State tax officials rejected $22.2 million in technology tax credits claimed between 2001 and 2005 — a figure that could grow as more audits are completed.

About 38 percent of the audited tax credit claims were disallowed.

The Department of Taxation launched a crackdown of alleged technology tax credit abuses in 2003. So far 21 out of about 50 audits of technology tax credit claims have been completed resulting in $22.2 million in disallowed credits, according to the department.

"I think there's a disconnect between what people think is research and what actually qualifies for the credit," said tax director Kurt Kawafuchi. "A company may truly believe it's doing research, but that doesn't mean everything it's doing qualifies for the credit."

Hawai'i's technology tax credit program, which boasts some of the most generous tax breaks in the country, aims to diversify the state's tourism-dependent economy.

Created in 2001, the credits provide a 100 percent tax break for technology investments and a refundable 20 percent tax break for qualifying research and development expenses.

More than 95 percent of the audits focused on the refundable tax credits for technology research, as opposed to a more widely used tax credit for technology investment.

A refundable credit means that a taxpayer can get a credit in the form of a refund even if the taxpayer owes no taxes.

The tax department is targeting audits on the research credit because refundable credits are more likely to be abused, Kawafuchi said.

Overall, nearly $254 million in technology investment and research tax credits were claimed during the audit period. Research tax credits are typically claimed by technology companies, while investment tax credits are claimed by individual investors.

The Act 215 tax credit program, which sunsets at the end of 2010, helped generate $822 million in investments and 5,383 jobs — mostly temporary performing arts positions — in Hawai'i from 2002 to 2006, according to separate tax department figures. During its first five years the program cost the state $195 million in foregone taxes — a figure estimated to grow to between $600 million and $1 billion during the life of the program.

Independent evaluation of the economic impact of the credits has been difficult because the tax department does not reveal the identities of the companies benefiting from the program.

According to the tax department, the $22.2 million in credits were disallowed for various reasons including: