Excessive tax-credit
claim probedThe claim is under the
high-tech tax credit law,
which the state seeks to change
The state is looking into whether a local insurance company turned a $2,000 investment into a $3.4 million claim for tax credits under the state's controversial high-technology tax credit law known as Act 221.
"I've heard that. We need to look at that," said Kurt Kawafuchi, state Department of Taxation director.
Because tax information is confidential, "I can't really talk about that," Kawafuchi said. "All I'll say is, if something like that comes to me from a credible source, I think I have an obligation to look into it."
State lawmakers approved Act 221 three years ago to encourage investment in high-technology businesses in Hawaii. Gov. Linda Lingle tried to persuade state lawmakers to repeal the law last year, claiming it costs the state millions of dollars in tax collections.
Critics say Act 221 is too liberal, allowing business ventures not targeted by the law -- like movie productions -- to claim the tax credits. The law allows up to a 100 percent tax credit for investments in performing arts products. The movie "Blue Crush," which cost $32 million to produce, received $14 million in tax credits.
"Nobody ever wants to give a hundred percent tax credit to a movie," said Rep. Brian Schatz (D, Tantalus-McCully), chairman of the House Economic Development and Business Concerns Committee.
Lawmakers are working with the Lingle administration to make changes to Act 221 to limit the tax credits to true high-tech businesses with continuing operations in the state. They are also proposing boosting separate incentives for movie productions.
Act 221 allows investors who have no state tax liability to transfer their tax credits to others that do. So, it is possible for individuals to receive tax credit values higher than the amount of their investment.
"We had a number of proposals to limit (transferring the tax credits), but there was a lot of testimony against," said Sen. David Ige (D, Halawa Heights-Waimalu).
A Lingle administration proposal to change Act 221 does not limit transferring tax credits. However, it proposes that if there is a claim for credits totaling twice the amount invested, the applicants will have to justify the investment's business purpose and economic substance.
"Our goal is we want to grow an investment community where people aren't buying into just tax shelters, they're actually investing for the merits of the business," Kawafuchi said.
He also said some high-risk investments warrant tax credits higher than the amount of the investment.
Even without the proposed changes to the law, Kawafuchi said he believes the state does not have to grant all applications for the tax credit.