SB 250: RELATING TO TAXATION.

A BILL FOR AN ACT

RELATING TO TAXATION.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that the cost of interisland transportation is a bottleneck for market access by food producers in Hawaii.  This issue is also recognized by the United States Department of Agriculture, which administers a reimbursement transportation cost payment program for geographically disadvantaged farmers and ranchers to reimburse producers for a portion of the cost to transport agricultural commodities or inputs used to produce an agricultural commodity.  The reimbursement transportation cost payment program helps eligible farmers and ranchers outside the contiguous United States, including farmers and ranchers in the State and the Pacific, offset a portion of the cost of transporting agricultural products or inputs used to produce an agricultural commodity over long distances.  Payments from the program are calculated based on the costs incurred for transportation of the agricultural commodity or inputs during a twelve month period, subject to an $8,000 per producer cap per fiscal year.

     The legislature further finds that providing an income tax credit like the reimbursement transportation cost payment program that similarly reimburses producers for a portion of the cost to transport agricultural goods between the counties will reduce cost impacts to farm viability and consumer food price and support progress towards the State's Aloha+ Challenge commitment to increase local food consumption and production.

     Accordingly, the purpose of this Act is to establish an interisland produce shipping tax credit to alleviate the costs of interisland shipping for farmers and ranchers.

     SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§235-    Interisland produce shipping tax credit.  (a)  Each qualified taxpayer that files an individual or corporate net income tax return for a taxable year may claim a tax credit under this section against the Hawaii state individual or corporate net income tax imposed by this chapter for the taxable year in which the credit is properly claimed.

     In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for qualified transportation costs incurred by the entity for the taxable year.  The costs upon which the tax credit is computed shall be determined at the entity level.  Distribution and share of credit shall be determined by rule.

     (b)  The amount of the credit shall be equal to       per cent of the qualified transportation costs of the qualified taxpayer, up to a maximum of $          .

     (c)  The department of agriculture shall:

     (1)  Maintain records of the total amount of qualified transportation costs for each taxpayer claiming a credit;

     (2)  Verify the amount of the qualified transportation costs claimed;

     (3)  Total all qualified transportation costs claimed; and

     (4)  Certify the total amount of the tax credit for each taxable year.

     Upon each determination, the department of agriculture shall issue a certificate to the qualified taxpayer verifying the qualified transportation costs and the credit amount certified for each taxable year. 

     The qualified taxpayer shall file the certificate with the taxpayer's tax return with the department of taxation.  Notwithstanding the department of agriculture's certification authority under this section, the director of taxation may audit and adjust a certification to conform to the facts.

     (d)  The total amount of tax credits allowed under this section shall not exceed $           for all taxpayers in any taxable year; provided that of the $          :

     (1)  $           may be certified for qualified taxpayers who are farmers or ranchers;

     (2)  $           may be certified for qualified taxpayers who operate food hubs; and

     (3)  $           may be certified for qualified taxpayers who are broad line distributors.

If in any taxable year the annual amount of certified credits reaches the amount specified in paragraph (1), (2), or (3), the department of agriculture shall immediately discontinue certifying credits for the qualified taxpayers described in that paragraph and notify the department of taxation.  In no instance shall the department of agriculture certify a total amount of credits exceeding $           per taxable year.  To comply with this restriction, the department of agriculture shall certify credits on a first come, first served basis.

     (e)  If the tax credit under this section exceeds the qualified taxpayer's net income tax liability, the excess of the credit over liability may be used as a credit against the qualified taxpayer's net income tax liability in subsequent years until either the credit is exhausted, or for a period of five years, whichever is earlier.

     All claims for the tax credit under this section, including amended claims, shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed.  Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

     (f)  No other tax credit or deduction shall be claimed under this chapter for qualified transportation costs for the taxable year.

     (g)  The director of taxation:

     (1)  Shall prepare any forms that may be necessary to claim a tax credit under this section;

     (2)  May require the qualified taxpayer to furnish reasonable information to ascertain the validity of the claim for the tax credit made under this section; and

     (3)  May adopt rules under chapter 91 necessary to effectuate the purposes of this section.

     (h)  For the purposes of this section:

     "Broad line distributor" means a food service company that purchases a wide range of food products from manufacturers and stocks these goods in one of their distribution centers.  A "broad line distributor" may also offer value-added services designed to meet the needs of single-store restaurants and small chain restaurants.

     "Food hub" means a business or organization that actively manages the aggregation, distribution, and marketing of source‑identified food products, primarily from local producers, to strengthen the business or organization's ability to satisfy wholesale, retail, and institutional demand.

     "Qualified taxpayer" means any farmer or rancher who is an individual, group of individuals, partnership, corporation, estate, trust, association, cooperative, broad line distributor, food hub, or other business enterprise or other legal entity who:

     (1)  Shares in the risk of producing an agricultural commodity in substantial commercial quantities; and

     (2)  Is entitled to a share of the agricultural commodity from the agricultural operation.

