The purpose of Act 178 is to spur economic development and foster the growth of knowledge-based industries in Hawaii by consolidating the State's high technology agencies, providing access to the Internet for the University of Hawaii and public schools, and enacting tax incentives.

I. Tax Incentives in Act 178

Act 178 contains several tax incentives to support the development of high technology industries in Hawaii.

• The Hawaii Internet Tax Freedom Act prohibits the imposition of any discriminatory tax on electronic commerce or Internet access under the income tax law, general excise tax law, and use tax law. The prohibition is effective for tax years 2000 through 2005.
• Income received from stock options from a "qualified high technology businesses" by an employee that would otherwise be taxed as ordinary income or as capital gains is exempt from the income tax beginning tax year 2000.
• Royalties and other income derived from patents and copyrights owned by an individual or "qualified high technology business" and developed and arising out of the "qualified high technology business" is exempt from the income tax beginning tax year 2000.
• The high-technology business investment tax credit provides a 10% nonrefundable income tax credit to encourage investment in a "qualified high technology business" up to a maximum allowed credit of $500,000 per year per investment. Income taxpayers, insurance companies, and financial institutions are eligible for the credit beginning July 1, 1999 through tax year 2005.
• The tax credit for increasing research activities conforms Hawaii law to the federal research and development income tax credit in section 41 of the Internal Revenue Code with some modifications. The credit is based upon a percentage of certain research expenses and is available for tax years 2000 through 2005.

The tax incentives in Act 178, and Act 70, SLH 1999, relating to the general excise tax exemption for exported services and contracting and the imposition of a new use tax on imported services, will be discussed in a workshop on Wednesday, August 18, 1999 from 2:00 p.m. to 4:00 p.m. in the Ilima Room of the Ala Moana Hotel. There is no charge for this workshop, but seating is limited to 60 people. Please call Janice Kato of the Hawaii High Technology Development Corporation at 808-539-3814 for reservations or additional information.

The first annual meeting of the Hawaii Technology Trade Association on September 23, 1999 will feature a tax workshop discussing these tax incentives for high technology industries. This workshop is scheduled from 9:30 a.m. to 11:30 a.m. Please call Janice Kato of the High Technology Development Corporation at 808-539-3814 for reservations or additional information.

Forms and other tax information may be downloaded from the Department's website at: http://www.state.hi.us/tax/tax.html. On Oahu, forms may be ordered by calling the Department's Forms Request Line at: 587-7572. Persons who are not calling from Oahu may call: 1-800-222-7572 to receive forms by mail or 808-678-0522 from a fax machine to receive forms by fax.
 

/s/
RAY K. KAMIKAWA
Director of Taxation