3) The proposed total amount of credit to which the taxpayer is entitled for each calendar year and the cumulative amount of the tax credit the taxpayer received during the credit period;

(4) The number of full-time and number of part-time employees of the facility and those employees' states of residency, totaled per state;

(5) The number and location of all renewable fuel production facilities within and outside of the State; and

(6) The lifecycle greenhouse gas emissions per British thermal units for each type of qualified fuel produced.

(d) Within thirty calendar days after the due date of the statement required under subsection (c), the Hawaii state energy office shall:

(1) Acknowledge, in writing, receipt of the statement;

(2) Issue a certificate to the taxpayer reporting the amount of renewable fuels produced and sold, the amount of credit that the taxpayer is entitled to claim for the previous calendar year, and the cumulative amount of the tax credit during the credit period; and

(3) Provide the taxpayer with a determination of whether the lifecycle greenhouse gas emissions for each type of qualified fuel produced is lower than that of fossil fuels.

(e) The taxpayer shall file the certificate issued under subsection (d) 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.

(f) The total amount of tax credits allowed under this section shall not exceed $20,000,000 for all eligible taxpayers in any calendar year. In the event that the credit claims under this section exceed $20,000,000 for all eligible taxpayers in any given calendar year, the $20,000,000 shall be divided between all eligible taxpayers for that year in proportion to the total amount of renewable fuels produced by all eligible taxpayers. Upon reaching $20,000,000 in the aggregate, the Hawaii state energy office shall immediately discontinue issuing certificates and notify the department of taxation. In no instance shall the total dollar amount of certificates issued exceed $20,000,000 per calendar year.

(g) Notwithstanding any other law to the contrary, the information collected and compiled by the Hawaii state energy office under subsections (c) and (d) for the purposes of the renewable fuels production tax credit shall be available for public inspection and dissemination, subject to chapter 92F.

(h) If the credit under this section exceeds the taxpayer's net income tax liability, the excess of the credit over liability may be used as a credit against the taxpayer's net income tax liability in subsequent years until exhausted, unless otherwise elected by the taxpayer pursuant to subsections (i) or (j). All claims for a credit 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 the foregoing provision or to provide the certified statement required under subsection (c) shall constitute a waiver of the right to claim the credit.

(i) A taxpayer may elect to reduce the eligible credit amount by thirty per cent and if this reduced amount exceeds the amount of income tax payment due from the taxpayer, the excess of the credit amount over payments due shall be refunded to the taxpayer; provided that tax credit amounts properly claimed by a taxpayer who has no income tax liability shall be paid to the taxpayer; provided further that no refund on account of the tax credit allowed by this section shall be made for amounts less than $1.

The election required by this subsection shall be made in a manner prescribed by the director on the taxpayer's return for the taxable year in which the credit is claimed. An election once made is irrevocable.

(j) Notwithstanding subsection (i), an individual taxpayer may elect to have any excess of the credit over payments due refunded to the taxpayer, if:

(1) All of the taxpayer's income is exempt from taxation under section 235-7(a)(2) or (3); or

(2) The taxpayer's adjusted gross income is $20,000 or less (or $40,000 or less if filing a tax return as married filing jointly);

provided that tax credits properly claimed by a taxpayer who has no income tax liability shall be paid to the taxpayer; provided further that no refund on account of the tax credit allowed by this section shall be made for amounts less than $1.

A married couple who does not file a joint tax return shall only be entitled to make this election to the extent that they would have been entitled to make the election had they filed a joint tax return.

The election required by this subsection shall be made in a manner prescribed by the director on the taxpayer's return for the taxable year in which the credit is claimed. An election once made is irrevocable.

(k) Before the production of any renewable fuels for the calendar year, the taxpayer shall provide written notice of the taxpayer's intention to begin production of renewable fuels. The written notice shall be provided to the department of taxation and the Hawaii state energy office and shall include information on the taxpayer, facility location, facility production capacity, anticipated production start date, and the taxpayer's contact information. Notwithstanding any other law to the contrary, the written notice described in this subsection, including taxpayer and facility information, shall be available for public inspection and dissemination, subject to chapter 92F.

(l) The taxpayer shall provide written notice to the director of taxation and the chief energy officer of the Hawaii state energy office within thirty days following the start of production. The notice shall include the production start date and expected renewable fuels production for the next twelve months. Notwithstanding any other law to the contrary, the written notice described in this subsection shall be available for public inspection and dissemination, subject to chapter 92F.

