Tech tax credit smoothing out
By Sean Hao
Advertiser Staff Writer
The state Department of Taxation yesterday threw its support behind the technology industry's use of the state's generous high-tech investment and research tax credit program.
The message, delivered by Director Kurt Kawafuchi at a luncheon of about 200 local tech industry members, came months after a divisive debate in the Legislature during which the department charged that the tax credits aimed at spurring the fledgling technology industry were being abused.
Kawafuchi shocked lawmakers this spring when — as part of an effort to tighten the law — he estimated that as much as 20 percent of all claims for technology tax credits had potential problems.
The tax department got most of the changes it wanted in the law, and Kawafuchi yesterday indicated the department is taking a new approach to the program.
"There's been a policy shift and we want to try and improve the service to the high-tech community," Kawafuchi told a gathering at the Plaza Club in downtown Honolulu hosted by the Hawaii Venture Capital Association. "I want to try and maximize the benefits to all the people that should benefit and also the whole state, so I think we want to try to be as flexible as we can.
"If you're within the lines and you're reasonable, our position is we're here to support and facilitate your use in trying to maximize the benefits of (Act) 221."
Act 221, which now is known as Act 215, was intended to help the state diversify the economy away from tourism and the military. It generated an estimated 600 jobs in 2002. Firms and investors claimed $161 million in tax credits in 2001 and 2002.
However, some of the credits were used to write off millions of dollars pumped into projects that did not create permanent jobs, such as one-shot movie and TV productions.
Lawmakers this year approved a five-year extension of the controversial technology tax credits until 2010, but, among other changes, removed a provision that the act be "liberally" construed by tax officials. The Legislature also included restrictions limiting research credits to technology companies, added new guidelines on the level of investment credits that can be claimed, and established a certification process for taxpayers claiming the credits.
The tax department still is working out the details of how that certification process will work. The fee charged for the certification, which must be applied for by March 31, would likely range from $100 to $1,000 per deal, depending on the complexity of the transactions involved, Kawafuchi said.
Although the Legislature and Gov. Linda Lingle continue to support keeping the identities of those benefiting from the programs confidential, the certification process should provide some increased accountability for the credits and more immediate data on their cost, Kawafuchi said.
"Sometime next spring we'll probably know the 2003 (cost) number and probably after the (legislative) session we'll probably have compiled an '04 number ... because we'll get the '04 numbers from the certifications," Kawafuchi said after his presentation.
Additionally, "I think the certification process will discourage the fringe deals or the ones that are way out there," he said.
Now that debate over extending the program has ended, cooperation between the tech community and the tax department is growing, said David Watumull, chairman for the Hawaii Technology Trade Association.
"I think it makes it easier for an investor to feel comfortable that the whole program is not at risk," said Watumull, who's also president and chief executive for Hawaii Biotech. "We're seeing the Legislature, the administration and the industry basically working together to make the act work, as opposed to battling each other."
Reach Sean Hao at 525-8093 or shao@honoluluadvertiser.com.
