SB2001 and SB2401 – Terminating High Tech Tax Credits
In the last month, several bills have passed through the Hawaii legislature that have left me with mixed feelings. I want to use my blog to share some of my thoughts.
SB2001 and SB2401 – Terminating High Tech Tax Credits
Two bills are currently waiting to be reviewed by Governor Linda Lingle that could have a significant negative impact on the future of Hawaii and the way it is perceived both as an innovation hub and a viable location to do business. At their core, Senate Bills SB2001 and SB2401 were designed to eliminate the benefits investors in high tech businesses receive from tax credits granted by Act 221.
“In its original form, Act 221, which went into effect in 1999, offered a 100 percent credit against state tax liability for cash investments up to $2 million in qualified Hawaii tech companies. The return was designed to be front-loaded over five years.”
Hawaii tax credits for tech firms in jeopardy – Pacific Business News (Honolulu):
Supporters of SB2001 and SB2401 claim that Hawaii has lost millions of dollars in tax revenue as a result of Act 221 and that we cannot afford to continue to loose more money in tax revenue. What is flawed about this argument is that it is based on the assumption that we would have had the revenues to tax if Act 221 was not passed. In actuality, Act 221 creates an incentive for investors from outside of Hawaii to invest in local companies and create jobs in Hawaii. Click here to see a great YouTube on how Act 221 works. The tax credits currently in place provide high tech investors and entrepreneurs with the incentive to bring innovative technologies and services to Hawaii, and diversify our sources of revenue outside of the two main industries; tourism and real estate.
SB2401 and SB2001 will set back Hawaii as a potential innovation hub and discourage would be businesses and entrepreneurs from investing in Hawaii’s burgeoning high tech community. Many current investors and entrepreneurs relied on the law when making existing plans and placing investments. If these bills go into law, they will severely damage Hawaii’s reputation as a place to do business and it’s long term potential as a innovation hub. These bills will cause many people in the tech industry to lose their jobs and end up on unemployment, which will be an additional burden on the state. They also stand to negatively impact the state’s credit rating, since they break previous contracts and destroy Hawaii’s credibility as a place to do business.
SB2401 temporarily suspends the claiming of the technology infrastructure renovation and high technology business investment tax credits. If SB2401 passes into law, it will negatively impact investors who made their investments based on the laws in place at that time they developed their business plans and upsets the tax planning of thousands of investors. While investors will eventually receive their tax credits, this significantly impact the tax credits they expected to receive and will discourage investors in the future from investing in businesses in Hawaii. Is this the message we as a State really want to send? Future growth is promoted by businesses and investors being able to rely on laws without the threat of retroactive suspensions or repeals. If these bills pass, it sends a message to entrepreneurs and investors that doing business in Hawaii doesn’t make sense.
SB2001 attempts to eliminate the tax credit program on 5/1/2010, 7 months in advance of the 12/31/2010 sunset. This has the potential to eliminate jobs and negatively impact business plans at many local business plans, since their financial planning was based on the 12/31/2010 sunset date. This is just more evidence that Hawaii is only thinking tactically about how to solve the current budget crisis, and that it needs to think more strategically about growing industries in Hawaii and future tax revenue sources.
Now that these bills are in front of Governor Lingle to approve or veto, I’d like to ask her this simple question. If these businesses go out of business or are unable to continue the employment of middle to high income technology workers, then where is future tax income going to come from?
Some residents can continue to delude themselves into thinking that Hawaii can rely on the tourism and real estate industries for the future growth and wealth of the state and its residents, but if Hawaii doesn’t expand into industries beyond minimum wage paying service jobs, then the discrepancy in wealth between the poorest and wealthiest will continue to expand, and Hawaii may not remain a desirable vacation destination.
I would even go so far as to say that the future success of Hawaii depends on these bills being vetoed by Governor Lingle.
Governor Lingle, please veto these bills!
Next Post: SB2840 – local jobs for local people
“Follow the path of the unsafe, independent thinker. Expose your ideas to the dangers of controversy. ” -Thomas J. Watson
