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New tax law changes affect local businesses


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POSTED: Sunday, November 22, 2009

A few new state laws should be considered as Hawaii business owners and investors begin doing their taxes. They change the filing requirements and some tax credits that many Hawaii taxpayers may have used in previous years.

Act 196, which became law on July 15, focuses on filing and remittance procedures for businesses. The new law accelerates the General Excise Tax filing deadline from the last day of the month following the end of the reporting period to the 20th day of the month following the end of the reporting period.

However, the Hawaii Department of Taxation has announced it will provide a transition period through the end of this year. No penalties and interest will be imposed on taxpayers who file and pay their excise taxes after the 20th for reporting periods ending on or before Dec. 31.

The new law also provides that effective for wages paid on or after Jan. 1, all employers that are required to deposit federal payroll taxes on a semiweekly schedule will be required to follow a three-day deposit schedule for Hawaii withholding taxes. Moreover, taxpayers required to pay Hawaii withholding taxes on the three-day schedule will be required to make this remittance electronically.

Act 154 was passed into law on June 25. The most striking change this legislation enacted was the ability to convert the Renewable Energy Technologies Income Tax Credit from a nonrefundable credit into a refundable credit at the election of the taxpayer and under certain circumstances.

In general, this election applies to solar energy systems only and requires taxpayers to reduce the eligible credit by 30 percent. Certain taxpayers, such as individual taxpayers with adjusted gross income of $20,000 or less ($40,000 or less for married couples who file jointly), are not subject to the 30 percent reduction and may elect to claim a refundable credit on any type of renewable energy technology system.

Act 178 was passed into law on July 15 and decreases the amount of benefit taxpayers previously could realize under the high-technology business investment tax credit. It imposes an 80 percent tax credit cap (the credit can be claimed up to 80 percent of the taxpayer's tax liability) and disallows carryovers of high-technology business investment tax credits for investments made on or after May 1. These limitations are applicable to tax years 2009 and 2010 only. Investments made prior to May 1 are not subject to these limitations.

Additionally, the law removes the incentive for partnerships to allocate high-technology business investment tax credits without regard to the partners' investments in the partnership. Therefore, partners who make indirect investments in a qualified high-technology business via a special-purpose vehicle on or after May 1 may receive only a 1-to-1 tax credit allocation instead of a 2-to-1 allocation.

The act also temporarily suspends the capital goods excise tax credit by changing the applicable rate from 4 percent to 0 percent on property placed in services during the period from May 1 to Dec. 31.

Please note that these changes became effective as soon as these bills became law; therefore, the changes described above might affect your tax return in the current year.