Hawaii ~ Corporate, Personal Income Taxes: Organic Foods Production Tax Credit Enacted

CCH Tax Day Report

For taxable years beginning after December 31, 2016, a producer, handler, or handling operation that sells agricultural products in adherence to the standards and requirements of the Organic Foods Production Act, has applied for organic certification, and has gross income from the sale of organically produced agricultural products for the most recently reported fiscal year totaling no more than $500,000 is allowed a Hawaii income tax credit for qualified expenses incurred to produce organically produced agricultural products. The credit is allowed for up to $50,000 of qualified expenses. If the tax credit allowed exceeds a taxpayer’s net income tax liability, the excess credit may be carried over to subsequent years until exhausted. The total amount of these tax credits allowed must not exceed $2 million for all qualified taxpayers in any taxable year. However, any taxpayer who is not eligible to claim the credit in a taxable year due to the $2 million cap having been exceeded for that taxable year will be eligible to claim the credit in the subsequent taxable year. All claims for the tax credit, including amended claims, must be filed by the end of the 12th month following the close of the taxable year for which the credit may be claimed. Failure to comply with the this requirement will constitute a waiver of the right to claim the credit. The credit provisions will be repealed on December 31, 2021.

Qualified Expenses

“Qualified expenses” include:

– application fees;

– inspection costs;

– fees related to equivalency agreement/arrangement requirements, travel/per diem for inspectors, user fees, sales assessments, and postage; and

costs for any equipment, materials, or supplies necessary for organic certification or production of agricultural products.

“Qualified expenses” do not include any amount refunded or to be refunded to the taxpayer by the U.S. Department of Agriculture’s organic certification cost-share program or any other similar financial assistance program. In the case of a partnership, S corporation, estate, or trust, expenses upon which the tax credit is computed must be determined at the entity level.

Written Statement Requirement

Every qualified taxpayer, before March 31 of each year in which qualified expenses were incurred by the taxpayer in the previous taxable year, must submit a written, certified statement to the chairperson of the Board of Agriculture identifying:

– the qualified expenses incurred in the previous taxable year; and

– the amount of the tax credit claimed by the taxpayer, if any, in the previous taxable year.

Department of Agriculture Requirements and Authorizations

The Department of Agriculture must:

– maintain records of the names and addresses of the qualified taxpayers claiming the credits and the total amount of the qualified expenses upon which the tax credits are based;

– verify the nature and amount of the qualified expenses;

– total all qualified and cumulative expenses that it certifies; and

– certify the amount of the tax credit for each taxpayer for each taxable year and the cumulative amount of the tax credit.

The Department of Agriculture must issue a certificate to each taxpayer verifying the information submitted, including amounts of qualified expenses, the credit amount certified for the taxpayer for each taxable year, and the cumulative amount of tax credits certified. The taxpayer must file the certificate with the taxpayer’s tax return filed with the Department of Taxation. The Board of Agriculture may assess and collect a fee to offset the costs of certifying the tax credit claims.

Department of Taxation Requirements and Authorizations

The Director of Taxation:

– must prepare any forms that may be necessary to claim a tax credit;

– nay require the taxpayer to furnish reasonable information to ascertain the validity of the claim for the tax credit; and

– nay adopt rules necessary to effectuate the purposes of the statutory provisions.

Act. 258 (H.B. 1689), Laws 2016, applicable as noted

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