(m) Following each calendar year in which a credit under this section has been claimed, the chief energy officer of the Hawaii state energy office shall submit a written report to the governor and legislature regarding the production and sale of renewable fuels. The report shall include:

(1) The number and location of renewable fuels production facilities in the State and outside the State that have claimed a credit under this section;

(2) The total number of British thermal units of renewable fuels, itemized by type of fuel produced and sold during the previous calendar year; and

(3) The projected number of British thermal units of renewable fuels production for the succeeding year.

(n) 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 pursuant to chapter 91 necessary to effectuate the purposes of this section.

(o) As used in this section:

"Credit period" means a maximum period of ten consecutive years, beginning from the first taxable year in which a taxpayer begins renewable fuels production at a level of at least two billion five-hundred million British thermal units of renewable fuels per calendar year.

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

"Renewable feedstocks" means:

(1) Biomass crops and other renewable organic material, including but not limited to logs, wood chips, wood pellets, and wood bark;

(2) Agricultural residue;

(3) Oil crops, including but not limited to algae, canola, jatropha, palm, soybean, and sunflower;

(4) Sugar and starch crops, including but not limited to sugar cane and cassava;

(5) Other agricultural crops;

(6) Grease and waste cooking oil;

(7) Food wastes;

(8) Municipal solid wastes and industrial wastes;

(9) Water, including wastewater; and

(10) Animal residues and wastes,

that can be used to generate energy.

"Renewable fuels" means fuels produced from renewable feedstocks; provided that the fuel:

(1) Is sold as a fuel in the State; and

(2) Meets the relevant ASTM International specifications or other industry specifications for the particular fuel, including but not limited to:

(A) Methanol, ethanol, or other alcohols;

(B) Hydrogen;

(C) Biodiesel or renewable diesel;

(D) Biogas;

(E) Other biofuels;

(F) Renewable jet fuel or renewable gasoline; or

(G) Logs, wood chips, wood pellets, or wood bark."]

SECTION 8. Section 235-110.51, Hawaii Revised Statutes, is repealed.

["§235-110.51 Technology infrastructure renovation tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter, an income tax credit which 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) The amount of the credit shall be four per cent of the renovation costs incurred during the taxable year for each commercial building located in Hawaii.

(c) In the case of a partnership, S corporation, estate, trust, or any developer of a commercial building, the tax credit allowable is for renovation costs incurred 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 pursuant to section 235-110.7(a).

(d) If a deduction is taken under section 179 (with respect to election to expense depreciable business assets) of the Internal Revenue Code, no tax credit shall be allowed for that portion of the renovation cost for which the deduction is taken.

(e) The basis of eligible property for depreciation or accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed. In the alternative, the taxpayer shall treat the amount of the credit allowable and claimed as a taxable income item for the taxable year in which it is properly recognized under the method of accounting used to compute taxable income.

(f) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year.

(g) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of credit over liability may be carried forward until exhausted.

(h) The tax credit allowed under this section shall not be available for taxable years beginning after December 31, 2010.

(i) As used in this section:

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

"Renovation costs" means costs incurred after December 31, 2000, to plan, design, install, construct, and purchase technology-enabled infrastructure equipment to provide a commercial building with technology-enabled infrastructure.

"Technology-enabled infrastructure" means:

(1) High speed telecommunications systems that provide Internet access, direct satellite communications access, and videoconferencing facilities;

(2) Physical security systems that identify and verify valid entry to secure spaces, detect invalid entry or entry attempts, and monitor activity in these spaces;

(3) Environmental systems to include heating, ventilation, air conditioning, fire detection and suppression, and other life safety systems; and

(4) Backup and emergency electric power systems.

(j) No taxpayer that claims a credit under this section shall claim any other credit under this chapter."]

SECTION 9. Section 235-110.65, Hawaii Revised Statutes, is repealed.

["[§235-110.65] Ship repair industry tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter a ship repair industry tax credit that shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter.

(b) The amount of the tax credit shall be equal to thirty per cent of the ship repair industry costs paid or incurred by the qualified entity to design and construct the purpose-built floating [drydock] to be used by the United States Navy in Pearl Harbor; provided that:

(1) A qualified entity may form a special purpose entity for the purposes of raising investor capital and claiming the credit on behalf of the qualified entity;

(2) The qualified entity, together with all of its special purpose entities, including all partners and members of the qualified entity and its special purpose entities, shall not claim any credit in any one taxable year that exceeds $6,000,000; however, if the total amount of credits applied for in any particular year exceeds the aggregate amount of credits allowed for such year under this section, the excess shall be treated as having been applied for in the subsequent year and shall be claimed in such year; provided that no excess shall be allowed to be claimed after December 31, 2026; and

(3) In no event shall a qualified entity or any of its special purpose entities or any other taxpayer claim a credit under this section prior to January 1, 2022, or after December 31, 2026.

