HONOLULU - High technology businesses that received cash investments in 2002 that qualify for the high technology business investment tax credit under Act 221, Session Laws of Hawaii 2001, have just two more weeks to complete and file a new information statement with the Department of Taxation.
The deadline for filing Form N-317, Statement by a Qualified High Technology Business (QHTB), is June 16, 2003. This form is just one source of information that the Department of Taxation will use to evaluate claims for the high technology business investment tax credit.
Investors may claim the entire amount of their cash investments in QHTBs, up to $2 million, as a credit against their Hawaii income tax, franchise tax (financial institutions), or insurance premium tax over a 5-year period. The credit is 35% in the year the investment is made (maximum of $700,000), 25% in year 2 (maximum of $500,000), 20% in year 3 (maximum of $400,000), and 10% in years 4 and 5 (maximum of $200,000 in each year).
In part because it is very generous, this credit has reportedly been abused to derive tax benefits that fall outside of the intent of the law. The Department supports legitimate claims for the credit, but also is obliged to prevent egregious abuses. Examples of nonqualifying transactions that the Department will be looking for include:
- Investments that lack economic substance or a business purpose;
- Related-party transactions that minimize the amount of actual investment or "new money"; and
- Certain restructuring and reorganizations that lack economic substance or a business purpose.
In Part I of Form N-317, the QHTB provides information about its qualifying activities and the benefits to the State that resulted from its activities (e.g., job creation).
In Part II of Form N-317, the QHTB provides information about its investors, including the amount and date of the investment and what the investor received in return for the investment. The QHTB must provide information about investments received in calendar year 2002 regardless of its actual fiscal year.
For more information, see Tax Information Release (TIR) No. 2003-1, Application of Section 235-110.9, Hawaii Revised Statutes (HRS), Relating to the High Technology Business Investment Credit, and Department of Taxation Announcement No. 2003-01, New and Revised High Technology Business Investment Tax Credit Forms.
Form N-317, TIR No. 2003-1, and Announcement No. 2003-01 are available on the Department's website at www.hawaii.gov/tax, by calling the Department's Forms by Fax/Mail telephone number at 587-7572 (toll-free at 1-800-222-7572), and at any district tax office.
Persons with questions about completing Form N-317 may contact the Department's Technical Section by phone at 808-587-1577, or by e-mail at Technical_Section@tax.state.hi.us.