HAR §15-6-16.

5 Qual ified Business ; Certi f i cation by t he Department State criteria used to determine business qualification Business application procedur e State income tax credits and general excise tax exemption avail able to a b usiness that has been certified Calculation of eligibil ity for tax credits and exempti ons ; apportionment Wholesale sale of tangible personal property Sale of services Manufacturing Terms and conditions under which t he tax credits and the general excise exemption may be claimed by a certified business Force majeure event Subchapter 4 Administration §15-6-17 Administration §15-6-18 Waiver §15-6-19 Severability SUBCHAPTER 1 GENERAL PROVISIONS § 15- 6- 1 Purpose . The purpose of t h is chapt er is to provide r u les for admini strat ion of the state 6-2 } 14 3 •..iu,I §15- 6- 2 enter prise zones program a uthorized by chapter 209E, Hawaii Revised Statutes ("HRS"). [Eff 11/3/90; comp FEB 2 g 2015 ] (Auth : HRS §209E- 8 ) (Imp: HRS §209E- l) §15- 6- 2 Definiti ons . As used in this chapter, unless a different meaning clearly appears in the context : "Average number of f ull-time employees" means the sum of the number of full-time employees employed at the end of each payroll period during a qualified business ' taxable year divided by the n umber of payroll periods in the taxabl e year . " Base taxable year" means t he taxabl e year preceding t he taxable year during which the business is first qualified under this program . "County" or "counties" means the city a nd county of Honolulu and the counties of Hawaii , Kauai , and Maui . " Department " means t he department of business, economic development and tourism . " Developed" mean s the improvement s made to land through t he construction, repai r , or remodeling of structures to accommodate the principal use to which the land is or will be put . Improvements to l and where parking is the principal use shall not constitute development except where the business purchasing or leasing the l and can demonstr ate to the satisfaction of the county a nd depart ment that s uch use is necessary in order to f urther the purpose of the program and the l ocal development objectives . " Director" means the director of bus i ness, economic development and tourism. " Ent e r prise zone" means an area selected by a county and approved by the governor to be eligible for this program . "Establishment " means a s i ngle physical location where business is conducted . A qualified business may 6-3 §15-6-2 include one or more establishments , at least one of which must be i n an enterprise zone . "Extended three-year cycle" means the t hirty-six consecutive months during which qualif~ed businesses engaged in the manufacturing of tangible personal property or the producing or processing of agricultural products may receive enterprise zone benefits in addition to the business' seven- year cycle . " Full-time employee" means an empl oyee, including a l eased employee and an employee under a joint employment arrangement as defined in section 209E-2, HRS, for whom the employer is l egall y required to provide employee fringe benefits. "Governing body" means the mayor or county council, or both, as provided by county ordinance . "Gross receipts" means gross income, wherever derived, as reported on a qualified business ' general excise tax return or similar computation for those businesses exempt from chapter 237 , HRS . " Person" means the same as defined in section 235-1 , HRS. " Program" means the state enterprise zones program authorized by chapter 209E, HRS. "Qualification period" means the seven-year cycle, plus , if applicable, the extended three- year cycle . "Qualified business " means the same as defined in section 209E- 2 , HRS. " Service business " means is not owned by the service business or calling . a qualified business that repairs ships , aircraft, or assisted technology equipment , provides telecommunication services , medical and health care services , or education and training services as defined in chapter-209E, HRS . Where the service business , in the same transaction, engages in both the sale of tangible property and services, the service business shall segregate the sale of services that are 6- 4 314 3 §15- 6- 3 exempt under chapter 209E, HRS, f r om t he sale of tangibl e personal property . The service business shall sustain the burden of proving the segregation was properly made . I f the service business fails to s ustain the burden, the ent ire transact ion shall be s ubject to the gener al exci se t ax . "Seven- year cycle" means the eighty-four consecutive months during which a q ualified business may receive enterprise zone benefit s . The cycl e begins on the f i rst of the month following the date the department determines that a business is eli gible to participate in the enterprise zones program. The cycle ends after eighty-four consecutive months . "State" means t he State of Hawaii . "Taxable year" or " tax year" means the calendar year (or the fiscal year ending during such calendar year) on the basis of whi ch taxes due the St ate are computed under the applicable tax l aw. "Taxes due the State" means income t axes due under chapter 235 , HRS . "Whol esal e " means those activities defined in secti