Hawaii substantially expanded its technology tax provisions enacted in two prior legislative sessions, making Hawaii a very attractive location for technical and non-technical businesses. The strides made in tax credits, net operating loss carryovers, and exemptions in 1999 and 2000 have created a strong foundation for Act 221 to build upon.

100% high tech investment credit
Although many other states offer tax incentives as a means of encouraging high-technology firms to expand, or to spur the growth of new industries, Hawaii's investment tax credit is by far the most progressive in the nation according to the National Conference of State Legislatures website.

Only a few states, such as Maine, Vermont and West Virginia, even come close to Hawaii's credit with up to a 50% tax credit. This new provision is unprecedented and shows Hawaii's commitment to fostering the growth of the technology industry. Structured as a 100% return on cash investments in a qualified high tech business (QHTB) on a front-loaded basis over 5 years—35% credit in the year of investment, 25% in the following year, 20% in the second year following, then 10% each in the third and fourth year following.

Stock option income tax exclusion
Stock options issued by the holding company of a QHTB, and includes equity interests in entities other than corporations, is exempt.

Royalty income tax exclusion
Royalty income from the sale or licensing of intellectual property is exempt from both general excise tax and income tax.

Expanded QHTB Definitions
"Qualified research" is now expanded to include sensor and optic technologies, ocean sciences, astronomy, non fossil fuel energy-related technology, and performing arts products in addition to the existing QHTB research & development (R&D) work, computer software programming, and biotechnology. The added activities play on Hawaii's unique geography and natural resources.

20% refundable R&D income tax credit
Hawaii piggybacks onto the federal R&D credit for the same 20% amount, but improves by being refundable.

NOL sale provisions improved
QHTBs can sell up to $500,000 of unused NOLs per year accumulated up to two prior years, subject to a minimum sale price of 75% of the tax benefit sold.

Infrastructure remodeling income tax credit
A 4% nonrefundable income tax credit for renovation work on office buildings that support high tech tenants by providing high volume digital or analog telecommunications, physical security systems, environmental systems, and backup power systems.

GET and PSC exemption for IDCs
Internet Data Centers (IDCs) are exempt from the general excise tax (GET) and public service company (PSC) tax. IDCs are defined as facilities designed to house data centers, operate continuously, have redundant utility systems, and provide Internet-related data and complex web hosting services.

GET related party exemption
The general excise tax related party exemption includes IT services, use of software and hardware, and database management services.


Recent Articles

State of Hawaii News Release, Governor Lingle Signs Bill To Tighten High Technology Tax Credit; Encourage Capital Investments
July 13, 2004

Pacific Business News, State says Act 221 created 600 tech jobs
April 2, 2004

Pacific Business News, Revisions to Act 221 volleyed
October 27, 2003

For full details, visit www.state.hi.us/tax.