Are Hawaii's Tech Tax Credit Worth the Cost?

Comment

Comment by Daniel Leuck on April 22, 2009 at 5:07pm

BTW - The house and senate just voted to send SB199 CD1 back to the conference committee for further amendments. So, we have SB199 CD1 and HB1451 SD2 still in play.

Comment by Daniel Leuck on April 22, 2009 at 5:00pm

Also you mentioned your support for the preservation and extension of Act 221 "with minor modifications such as the tightening of QHTB definitions". I wonder if you might elaborate a bit more on this.

We should leave as little as possible to interpretation by the DoTAX. For example, they shouldn't be deciding if SaaS companies qualify as QHTB software companies. To someone in the field, its apparent from the very question that they have no understanding of the modern software industry.

I also agree with some of GB's suggestions. Hawaii would be a better place if we had more Screaming Winks :-) We need to keep as much money as possible in the state, creating local jobs. The one thing I don't agree with is salary caps. Some Act 221 companies need to hire expensive specialists. The state should not be involved in how compensation packages are structured. Each company has unique requirements that are best understood by its management. The state has neither the expertise nor the resources to set appropriate caps for molecular geneticists or thermal engineers.

Comment by Bill Spencer on April 22, 2009 at 1:29pm

Keep in mind that it is the investor who get the credit NOT the companies. The companies only get refund on qualified R&D expenditures.

Comment by GB Hajim on April 22, 2009 at 1:16pm

Well, in about 4 hours we will know if the House and Senate are off their rockers and we will have to be party in suing the State (one of thing I typically am against, but will be bound to do it to protect investors rights)

BTW I am all for revising Act 221. It should be written so that it generates jobs that stay in Hawaii. It should cap compensation during the period of receiving the tax credits (cut out the money grubbing greedy folks), it should REQUIRE internships and hiring some percentage, preferably a majority, of locals - I mean if you aren't employing the people already here what's the point? It should be written to recoup the tax monies from companies that move off island. Here's one that would really work....the tax incentive as a lien against profitability...that when the company becomes profitable, the company needs to pay the State back over a set time period. So many ways to re-write this. But the big thing is give us heads up...like 3 months from now this takes effect...not 4 months ago!

Comment by Daniel Leuck on April 22, 2009 at 12:28pm

GB Hajim: Fundamentals have nothing to do with what's going on...it is just pure idiocy to try change the law without honoring investments that have already been made this year thus far.

I think fundamentals and long term vision have everything to do with it, but you are singling out a very specific part of SB199. Not honoring credits for existing investments is utterly insane. Pono Chong is off his rocker. The last thing we need is for our state to be viewed as even more anti-business.

Comment by Bruce M. Bird on April 22, 2009 at 11:43am

Hi, Daniel. Your post is quite thought-provoking.

You wrote: "The fundamental question, which seems to have been lost, is whether or not Act 221 will produce more high paying jobs and tax revenue over the long term." That is a slightly different question than the one John raised, namely: "Are Hawaii's Tech Tax Credit[s] worth the Cost?".

Also you mentioned your support for the preservation and extension of Act 221 "with minor modifications such as the tightening of QHTB definitions". I wonder if you might elaborate a bit more on this.

Comment by Bill Spencer on April 22, 2009 at 10:20am

FYI HB1451 SD1 provides for a $100M cap on investment that would save $127M, proportionately much higher than other groups are being asked to cut back. SB199 CD1 kills 2:1 allocations, which would completely stop mainland investments in Hawaii business, which are motivated by the merits of the company not tax credits. Proponents claim SB199 would save $135M. I think industry has done its part to help with the budget crisis.

Comment by Laurence A. Lee on April 22, 2009 at 10:11am

I'm right there with you that Act 221 gives the community a benefit. We gave it a good go for nearly a decade; but with the State's current economic problems, I'd rather let this dog sunset gracefully. Personally, I'd rather see State money go to REAL programs that benefit the community - say, "Meals on Wheels", or paying for better materials and workmanship to fix those damn potholes in the roads.

I cannot and will never accept Act 221 or related programs if the State cuts back more harshly on such other programs. We're in a recession - while we need to honor our current obligations, we need to find ways to reduce expenditures where we can.

IMHO, one way to do so is let Act 221 sunset gracefully. For those who got in early for the full benefit - great, good for you for hustling when the going was good. We can always implement similar legislation after the current Global Economic Crisis isn't hammering Hawaii so hard.

I fully agree with GB that we must not reneg or pervert existing agreements, lest we risk Investors writing off Hawaii as a bad place to do business.


It's been mentioned time and time again that Small Businesses and nimble Startups create more jobs in an economic ecosystem than large corporations do. It's disenchanting to see that Act 221 is touted as a Tax Vehicle for "High Net-Worth Investors" -- who (at least by HVCA's standards) are only interested in companies that have a potential value of $1 Billion or more.

Again, I question the intent of Act 221 - is it merely a Tax Vehicle, a mechanism to drum up business from Big-Movie Budgets, or is it a mechanism to stimulate growth in the local Technology Sector?

The small businesses like mine don't seem to receive a substantial benefit from Act 221, which is a shame. Unless more is done to get more Investment Dollars into small, agile technology businesses, Hawaii's Tech Sector will be slow-growing regardless of Act 221's extension beyond 2010.

I fully expect small SaaS businesses and Internet Startups to be the building blocks of Hawaii's Technology landscape. And I fully expect many of them (if not a majority) to do so without a single dime of Act 221-backed seed funding.

Ask yourself this: Dollar-for-dollar, at the end of another 10 years (assuming 221 is extended to 2020), which group will create more jobs and be more effective at growing the local Technology Sector?

Comment by GB Hajim on April 22, 2009 at 9:38am

Fundamentals have nothing to do with what's going on...it is just pure idiocy to try change the law without honoring investments that have already been made this year thus far. I'll have to give back all the money we have raised this year, fire all my employees and the $7000 we spent in legal and accounting for this year's fundraising? Wasted.

Comment by Daniel Leuck on April 22, 2009 at 9:16am

I took a break from this thread to do some research and listen to the arguments being made by legislators and lobbyists. I have to say, it was an intensely disappointing exercise. Although I heard some well reasoned arguments on both sides, I was disturbed to discover we have some lawmakers who can barely put a sentence together, much less make a cogent argument, and anti-science/tech lobbying groups that seem to have been hibernating for the past 200 years. The fundamental question, which seems to have been lost, is whether or not Act 221 will produce more high paying jobs and tax revenue over the long term. If it will, we should preserve and extend it in its current form, or with minor modifications such as the tightening of QHTB definitions. If not, we should modify or kill it. I wish the level of discourse in our legislature more closely resembled that of this thread, but I digress.

Although I have great respect for my friends in this thread who question the efficacy of Act 221, I personally believe it has facilitated the creation of numerous companies with the capacity to fundamentally change the landscape of our state (Sopogy, Pipeline Micro, Avatar Reality, etc.) In recent years it has brought in world class talent from around the globe and, for the first time, allowed top local talent to work close to their friends and family. For these reasons, I support the preservation and extension of Act 221.

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