HERBERT A. SAMPLE

HONOLULU (AP) ¿ Legislation that would reduce controversial high technology tax credits in Hawaii was sent to the House and Senate floors on Thursday after lawmakers meeting in a conference committee agreed on a compromise.

The latest version of the measure to alter so-called "Act 221" provisions would allow investors in technology businesses to deduct 80 percent of their investment from state taxes over five years instead of the current 100 percent.

The law became a target this year as legislators sought ways to close the state's budget gap. The credit has cost the state $747 million in lost tax revenue since it started in 1999.

Critics of the Act 221 changes said they would stymie and perhaps kill a fledgling business sector at a time when unemployment is rising in Hawaii.

Rep. Gene Ward, R-Kalama Valley-Hawaii Kai, said the tax credit reductions would come "at the expense of an industry that is just getting its legs."

Sen. Carol Fukunaga, D-Lower Makiki-Punchbowl, warned that the bill could eliminate the state's tech industry and questioned whether House negotiators wanted the high-tech businesses to survive.

But Sen. Donna Mercado Kim, D-Kalihi Valley-Halawa, said she doubted the changes would significantly damage the industry, while Rep. Isaac Choy, D-Manoa, said, "What we're doing is very, very fair."

It is unclear what Gov. Linda Lingle will do with the measure should, as expected, both houses pass it before the Legislature adjourns on May 7.

The governor has in the past acknowledged that the high-tech credits need to be "adjusted and rebalanced."

But State Department of Taxation Director Kurt Kawafuchi said Lingle has concerns about a provision in the bill that would temporarily suspend the capital goods excise tax credit for one year.

In February, the state for the first time identified the companies that have benefited from the tax credit, totaling 333 over the past seven years.

Many of Hawaii's best known high-tech startups were on the list, including Hoku Scientific and Hawaii Biotech. But other firms appeared to have questionable high-technology connections, including a sustainable resource center for those who want to learn how to grow organic food.

The conference committee also shelved a measure that would have allowed counties to implement a retail sales tax. Its intent was to give counties a way to compensate for revenue losses should the state end up taking their share of transient accommodations tax receipts to help close the state's budget shortfall.

But county mayors balked, and the committee essentially killed the bill for the year.

Kim, who heads the Senate Ways and Means Committee, and Rep. Marcus Oshiro, who chairs the House Finance Committee, said in perturbed tones that counties have frequently asked the Legislature over the years to grant them more taxing authority but rejected the chance to get it this year.

"I think this was a generous offer," said Oshiro, D-Aiea-Halawa.

___

On the Net:

SB199 and HB1605: http://www.capitol.hawaii.gov/

Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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