Are Hawaii's Tech Tax Credit Worth the Cost?

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Comment by Ken Berkun on May 11, 2009 at 7:09pm

Honolulu - We're 63 and Proud of it!

100 Top Tech Centers

http://www.bizjournals.com/specials/pages/251.html

Ken



Ken

Comment by Laurence A. Lee on May 11, 2009 at 10:33am

Jay Fidell's article is FUD, FUD, FUD. GTFO, the local technology scene will continue as before. Just because we're no longer "attractive" to bring in the big fish, it's all doom and gloom? Jay, Please.

Just because there won't be any new, highly visible Act 221 companies doesn't mean that the local Tech will suddenly wither and die. There are plenty of little guys pulling in Mainland-based contracts who never received a dime of assistance under Act 221. Some of them even create good jobs, too, despite being under $1 Billion in potential value as Hawaii's Venture Capitalists would prefer.

If Act 221 were amended in a way that enticed local Lenders to give out "High-Technology Business Loans" with easier terms, such as a reduced interest rate, or with lower collateral requirements, I'd be all for that. Such an arrangement would be much more accessible for smaller "Garage/Basement Startups" to borrow outside the typical "Family, Friends, and Fools", and give them a fighting chance against those large enough to get seed-funding from Venture Capitalists.

As technologists, we're all aware of how some of our favorite Tech Startups have eventually made it big. Why not create legislation that helps make those dreams possible in Hawaii, instead of keeping Act 221 as a Tax Vehicle where only the Big Boys can play?

While I agree with Act 221's intent, I just couldn't get behind the implementation to back its renewal. Act 221 doesn't do enough for the Little Guys. One of my greatest concerns is having a large 221-backed company arrive, and put the Little Guys out of business.

Mom and Pop grocers are endangered species, thanks to Walmart. Best Buy and Circuit City killed off many small computer shops in Hawaii. As far as I can tell, there's nothing to prevent a "State Funded" corporation to come into the scene, offer lowball prices (outsourcing overseas after 5 years, or hiring great guys at Minimum-Wage), and wiping out the Independent Software shops. Net result: a decrease in High-Technology Jobs. Hawaii State Tax dollars at work, thanks to Act 221 -- maybe.

There. Some FUD right back at you, Jay Fidell. :-p

Comment by Bruce M. Bird on May 11, 2009 at 7:46am

An article on Act 221 by Jay Fidell that appeared in Sunday's Honolulu Advertiser can be found at: http://www.honoluluadvertiser.com/apps/pbcs.dll/article?AID=2009905100351 .

Comment by Bill Spencer on May 5, 2009 at 2:29pm

The effort to amend SB199 CD2 on the house floor was defeated 31 no to 18 yes. Five republicans included in the 18 yes votes. This amendment would have gone back to the "preferred" senate draft using a cap and changing the credit allocation to 20% per year. The senate deferred the vote on SB199 CD2 until Thursday so they could see what the House would do. The final vote on SB199 CD2 will happen Thursday. Still a chance to kill the bill but odds are slim. As they say "it isn't over 'til....

Comment by Ken Berkun on May 5, 2009 at 12:11pm

Shan Steinmark wrote a terrific letter to the editor to the Advertiser, published today supporting Act 221.

http://www.honoluluadvertiser.com/article/20090505/OPINION02/905050312/1108
(scroll to bottom).

Ken

Comment by Jeffrey Ross on May 5, 2009 at 6:00am

Thank you Bill, that helps a lot.

Comment by Bill Spencer on May 4, 2009 at 12:20pm

I am neither and accountant or attorney, so if you are trying to do a deal, I suggest you get professional advice and not rely on the following. But in the interest of helping you understand, I will give you my best layman explanation to your question.

In order for investors to allocate credits amongst themselves under the current law, the first step is to set up a "special purpose entity" typically an LLC which allows disproportionate allocations. Investors then put their investment funds into the SPE which in turn invests in the QHTB. Current law allows 2:1, where a non-tax advantaged investor can shift credits to a tax advantaged investor typically in exchange for some equity. SB199 would eliminate disproportionate allocations making it only possible for a tax advantaged investor to get 1:1 or one dollar of credit for every dollar invested, noting that the credits earned are allocated over five years. Under SB199 there would be no point in a non-tax advantaged investor selling their credits. They would not be able to be used since the proposed change in the law only allows a tax advantaged investor to get 1:1

Hope this helps..

Comment by Jeffrey Ross on May 4, 2009 at 5:50am

I'm still having a problem understanding how the 1:1 vs 2:1 works under SB 199 CD( if passed). Does that mean that an investor from the Mainland can only sell back the credits to a Hawaiian group at a certain rate?

Comment by Ken Berkun on May 2, 2009 at 3:40pm

Thanks,
Ken

Comment by Bill Spencer on May 2, 2009 at 3:40pm

Cap goods excise tax credit let's you deduct the get on purchase of equipment and other capital goods.

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