on 237-4(8) , HRS . [Eff 11/3/ 90; am and comp FEB 2 8 2015 l (Auth : HRS §209E- 8) (I mp : HRS §209E-2) SUBCHAPTER 2 APPLI CATION FOR, SELECTION CRITERI A, AND TERMI NATION OF ENTERPRISE ZONE STATUS §15-6-3 Eligibility criteri a for zone nomination . (a) To be designat ed as an enterprise zone , a proposed area shall be l ocated within one United States census tract or two or more contiguous Uni ted States census tracts in accordance with t he most recent decennial United States Census . The c e ns us tract or tract s wi thin wh i ch each enter pri se zone is 6-5 314 3 §15-6- 4 locat ed also shall meet at least one of the following requirements: (1) At least twenty-five per cent of the population of each census tract shall have a median family income bel ow eighty per cent of the median family income of the county in which the census tract is located; or (2) The unemployment rate in each census tract shall be at least 1.5 t imes the state average unemployment rate. [Eff 11/3/90; am and comp FEB 2 8 2015 (Auth : HRS §209E- 8) (Imp: HRS §209E- 4) §15-6-4 Procedure for zone nomination by counties. (a) Nominations for enterprise zone designation shall be made by the governing body of each county . (b) For each proposed enterprise zone, the governing body of the county shall submit an application which includes : (1) A written description of the boundaries of the proposed zone; (2) A map identifying the proposed enterprise zone boundaries relative to the boundaries of the census tracts that will be f ully or partially included in the zone; and relative to the state l and use district classifications, publicly held lands , and county general plan and/or development plan classifications; and (3) A statement indicating the local i ncentives proposed by the county. Each county may propose incentives which it will make generally available throughout the zone or available only to certain types of b usinesses for l imited periods of time . [Eff 11/3/90; comp FEB 2 8 2015 ] (Auth: HRS §209E-8) (Imp: HRS §§209E-4, 209E-12) 6-6 314 3 , §15-6-6 §15-6-5 Procedure for state review of zone nominations . (a) The application shall be reviewed by the department within sixty days of receipt of the completed application . Within ninety days of receipt , the director shall recommend for approval by the governor those applicat ions which meet the requirements set forth by statute and these rules . (b) The governor shall approve, upon recommendation of the director, enterprise zone status for a twenty- year period beginning on the date of approval. The amendment of the zone status under section 15-6-7 shall not extend the twenty-year period . (c) A county whose application for zone designation is denied shall be notified and provided with the reasons for denial. [Eff 11/3/90; comp FEB 2 8 2015 ] (Auth: HRS §209E- 8) (Imp: HRS §209E-5) §15-6- 6 Zone selection criteria and other requirements . (a) In its recommendations to the governor, the department shall consider the economic condition of the area , the potential benefits which may accrue to the State and counties f r om business and industrial development in the area , and the need and potential for job creation in the area . (b) A maximum of six areas in each county may be designated as enterprise zones . (c) If any portion of an area designated as a state enterprise zone is subsequently included in an area designated as an enterprise zone by an agency of the fede r a l government , the state enterprise zone shall be enl arged to include the area designated by the federal government. (d) Upon designation of an area as an enterprise zone , the State and any agency of a political subdivision that owns any land within the enterprise zone may make available for sale or lease, under 6-7 , 1ii 1 §15-6-8 appropriate law, all land within the zone not designated or targeted for public use with the condition that it be developed as defined in this chapter . No public land shall be sold or leased if the intended purpose of the sale or lease is real estate speculation. [Eff 11/3/90; comp FEB 28 2015 (Auth : HRS §209E-8) (Imp : HRS §209E-4) §15- 6- 7 Procedure for amendment of zone status by counties. (a) A county may request amendment (or termination--see following section) of zone applications by submitting a written notification in accordance with the procedures contained in sections 15- 6-4, 15-6- 5, and 15- 6- 6. Requests for amendments will be considered if the amendments relate to : (1) Changes in local program incentives; (2) Changes of zone boundaries ; or (3) Termination of the zone . (b) If the request is for expansion of a zone boundary, the expanded zone area shall meet the eligibility requirements of section 15-6-3. (c) The request for amendment shall be reviewed by the department and forwarded to the governor. If approved by the governor, the amendment shall take effect on the date of approval. A county whose application for amendment is denied by the governor shall be notified and provided with the reasons for denia l . [Eff 11/3/90; am and comp FEB282015 ] (Auth : HRS §209E- 8) (Imp : HRS §209E-13) §15-6-8 Procedure for termination of zone designation by State or counties . (a) A county shall notify the department of any inability or unwillingness to continue a ny