Establishes capital gains tax credit for a qualified investment; defines "qualified investment" as business related real property.

A BILL FOR AN ACT

SECTION 1. The terrorist attacks on September 11, 2001, have stunned the nation and have had far-ranging impacts that threaten to paralyze our national economy. As a result, we have experienced a dramatic decrease in air travel, which has a particularly damaging effect on Hawaii's tourism-based economy. To counteract these negative effects, this Act allows a capital gains tax credit equal to the amount of tax imposed on the capital gain on disposition of a qualified investment.

The tax credit, which is applicable to real property acquired between November 1, 2001, and December 31, 2002, and held for at least two calendar years, will spur investment in Hawaii and offer significant benefits to those investors.

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

"§235-   Capital gains tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by section 235-51(f), a capital gains tax credit equal to the amount of tax imposed on the capital gain on the disposition of a qualified investment in the year in which the disposition of the qualified investment occurs.

In the case of an installment sale, the tax credit shall be claimed over the period of the installment sale at the capital gain rate applied to the installment sale payment in the taxable year reported.

(b) As used in this section:

"Qualified investment" means real property, as defined in section 231-1. The qualified investment shall not be disposed of earlier than seven hundred thirty days after the date of acquisition and shall be acquired after October 31, 2001, and before January 1, 2003.

The real property must be real property that is used for business purposes and shall not include residential real property. The real property must be located in Hawaii. If the real property has both business related and residential uses, the credit allowed under this section shall be apportioned to the business related real property in proportion to the real property used for business purposes.

"Residential real property" includes single and multiple family dwelling units and condominiums and condominium apartments as defined in section 514A-3.

(c) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of the credit over the liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. All claims, including any amended claims, for tax credits under this section shall be filed on or before the end of the twelfth month following the close of the taxable year in which the disposition of the qualified investment occurs. Failure to comply with the foregoing provisions shall constitute a waiver of the right to claim the credit.

(d) The director 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 and may adopt rules necessary to effectuate this section pursuant to chapter 91.

(e) The section shall not apply to taxable years beginning after December 31, 2011."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2000.