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					e.Credits
Michael O’Malley Patrick Oki Wendell Lee
Martin Kao
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Hawaii High Technology Initiatives
• Hawaii Initiatives • What’s the Fuss? • How it Works

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Initiatives
In order to encourage the growth and development of technical business, the legislature provided a number of incentives for High Technology Businesses. The incentives are:
QHTB Incentives: 1. 100% tax credit for investment in QHTBs 2. QHTB stock rights income tax exclusion

3. QHTB royalties income tax exclusion 4. Permitted sale of unused QHTB NOL’s 5. Increased Capital Loss Carry-forwards
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Initiatives
Non-QHTB Incentives: 1. Refundable 20% tax credit on R&D expenditures 2. Technology infrastructure renovation tax credit 3. Expanded GET related party exemption 4. GET and PSC exemption for Internet Data Centers

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QHTB Initiatives
Qualified High Technology Business: a business, employing or owning capital or property, or maintaining an office in the State of Hawaii provided that:
1. More than 50% of its total business is qualified research, and it conducts more than 75% of its qualified research activity in the State of Hawaii, or

2. More than 75% of its gross income is derived from qualified research, and income is received from products or services sold in the State of Hawaii

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QHTB Initiatives
Qualified High Technology Business (cont’d):
Definition QHTB: • IRC Section 41 Definition - technological in nature and development of new or improved business component
• 4th Generation computer software development • Biotechnology • Performing arts • Sensor/optic technologies • Ocean & space science • Non-fossil fuel energy-related technology • Must obtain ruling from Hawaii Department of Tax
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QHTB Initiatives
100% Investment Tax Credit Non-refundable income tax credit up to $2 million to Hawaii investors who invest in a Qualified High Technology Business (QHTB):
Year First Year
Second Year Third Year Fourth Year Fifth Year
* effective 2001 to 2005

Credit Percentage 35%
25% 20% 10% 10%

Limit $ 700,000
$ 500,000 $ 400,000 $ 200,000 $ 200,000

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QHTB Initiatives
QHTB stock rights income tax exclusion Exempts the following income: • Income earned and proceeds derived from stock options or warrants • Income associated with the stock of its parent company. The parent company must possess 80% of the total voting power of the stock or other interest in the QHTB, and 80% of its total value. • No Sunset

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QHTB Initiatives
Permitted sale of unused QHTB NOL’s • QHTB’s allowed to sell net operating losses accumulated under the Hawaii income tax law for an amount equal to 75% of the surrendered tax benefit.
• Up to $500,000 per year.

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QHTB Initiatives
Increased Capital Loss Carry-forwards • Capital loss carry-forward increased from 5 to 15 years • No Sunset

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Non-QHTB Initiatives
Hawaii credit for research and development of 20% • R&D activities to qualify under same federal guidelines. • EXCEPTION - base amount doesn’t apply and credit may be claimed without increasing research expenses. • Refundable Credit! • Effective 2001 through 2005

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Non-QHTB Initiatives
Hawaii credit for research and development of 20% R&D Expenditures are: • For the purpose of discovering new information or knowledge, • Technological in nature • Incurred through a process of experimentation, • Focused on the creation of a new or improved business component, and • Incurred prior to commercial production of the business component
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Non-QHTB Initiatives
Technology infrastructure renovation tax credit • 4% non-refundable credit for qualifying costs incurred in renovating commercial building in Hawaii.
• Qualifying costs are for planning, designing, installing, constructing, and purchasing “technology-enabled infrastructure.”

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Non-QHTB Initiatives
Technology infrastructure renovation tax credit • Generally CGEC encompassed many of these expenditures with exception of:
– Design team costs

– Labor for installation – Potential structural components • Unlimited carryover • Sunsets after tax year 2005

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Non-QHTB Initiatives
Expanded GET related party exemption • Expands general excise tax exemption for general & administrative services and legal & accounting services between related entities to:
– Computer software & hardware – Information technology services – Database management

• No Sunset

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Non-QHTB Initiatives
GET and PSC exemption for Internet Data Centers • Gross income received by a public Internet data center is exempt from general excise tax and public service company tax.
• Public Internet data center is defined as a facility available for compensated use by the public that: – Houses data servers – Operates 24/7 – Has redundant systems – Provides bandwidth, data backup, web hosting
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What’s the Fuss?
1. Potential cash for operations from R&D credit and QHTB Investment Tax Credit 2. Investing opportunity for Hawaii investors in High Technology Businesses with immediate investment returns from income tax credits.

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How it Works
Example One:

High Tech Company performs Research and Development activity in Hawaii. Company spends $2 million on qualified R&D wages.
Potential R&D Credit: • $2 million x 20% = $400,000 cash refund

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How it Works
Example Two:

Individuals A and B invest $2 million in a High Tech Company that is a qualified high technology business in Hawaii. Potential Investment Tax Credit: • $2 million x 35% = $700,000 • $2 million x 25% = $500,000
• $2 million x 20% = $400,000 • $2 million x 10% = $200,000 • $2 million x 10% = $200,000
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How it Works
Credits: High Tech Investment Credit Allocated to Hawaii Investor
First Year
Second Year Third Year Fourth Year

35% x $5 Million
25% x $5 Million 20% x $5 Million 10% x $5 Million

$1,750,000 limited to $700,000
$1,250,000 limited to $500,000 $1,000,000 limited to $400,000 $500,000 limited to $200,000

Fifth Year

10% x $5 Million

$500,000 limited to $200,000

Total Credits to be received = $2,000,000
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