A qualified entity shall become eligible to claim a credit under this section only after construction of the floating drydock has been completed and the floating drydock has been placed into service.

(c) In the case of an entity taxed as a partnership, credit shall be determined at the entity level, but distribution and share of the credit may be determined notwithstanding sections 704 or 706 of the Internal Revenue Code.

(d) 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 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 amended claims, for a tax credit under this section 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.

(e) The director of taxation shall prepare any forms that may be necessary to claim a credit under this section. The director may also require the taxpayer to furnish information to ascertain the validity of the claim for credit made under this section. The director of taxation may adopt rules to effectuate the purposes of this section pursuant to chapter 91.

(f) Any taxpayer claiming a tax credit under this section, within ninety days of the end of the calendar year in which the credit is properly claimable, shall submit the following information to the department of taxation:

(1) The amount of the eligible costs for which the tax credit may be claimed; and

(2) The qualified entity that incurred the costs.

Failure to timely submit the information shall be subject to a penalty of $5,000 per month or a fraction thereof, not to exceed $25,000.

(g) This section shall not apply to taxable years beginning after December 31, 2026.

(h) For the purpose of this section:

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

"Qualified entity" means an entity with the principal purpose of facilitating and enhancing the ship repair business in the State and that is involved in the design and construction of a purpose-built floating drydock to be used by the United States Navy in Pearl Harbor.

"Ship repair industry costs" means capital expenditures, as used in section 263 of the Internal Revenue Code and the regulations promulgated thereunder, or capital expenditures for real property, fixtures, structures, machinery, equipment, or capital assets that are paid or incurred in connection with the construction of a purpose-built floating drydock; provided that the ship repair industry costs shall not include amounts for which another credit is claimed or any amounts received in any form from the State."]

SECTION 10. Act 261, Session Laws of Hawaii 2019, as amended by Act 139, Session Laws of Hawaii 2024, is amended by amending section 5 to read as follows:

"SECTION 5. This Act shall take effect upon its approval; provided that:

(1) Section 2 shall apply to taxable years beginning after December 31, 2019; and

(2) Part II shall take effect on [January 1, 2030.] January 1, 2029."

PART III

SECTION 11. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 12. This Act shall take effect on July 1, 2050; provided that section 2 of this Act shall apply to taxable years beginning after December 31, 2026; provided further that on December 31, 2032, section 2 of this Act shall be repealed and section 235-55.6, Hawaii Revised Statutes, shall be reenacted in the form in which it read on the day prior to the effective date of Act 163, Session Laws of Hawaii 2023; provided further that part II shall take effect on January 1, 2029.

Report Title:

Income Tax; Income Tax Brackets; Income Tax Rates; Child and Dependent Care Tax Credit; Renewable Energy Technologies Income Tax Credit; Capital Goods Excise Tax Credit; High Technology Business Investment Tax Credit; Renewable Fuels Production Tax Credit; Technology Infrastructure Renovation Tax Credit; Ship Repair Industry Tax Credit; Tax Credit for Research Activities; Repeal

Description:

PART I: Repeals certain future adjustments to income tax brackets. Changes income tax rates. Amends the child and dependent care tax credit by: (1) Changing the applicable percentage of the employment-related expenses for which the credit may be claimed to an unspecified percentage; (2) Providing for a disallowance period when there is a final administrative or judicial decision finding that the claim was due to fraud or disallowing the credit; and (3) Defining "adjusted gross income". Extends the repeal date for amendments made by Act 163, SLH 2023 to the child and dependent care tax credit, earned income tax credit, and food/excise tax credit to an unspecified date. PART II: Beginning 1/1/2029, repeals the following tax credits: Renewable Energy Technologies Income Tax Credit, Capital Goods Excise Tax Credit, High Technology Business Investment Tax Credit, Renewable Fuels Production Tax Credit, Technology Infrastructure Renovation Tax Credit, Ship Repair Industry Tax Credit, and Tax Credit for Research Activities. Effective 7/1/2050. (SD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.