Hawaii offers array of tax credits to families and businesses
It's still a small amount compared to the $4 billion collected each year
HONOLULU » The $75 million tax credit to build an aquarium in West Oahu, which appears to have survived the latest attempts to kill it, is one of several tax breaks available to island businesses and residents.
While the average Hawaii taxpayer is unlikely to be able to write off millions of dollars, the available expenses that can be subtracted from the bottom line owed to the state appear to be increasing.
Although the Tax Department has no final tax credit figures for 2005 or 2004 and is still working on its 2003 final report, the latest estimate of tax credits claimed is $143 million for 2003, up from $123 million the year before.
It's still a small amount compared to the $4 billion collected each year.
Credits are available for a variety of expenses and investments, ranging from buying an infant car seat to making a movie.
Figuring out what you might be eligible for takes a little bit of work.
You need to turn to pages 26 through 30 of the instruction booklet for form N-15 -- that's the standard state tax form. The instructions tell you what the qualifications are for each credit. Then you need to calculate what you can write off on a separate form.
Are you a fisherman with fuel costs to pay? You can credit yourself the amount you paid for the year in certain fuel taxes.
Or do you make less than $30,000 per year and pay more than $1,000 annually in rent? You can claim $50 for each of your exemptions.
Other eligible expenses for tax credits include:
» A portion of the cost of remodeling your hotel.
» Part of the bill for installing solar panels on your home or business.
» The net total of income tax paid to another state or country.
» A portion of a contractor's costs for completing repair and maintenance at a public school.
"Generally speaking, tax credits are designed to encourage certain activity. Or sometimes they are also used for social policy," said Kurt Kawafuchi, state taxation director.
That means, for example, that a tax credit can be provided to a film production company to encourage moviemaking in the islands. Or a tax credit tied to a resident's income level, such as the renter's tax credit, can be used by a government to give money back to the poor.
The credits can work in a surprising variety of ways, but almost all are applied to income tax. For the taxpayer, they have much more impact on the bottom line than mere tax deductions, which are subtracted from taxable income rather than taxes owed.
If a mother bought a car seat for her child, for example, she should save that receipt because she'll need it to claim it on her state income tax forms and get $25 back.
But each credit has built in limits. So while the car-seat-buying mother may have actually bought three seats for her triplets, she's still only entitled to write off $25 from what she might owe the state. That's just how the law works.
She's also not going to get the money in a refund because fewer than half of the state's tax credits allow taxpayers to collect refunds from the state if their credits exceeded taxes owed.
An example is the credit for movie and television companies filming in the islands. That tax credit allows companies to write off 4 percent of their production costs plus 7.25 percent of their accommodation costs.
But it fell out of favor after 2001 brought into being the state's credit to encourage high-tech business investment in the state, which allows companies to claim 100 percent of qualifying costs, with a cap of $2 million.
That credit caused a bit of a scandal when it was revealed that the surfing movie "Blue Crush," which had a budget of $41 million, managed to claim at least $18 million in tax rebates.
If a taxpayer isn't employing an accountant or a private company's electronic tax filing system, claiming the credits can be a daunting task for someone not used to crunching numbers.
But Kawafuchi said his department is trying to make claiming the credits easier by updating its online tax filing system this year to include a greater variety of the tax credits available from the state.
The department also is working with community groups to bring tax guidance to some of the state's rural corners. Kawafuchi himself will be among the tax pros handing out advice and processing residents' tax forms for free this weekend in Waianae.