• 100% Tax Credit for an Investment up to $2 Million
• ROI Credit is Front-loaded over 5 years
• Minimum Recapture
• More Companies Qualify
• Refundable R&D Income Tax Credit
• QHTB Status is Not Required to obtain R & D Tax Credit
• Proceeds from Royalties, Patents, Copyrights Exempt from State Tax
• Stock Options Exempt from Capital Gains and Income Tax
• Expands Stock Option Income Tax Exclusion
• Technology Infrastructure Renovation Tax Credit
• Exemption for Internet Data Centers
• Expands GET Related Party Exemption
• Banks and Insurance Companies may Participate
• Apply for a QHTB comfort ruling
• View: Act 221 Promotional Video
• 6/10/2004 Update: HB 2396 CDI

100% Tax Credit for an Investment up to $2 Million

The 100% tax credit for an investment up to $2 million in a qualified high technology business (QHTB) is unprecedented and shows Hawaii's commitment to fostering the growth of the technology industry. This tax incentive is double that offered by any other U.S. state, according to the National Conference of State Legislatures' website. Some states have between 5 and 15 percent tax credits. 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.

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ROI Credit is Front-loaded over 5 years

35% credit in the first year of investment
25% in the second year
20% in the third year
10% each in the fourth and fifth year

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Minimum Recapture

If the QHTB fails to qualify or if the investment is sold or withdrawn in any year during the 5-year period, there will be a recapture of only 10% of the total tax credit claimed in the preceding two taxable years.

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More Companies Qualify

QHTB now includes sensor and optic technologies, ocean sciences, astronomy, non fossil fuel energy-related technology, as well as performing arts products. A QHTB is defined as a business that conducts more than 50% of its total activities in qualified research. For the investment credit, a QHTB must do more than 75% of its qualified research in Hawaii. Qualified research is a defined term and includes research & development (R&D) work, computer software programming and biotechnology.

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Refundable R&D Income Tax Credit

Hawaii's 20% credit matches the federal 20% credit and moreover, it is refundable. Additionally, unlike the federal credit that limits the 20% to increased R&D expenditures year over year, Hawaii's R&D credit counts all qualifying expenses each year, not just the incremental increase. The combined Hawaii and federal research tax credit reduces the risk of investment in Hawaii companies doing research.

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QHTB Status is Not Required to obtain R & D Tax Credit

Any U.S. company can benefit by performing research activities in Hawaii, not just Hawaii corporations.

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Proceeds from Royalties, Patents, Copyrights Exempt from State Tax

Hawaii tax law exempts, from state income tax, royalties and other income derived from any patents, copyrights and trade secrets developed and arising out of a QHTB. The exemption may be claimed by the individual or QHTB that owns the patents, copyrights or trade secrets. Royalties from performing arts products developed and perceived by computers are also exempt from state income tax.

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Stock Options Exempt from Capital Gains and Income Tax

Stock options and warrants held in QHTBs are exempt from capital gains or income tax. The Hawaii exemption even allows stock options gained outside the state to be exempt.

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Expands Stock Option Income Tax Exclusion

The stock option income tax exclusion is expanded to include stock options issued by the holding company of a QHTB, and to include equity interests in entities other than corporations.

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Technology Infrastructure Renovation Tax Credit

A 4% nonrefundable income tax credit allows building owners to renovate office buildings to provide high tech tenants with improved cable and fiber access, telecommunications connectivity, environmental systems, high volume digital or analog telecommunications, physical security systems, environmental systems and backup power systems.

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Exemption for Internet Data Centers

Public Internet Data Centers (IDCs) are exempt from the general excise tax (GET) and public service company (PSC) tax. IDCs are defined as facilities that operate continuously, provide redundant utility systems and offer Internet-related data and complex web hosting services.

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Expands GET Related Party Exemption

The legislation expanded the general excise tax related exemption to include IT services, database management services and the use of software and hardware.

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Banks and Insurance Companies may Participate

The 100% investment tax credit applies not only to individuals and corporations paying Hawaii income tax, but also may be leveraged by banks and insurance companies against their franchise and insurance premium tax obligations.

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Apply for a QHTB comfort ruling

Download this form from the Department of Taxation to request confirmation of QHTB status for your company.

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View: Act 221 Promotional Video

This promotional video features testimonials from Oceanit's Patrick Sullivan and PriceWaterHouseCoopers' Michael O'Malley, and was originally aired as a segment of In-Flight Media Associates' series, Journeys - The Best of Hawaii.

High Speed | Dial-Up (6.1MB/1.1MB)
(Windows Media Player Required for Video Streaming)

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6/10/2004 Update: HB 2396 CDI

[Download PDF]
Ray Kamikawa of Chun Kerr Dodd Beaman & Wong provides an explanation of how HB 2396 CDI will affect Act 221 tax incentives, should the bill be signed into law.

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