Relating To The Tax Credit For Research Activities.
The legislation impacts the way research activities are funded and incentivized in Hawaii, explicitly excluding those funded by grants or forgivable loans from qualifying expenses. This could influence research funding dynamics within high technology sectors, encouraging companies to align more closely with state tax requirements to benefit from these credits. The requirement for businesses to demonstrate eligibility through federal tax credit claims might encourage greater compliance with federal standards, thereby ensuring a more standardized approach to research funding in the state.
HB1788 aims to amend the tax credit for research activities under section 235-110.91 of the Hawaii Revised Statutes. This bill proposes making certain federal tax provisions operative for determining state income tax credits, specifically aligning with section 41 of the Internal Revenue Code as it was enacted on December 31, 2011. Notably, it introduces a cap on the total tax credits allowable to any qualified high technology business and their related entities, limiting it to $1,500,000 per taxable year, enhancing the state's fiscal oversight in providing these credits.
General sentiment surrounding HB1788 appears to lean towards positive engagement from the high technology sector, as it aims to provide significant tax incentives for research activities, potentially spurring innovation and economic development. However, concerns could stem from limitations imposed by the cap on credits and the complexity of compliance with both federal and state regulations, which may be seen as burdensome by some smaller businesses looking to leverage these tax benefits.
One notable point of contention is the newly established cap on tax credits, which could disadvantage larger entities or limit the innovative potential of startups that require substantial initial investment for research activities. Additionally, the lack of inclusion for research funded by grants may hinder access to essential funding avenues for some businesses, raising questions about equity and accessibility in tax incentives. The first-come, first-served certification process for tax credits introduces further competition among businesses, which might raise concerns about fairness in distributing state resources.