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Are Hawaii's Tech Tax Credit Worth the Cost?

Today, the Honolulu Advertiser ran an article on 221/215. The article is primarily a strong attack on the prudence and viability of the tax credits. The article cites a new 25 page report by the Department of Taxation that is well worth reading.

The numbers look bad and the public reaction (both in quotes and comments from the community) are heavily negative.

The report states:

- $300 M in tax credits have already been claimed through 2006
- Another $350 M is projected to be claimed from 2007-2011.
- Only 2245 jobs have directly been created (David Watumull estimates over 400 total if independent contractors are included)
- Software companies only claim 16% of the total tax credits claimed
- Performing arts companies claim 33% of the total tax credit claimed
- Depending on what figures you use, the cost to the state per job created is somewhere between $140,000 to $530,000

Ongoing Discussions at TechHui

We have been discussing this issue for months - most recently on Dan's thread about finding and retaining talent, on the discussion to lobby for 221/215, and in the original discussion about caring for 221/215.

Are the Tax Credits Worth it?

I have not seen anyone in these discussions provided a careful analysis of the benefits of 221/215 relative to the costs. I see a lot of general excitement but not thoughtful examination of why the ROI is really there.

Giving companies large pots of money with little restrictions sounds like a bad idea. None of the reports I have seen shows otherwise.

While I am sure many companies using 221/215 are legitimate and have noble intentions, the program as a whole, seems to be an invitation to fraud and abuse.

I am looking forward to learning from a discussion on this topic.

Views: 187

Tags: 221/215, ACT, credit, entrepreneurs, startups, tax

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Comment by John Sydney Yamane on April 17, 2011 at 6:56pm
economic development and taxation is like wanted to get rid of your belly fat.  There is no such thing as spot fat reductions....  so I suggest to eliminate all crazy tech tax or other tax incentives.  Have laws to allow local banks to give lower rates loan and allow easier methods to qualify for long term financing for all businesses.   Improve our work visas for foreign workers, faster or free access to broadband network.
Comment by Ken Berkun on February 17, 2011 at 11:42am
Comment by Daniel Leuck on July 2, 2009 at 11:33am
Jason Lau correctly pointed out that filing an intent to veto doesn't guarantee a veto. It buys the Governor another couple weeks to decide (request info, hold focus groups, etc.)
Comment by Ken Berkun on June 23, 2009 at 9:09pm
Some good news for local companies for change:

http://www.xconomy.com/national/2009/06/22/successful-startups-put-some-distance-between-their-hq-and-their-vcs/

It seems companies do well when they are far away from their investors...

ken
Comment by Bruce M. Bird on June 9, 2009 at 6:10pm
Sean Hao wrote an article in yesterday's Honolulu Advertiser. Although the article doesn't involve Act 221, it does involve the State of Hawaii renting "business incubator space" in a Beijing technology park.
Comment by Bill Spencer on June 6, 2009 at 12:03pm
Hi John,

Just so set the record striaght, Hawaii Business told me the face off would be between me and "another Hawaii business leader". Wally was living in California at the time. I suspect he didn't even write the counter-point but cannot confirm that.
Comment by John on June 6, 2009 at 11:47am
By the way, a year and half ago there was a 'face-off' between Wally and Bill in Hawaii Business Magazine over .... In response, the next month, there is a letter to the editor from Jeff Au.
Comment by Bill Spencer on June 6, 2009 at 11:39am
HotU was founded by Wally Roth, son of Randy Roth, who at the time was Lingle's chief policy advisory. Randy was the CFO of the company when HotU got its comfort letter ruling as a QHTB from the tax department. I have no idea whether Randy Roth received any 221 tax credits, but others who invested surely were known to him. Take from that what you like.
Comment by John on June 6, 2009 at 11:28am
In the comments of the Advertiser article is the first part of a response from Jeffrey Au. Can someone link to the entire response or copy and paste it to this thread?
Comment by Bruce M. Bird on June 6, 2009 at 11:13am
Hi, Bill. Good point. One billion in unpaid taxes is a lot of money. Unpaid taxes are a problem in every state, so the Department of Taxation is not alone in having to deal with this issue. Basically, it's an issue of time and money.

In my opinion, in certain situations, it would not be difficult for the Department of Taxation to determine the year in which a company ceased to qualify as a QHTB, and, if so, whether any of its investors complied with the law's recapture provision.

Take the company that is the subject of the article. Wouldn't a few selectively placed phone calls coupled with some quick trips to the computer by the Department of Taxation do the trick? Even if the company at issue is one of several related entities, how hard could it be for the Department of Taxation to look into this?

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