approved local incentives for any zone or zones within the county ' s jurisdiction. This shall result in termination of any affected zone on t he date notification is received by the department . The department s hall advise the 6-8 1 314 3 'Ii §15-6-9 department of taxation that the zone has been terminated . (b) If the department determines that a business is qualified to participate in the program prior to the termination of the zone by a county or prior to the zone' s expirati on at the end of i ts twenty-year life, the business may be e l igible for state tax credits and the s t ate general excise tax exemption for the remainder of the business ' qualification period . [Eff 11/3/90; am and comp FEB 28 2015 ] (Auth: HRS §209E-8) (Imp: HRS §209E-13) SUBCHAPTER 3 DESIGNATION OF A BUSINESS AS A QUALIFIED BUSINESS; CERTIFICATION BY THE DEPARTMENT §15-6-9 State criteria used to determine business qualification. (a) To qualify for enterprise zone benefits, a qualified business authori zed to do business in the State shall satisfy the fol l owing requirements: (1) Be subject to chapter 235, HRS (2) Be engaged in an eligible business acti vity, as defined in section [] 209£-2 , HRS; and (3) [] Meet t he requirements under either (] subsection (c) or (d) . (b) Where the department finds that a business becomes eligible to participate under t he program during a business ' taxable year, rather than a t the start of the taxable year, the requirement that at least fifty per cent of the business ' enterprise zone [] establishments ' gross receipts be attributable to the active conduct of a trade or business within 6-9 ~ 1 /, ~ §15-6-9 enterprise zones located within t he same county, and the requirement that the business increase i ts average a nnual number of full-time employees by at least ten per cent by the end of its first tax year of participation, and the requirement that a business increase its gross sales of agricultural crops or agricultural products by two per cent annually, shall be determined by t he actual number of months that it does business within enterprise zones located within the same county during the taxabl e year . (c) [) A business which begins operation of a trade or business in an eligible business activity within a zone after the date of zone designat ion shall meet the following requirements : (1) During each taxable year, at l east fifty per cent of the business ' enterprise zone [) establishments ' gross receipts a r e attributable to the acti ve conduct of a t r ade or business[) within ent erprise zones located within the same count y ; and (2) Increases its average annual number of full­ time employees employed a t the business ' est ablishment or establishments within enterprise zones located within the same county by at least ten per cent by the end of its first tax year of participation, and during each subsequent taxable year at least maintains t hat higher l evel of employment; or (3) Increases its gross sales of agricultur al crops produced, or agricultur a l products processed wi thin enterprise zones located within the same county by two per cent annuall y . (4) If t he calculation used to determine compliance with paragraph (2) results in a fractional percentage , the result should be 6- 10 §15- 6-9 rounded up or down to the next whole percentage . (d) A business which is actively engaged in the conduct of a trade o r bu siness in an e l igible business activity in a zone prior to t he time of zone designation shall meet the following requirements : (1) During each taxable year, at least f ifty per cent of t he business ' enterprise zone establishments ' gross recei pts are attributable to the active conduct of a trade or business within enterprise zones located within t he same county; and Either : (i) I ncreases its average a nnual number of full - time employees employed at the business ' establishment or establis hments within enterpri se zones located within the same county by at least ten per cent by the end of the first year of oper ation, and by at least fif t een per cent by the end of each of the fourth, fifth, sixth, and seventh years of operation, and for businesses eligible for tax credits extending past t he seventh year, at least ma intains that higher l evel of employment during each subsequent taxable year; or (ii) Increases i ts gross sales of agricultural crops produced, or agricultural products processed within enterprise zones located within the same county by two per cent a nnua lly. (3) The percentage increase in paragraph (2) s ha l l be based on the employee count at the beginning of t he initial year of operation wit hin the enterprise zone or zones . 6-11 3143 §15-6- 10 (4) If the calculations used to determine compliance with paragraph (2) results in a fractional per centage, t he result should be rounded up or down to the next whol e percentage . (e) Even after the certification of a business at the end of the initial year of q ua l ification, a business must meet the requirements o f t his section in each year remaining in i ts quali f i cation period to receive certifi cation for the tax credits or the exemption from the general exci se tax for that year . [Eff 11/3/90 ; am and comp FEB 2 8 2015 ] (Aut h : HRS §209E-8) (Imp: HRS §209E- 9)