Posted on: Saturday, April 2, 2005

For insurers, high-tech tax credits add up to $20.6M

By Sean Hao
Advertiser Staff Writer

Insurers statewide claimed $20.6 million in tax credits for investments made in technology companies last year, up slightly from $19.4 million the prior year.

Although the credits are mainly geared to technology investments, that figure likely includes a portion of the estimated $23 million in credits generated from investments in movie and TV projects during 2004.

Insurance companies were the first category of investors for which the state released information on tax credits claimed. Information on credits sought by other groups of investors won't be available until this summer at the earliest, according to the Department of Taxation.

Coupled with all claims for the credits of $57 million in 2002 and 2003, the total known cost of the program in terms of lost tax revenue is more than $77.6 million since it was created in 2001.

Meanwhile, the state estimates the economic development program known as Act 221/215 created 600 jobs with an average salary of $45,995 in 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.

In addition there has been concern that the program spurred the creation of companies geared to generate tax credits rather than commercialize products and services.

Still, despite a rise in tax credit claims among insurers, revenue from the state's insurance premium tax rose to $78.1 million in fiscal 2004 from $73.2 million in fiscal 2003 .

"It has not had a significant impact on the tax revenues of the state," said Hawai'i Insurance Commissioner J.P. Schmidt, of the tax credits. "The insurance industry has still been doing well.

"So it looks like it's achieving some good things."

Critics of the tax credits, which effectively favor some taxpayers over others, contend it's impossible to know whether the benefits are worth the cost of the credits.

"It's lost revenues anyway you look at it," said Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i. "It could have been spent elsewhere on textbooks or child welfare programs."

Rather than provide tax credits for special interests, the state should lower taxes for all taxpayers, Kalapa said.

"It's good to help film, it's good to help high-tech," he said. "But can't we take care of the general taxpayer?"

Reach Sean Hao at 525-8093 or shao@honoluluadvertiser.com.