TechHui

Hawaiʻi's Technology Community

Action Committee for Threatened Hi Tech Tax Credits - Acts 221 & 215

I am just one person. The rest of you have to stand up and speak in your own behalf. In the aggregate, we can be effective if we coordinate.

My Quick Action Tasks List is to

Determine what initiatives may be introduced, and by whom (includes my initiatives).


Establish a committee vote list and track what favorable-unfavorable bills are out there and chance of passing all readings and going to the floor or incorporated into an omnibus that deals with the budget that gets read out of committee and goes to the floor.


Generate the hit list and start the lobbying grind, making appointments with the respective targets' admin aides.


I'm just as short for time as you. If you feel this issue is important to your livelihood, it's time for you to put skin into the game.

I need an individual who is willing to coordinate with me and work the House. And then we need the rest of you to give voice to your concerns. This is not the time to drag ass and assume someone will always speak up for you. If you believe you are a shaker and mover, shake a leg and show initiative.

A hui hou,

Dave Takaki
Editions Limited
808-735-7644
editionslimited@hawaii.rr.com

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I'd be curious to know who is actually taking advantage of Act 221/215 benefits, before jumping into the fray.

Having avoided external VC funding up to this point (mostly for creative freedom) I'm personally unaffected by the fate of Act 221/215 either way. In fact, with the current state of the Economy, I'm kind of questioning whether Hawaii can afford to continue such benefits.

That doesn't mean that I won't fight for these programs if there's a real benefit involved; but from what I gather, Honolulu companies that accept funding via Act 221/215 are seen as low-risk "Tax Shelters" to mainland investors, rather than as long-term High-Tech business investments.

I'd love to hear the case made by anyone directly concerned before taking a final stance.
Laurence A. Lee: In fact, with the current state of the Economy, I'm kind of questioning whether Hawaii can afford to continue such benefits.

Its a complex issue, but it doesn't really come down to what the state can afford. The idea is that a healthy high tech sector will eventually create more tax revenue from salaries paid to highly skilled employees, in some cases by companies that couldn't otherwise find funding. The down side is that some of these companies probably shouldn't find funding.

The idea behind Act 221 is good, but it requires refinement for a number of reasons. One is that the investment incentives are so good (100% rebate, no cap, etc.) that they allow mediocre companies to be funded and kept alive as animated corpses long after its clear they would otherwise fail. This doesn't apply as strongly under the current economic conditions (i.e. it being nearly impossible for companies to find money), but it generally holds true.

There is another school of thought, one with which I strongly disagree, that the state should double down on travel and tourism rather than spending time, energy and money on facilitating a healthy high tech industry.

Laurence A. Lee: That doesn't mean that I won't fight for these programs if there's a real benefit involved; but from what I gather, Honolulu companies that accept funding via Act 221/215 are seen as low-risk "Tax Shelters" to mainland investors, rather than as long-term High-Tech business investments.

You must have Hawaii income tax liability to receive credits under Act 221. Mainland investors can allow Hawaii based investors in the same deal to claim their credits, which they often do, but this just helps them bring in more money to supplement the deal. The idea is that the Hawaii investors benefit from mainland investors with more experience investing in the high tech sector.

On a related note, the current policy regarding QHTB rulings for software companies is so bizarre as to be almost comical. I've been told for my SaaS social networking company to qualify I have to either needlessly ship a CD with some aspect of the software, all of which we currently serve in an environmentally friendly way over the web, or reclassify our business as an entertainment company. Wow.
While building a healthy tech sector in Hawaii is valuable, is ACT 221/215 a good means to accomplish this?

Dan has already mentioned 3 problems:
- companies get funding who shouldn't
- it perpetuates mediocre companies
- it motivates keeping zombie companies alive

The primary assumption behind ACT 221/215 seems to be that there are lots of quality tech entrepreneurs in Hawaii who simply do not have access to funding. If we give them that funding, they can succeed. (This is my perception from reading, talking to tech people and listening at local tech events)

But maybe the issue is: Hawaii has insufficient tech talent so we are simply throwing money at the wrong problem

A lot of these mediocre ACT 221/215 companies that should not be funded seem to be mediocre because of insufficient talent/expertise.

And the people who do have the talent and experience, like Dan and Laurence, are either not using ACT 221/215 or need to go through comical, lengthy processes to become qualified.

Finally, does this easy money incent Hawaii companies to take risks that actually make them less likely to succeed?

The more money startups have, the more undisciplined they often become and the more they try to shoot for the moon. Perhaps Hawaii tech startups would be better in the long term if they took a more measured approach.

I think it's great that Hawaii has been trying to help tech entrepreneurs but is ACT 221/215 really a good way to do that?
John: But maybe the issue is: Hawaii has insufficient tech talent so we are simply throwing money at the wrong problem.

You may be right. I just added a blog post about this.
Given the fact its impossible for anyone to find money right now I think it would be a terrible time to end Act 221. We need it!
Cameron Souza said:
Given the fact its impossible for anyone to find money right now I think it would be a terrible time to end Act 221. We need it!

There are other ways to generate cash - ways that I think are better for the startup and less burdensome to the taxpayer.

Specifically, in software development, companies should keep costs low and generate sales quickly. This is the whole concept behind bootstrapping, especially in SaaS applications - the most attractive business model available for today's software companies.

For most companies who cannot accomplish this (in software development), there are two general problems: (1) the business model is wrong or (2) the founders are not qualified for the task at hand.

While I do not want to deprive technology companies of funds, in fairness I think we entrepreneurs need to be more honest about whether or not we really need the money or are spending it appropriately.
Daniel Leuck said:
I've been told for my SaaS social networking company to qualify I have to either needlessly ship a CD with some aspect of the software, all of which we currently serve in an environmentally friendly way over the web, or reclassify our business as an entertainment company. Wow.

Are you serious?

I've done *some* reading regarding Act 221/215, and had some questions on requirements. Yuka and Sandy at HTDC sent me some reading material, and I was truly baffled by some of the language.

I wonder if SaaS companies end up falling into that "gray area" more than companies that follow the "traditional" Software Development business model.
I've been looking at approaching the legislature regarding amending the tax credit statutes to reflect more accurately the changes in technology, needs of young tech companies, and clarity in the writing that would proffer newer, more effective approaches.

And as weird as it sounds, perhaps we should fit more of our tech projects into a new approach to "performing arts" that would reflect changes in human activity on the web as well as nacent, transformative dynamics in traditional fields such as periodical and book publishing.

Software as a service and social networks weren't on the Legislative radarscopes when the legislation was crafted. And tech companies weren't that involved in the third and final readings to the floor. This inadequate pair of Cartesian, reductionist legislation is in need of revamping so that it does in fact foster effective economic development. Look at this as an opportunity.

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