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Bill tightening tech tax credits close to approval


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POSTED: Thursday, May 07, 2009

A bill that aims to plug a $150 million hole in the state's two-year budget also portends the demise of the state's burgeoning high-technology industry, some lawmakers say.

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Senate Bill 199 would revise the 2001 law known as Act 221, imposing cuts on tax credits supporters say are essential to attracting technology development to Hawaii but panned by critics as overly generous and providing a tax shelter for wealthy clients.

According to the Department of Taxation, the credits have cost $747 million since the law's inception.

Under SB 199, investors in technology businesses would be limited to deducting 80 percent of their investment from state taxes over five years instead of the current 100 percent.

The revisions also limit carryover credits to investments made between now and Jan. 1, 2011. They also temporarily suspend the capital goods excise tax credit for a year and limit the return on investment to a ratio of 1-to-1. Attempts to amend the bill, making it more attractive to investors, failed in both the House and Senate Tuesday.

House members ultimately passed SB 199 by a vote of 35-14. The Senate is expected to follow when it takes up the bill on final reading today.

“;This measure is an important bill in our financial plan,”; Senate Ways and Means Chairwoman Donna Mercado Kim said Tuesday. “;If this measure fails we will have a big hole in our financial plan.”;

Act 221 mostly has been criticized as a boon for the film and television industry, allowing productions to claim the credits after setting up shop in Hawaii for only a short time.

“;The intent was to create a high-technology industry,”; said House Finance Chairman Marcus Oshiro (D, Wahiawa-Poamoho). “;But that intent has not been realized because so-called investors can qualify for the handout even if they do not create a single new job.”;

Rep. Glenn Wakai, who introduced the House amendment, argued Act 221 has created a growing technology industry that accounts for 5 percent of the state's economy.

“;This bill (SB 199) would cripple Act 221,”; said Wakai (D, Moanalua Valley-Salt Lake). “;It's not visionary. It simply represents complacency. ... It puts all of our eggs in the tourism, real estate and agricultural baskets.”;

Linda Smith, Gov. Linda Lingle's senior adviser on policy, said yesterday the administration has yet to see the bill in its final version but plans to thoroughly review the proposal. She disagreed with critics who argued SB 199 would spell the death of the tech industry.

“;If companies are sound and they have a product that has potential then we would anticipate that investors would want to invest in those businesses,”; she said. “;Hawaii's Act 221 would still be very generous.”;