Hawaii R&D Tax Credit Summary

Hawaii allows a refundable credit against corporate or personal income tax for expenditures on research activities to "Qualified High Technology Businesses" (businesses which conduct more than 50% of its activities in qualified research). The credit is generally based on the federal research credit allowed under IRC Sec. 41 and is available for years 2013 through 2019.

Hawaii’s credit may be claimed by a Qualified High Technology Business (QHTB) as defined under Hawaii Revised Statutes Section 235-7.3(c). Hawaii adopts I.R.C. Section 41 as of Dec. 31, 2011, with the further requirement that eligible research expenses don’t include research expenses incurred outside of Hawaii.  The tax credit for research activities can only be claimed by Qualified High Technology Businesses.

“Qualified High Technology Business” is defined in section 235-7.3(c), Hawaii Revised Statutes. Act 270, Session Laws of Hawaii 2013 (Act 270), which reenacts the Hawaii Tax Credit for Research Activities (TCRA), applies to taxable years beginning after December 31, 2012, and sunsets for taxable years beginning after December 31, 2019.

Section 235-7.3(c) states “Qualified High Technology Business” means a business that conducts more than 50% of its activities in qualified research. “Qualified research” means the following:

  • (1) The same as in section 41(d) of the Internal Revenue Code;

  • (2) The development and design of computer software for ultimate commercial sale, lease, license or to be otherwise marketed, for economic consideration.

    • With respect to the software's development and design, the business shall have substantial control and retain substantial rights to the resulting intellectual property;

  • (3) Biotechnology;

  • (4) Performing arts products;

  • (5) Sensor and optic technologies;

  • (6) Ocean sciences;

  • (7) Astronomy; or

  • (8) Nonfossil fuel energy-related technology.

Summary of Hawaii's R&D Tax Credit:

  • The R&D tax credit equals the amount of federal tax credit from Form 6765 multiplied by the percentage of eligible research expenses attributable to Hawaii.

    • Calculation of the Hawaii R&D tax credit is calculated by multiplying the federal tax credit for increasing research activities by a fraction, the numerator of which is the amount of eligible research expenses for research conducted in Hawaii and the denominator of which is the amount of expenses eligible for the federal tax credit for increasing research activities.

  • The federal tax provisions in IRC § 41, as that section was enacted on December 31, 2011, will remain in effect for purposes of determining the Hawaii credit and will apply only to expenses incurred for qualified research activities after December 31, 2012.

    • In particular, Act 270 adopts IRC section 41 as of December 31, 2011, with the further requirement that eligible research expenses do not include research expenses incurred outside of Hawaii. ​ 

    • Act 270 also adopts the base amount as set forth under IRC section 41(c), such that only the increasing incremental amounts are eligible for the credit.

    • Act 270 requires that in order for a taxpayer to claim the Hawaii TCRA, said taxpayer must also claim the federal tax credit for increasing research activities under IRC section 41. For more information, see Tax Information Release No. 2013-02.

  • ​The credit reduces the taxpayer’s net income tax liability for the taxable year in which the credit is properly claimed.

  • Excess R&D Tax Credit of taxpayer’s net income tax liability is refundable

    • If the amount of the Hawaii credit exceeds the amount of the taxpayer’s Hawaii tax liability (if any) for the applicable tax year, the difference is refunded to the taxpayer.​

Who May Claim the Credit

  • This credit may be claimed by a qualified high technology business (QHTB) as defined under section 235-7.3(c), HRS.

    • Any partnership, S corporation, estate, trust, or cooperative that allocates this credit (including a pro rata share of the credit from a flow-through entity) must attach Form N-346, Form N-346A, and federal Form 6765 to its income tax return.

  • Taxpayers claiming their pro rata share of the credit must also attach a copy of their Schedule K-1s.

When the Credit May Not Be Claimed

  • This credit may not be claimed if either of the following apply to your tax situation:

    • (1) you are not claiming the federal tax credit for research activities under IRC section 41.

    • (2) You have no eligible Hawaii research expenses Credit Requirements

Credit Claim Requirements:

  • (1) The credit must be certified by the Department of Taxation. See Form N-346A for more information.

  • (2) The credit form (Form N-346), certification form (Form N-346A), federal Form 6765, Schedule K-1s (pro rata share credit claims), and Schedule CR (for tax returns for which carryforward Schedule CR is required) must be attached to the taxpayer’s income tax return.

  • (3) The QHTB must complete an annual survey as prescribed by the Department of Business, Economic Development, and Tourism (DBEDT).

  • *Failure to satisfy these requirements shall constitute a WAIVER of the right to claim the credit

When the Credit May NOT Be Claimed

  • This credit may not be claimed if either of the following apply to your tax situation: 

    • (1) you are not claiming the federal tax credit for research activities under IRC section 41.

    • (2) You have no eligible Hawaii research expenses.

Eligible Entities: C-Corporation, S-Corporations, LLCs, Partnerships

Deadline for Tax Filing: Due with Hawaii Tax Return (see also certification and annual survey deadlines below).

  • Effective for taxable years beginning after December 31, 2012, every qualified high technology businesses (QHTB) MUST submit a written, certified statement (see Form N-346A and instructions) identifying any qualified expenditures made and the amount of the tax credits claimed during the taxable year to the Director of Taxation BEFORE March 31 of the year following the taxable year when the qualified investments or expenditures were made.

    • The taxpayer must file the certificate along with the corporate or personal income tax return.

    • The certificate is subject to fees, unless the credit claimed is less than $25,000.

  • Effective July 1, 2013, QHTBs that claim the credit MUST complete and file an annual survey on electronic forms prepared and prescribed by the Department of Business, Economic Development, and Tourism (DBEDT) BEFORE June 30 of each calendar year following the calendar year in which the credit may be claimed.

  • The deadline to claim the credit, including amended claims, is 12 months after the close of your taxable year. You CANNOT claim the credit AFTER the deadline.

Data Required to Compute Credit

  • Claim Period Hawaii Qualified R&D Expenses (QREs)

  • Claim Period Federal Qualified R&D Expenses (QREs)

Credit Carryforward: None - excess is refundable.

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