     "Qualified transportation costs" means costs incurred, including air freight, ocean freight, and land freight, in transporting the following between counties:

     (1)  Produce and agricultural goods; and

     (2)  Inputs used to produce an agricultural commodity, including but not limited to chemicals, feed, fertilizer, fuel, seeds, plants, supplies, equipment parts, and other inputs."

     SECTION 3.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect on July 1, 2050, and shall apply to taxable years beginning after December 31, 2025.

Report Title:

Department of Agriculture; Department of Taxation; Income Tax Credit; Interisland Shipping; Agricultural Products and Inputs

Description:

Creates an income tax credit for qualified transportation costs incurred by certain taxpayers who ship agricultural products and inputs between counties.  Applies to taxable years beginning after 12/31/2025.  Effective 7/1/2050.  (SD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

A BILL FOR AN ACT

RELATING TO TAXATION.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that the cost of interisland transportation is a bottleneck for market access by food producers in Hawaii.  This issue is also recognized by the United States Department of Agriculture, which administers a reimbursement transportation cost payment program for geographically disadvantaged farmers and ranchers to reimburse producers for a portion of the cost to transport agricultural commodities or inputs used to produce an agricultural commodity.  The reimbursement transportation cost payment program helps eligible farmers and ranchers outside the contiguous United States, including farmers and ranchers in the State and the Pacific, offset a portion of the cost of transporting agricultural products or inputs used to produce an agricultural commodity over long distances.  Payments from the program are calculated based on the costs incurred for transportation of the agricultural commodity or inputs during a twelve month period, subject to an $8,000 per producer cap per fiscal year.

     The legislature further finds that providing an income tax credit like the reimbursement transportation cost payment program that similarly reimburses producers for a portion of the cost to transport agricultural goods between the counties will reduce cost impacts to farm viability and consumer food price and support progress towards the State's Aloha+ Challenge commitment to increase local food consumption and production.

     Accordingly, the purpose of this Act is to establish an interisland produce shipping tax credit to alleviate the costs of interisland shipping for farmers and ranchers.

     SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§235-    Interisland produce shipping tax credit.  (a)  Each qualified taxpayer that files an individual or corporate net income tax return for a taxable year may claim a tax credit under this section against the Hawaii state individual or corporate net income tax imposed by this chapter for the taxable year in which the credit is properly claimed.

     In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for qualified transportation costs incurred by the entity for the taxable year.  The costs upon which the tax credit is computed shall be determined at the entity level.  Distribution and share of credit shall be determined by rule.

     (b)  The amount of the credit shall be equal to       per cent of the qualified transportation costs of the qualified taxpayer, up to a maximum of $          .

     (c)  The department of agriculture shall:

     (1)  Maintain records of the total amount of qualified transportation costs for each taxpayer claiming a credit;

     (2)  Verify the amount of the qualified transportation costs claimed;

     (3)  Total all qualified transportation costs claimed; and

     (4)  Certify the total amount of the tax credit for each taxable year.

     Upon each determination, the department of agriculture shall issue a certificate to the qualified taxpayer verifying the qualified transportation costs and the credit amount certified for each taxable year.  For a taxable year, the department of agriculture may certify a credit for a qualified taxpayer who could have claimed the credit in a previous taxable year but chose not to because the maximum annual credit amount under subsection (d) was reached in that taxable year.

     The qualified taxpayer shall file the certificate with the taxpayer's tax return with the department of taxation.  Notwithstanding the department of agriculture's certification authority under this section, the director of taxation may audit and adjust a certification to conform to the facts.

     (d)  The total amount of tax credits allowed under this section shall not exceed $           for all taxpayers in any taxable year; provided that of the $          :

     (1)  $           may be certified for qualified taxpayers who are farmers or ranchers;

     (2)  $           may be certified for qualified taxpayers who operate food hubs; and

     (3)  $           may be certified for qualified taxpayers who are broad line distributors.

If in any taxable year the annual amount of certified credits reaches the amount specified in paragraph (1), (2), or (3), the department of agriculture shall immediately discontinue certifying credits for the qualified taxpayers described in that paragraph and notify the department of taxation.  In no instance shall the department of agriculture certify a total amount of credits exceeding $           per taxable year.  To comply with this restriction, the department of agriculture shall certify credits on a first come, first served basis.

     (e)  If the tax credit under this section exceeds the qualified taxpayer's net income tax liability, the excess of the credit over liability may be used as a credit against the qualified taxpayer's net income tax liability in subsequent years until either the credit is exhausted, or for a period of five years, whichever is earlier.

     All claims for the tax credit under this section, including amended claims, shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed.  Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

     (f)  The director of taxation:

     (1)  Shall prepare any forms that may be necessary to claim a tax credit under this section;

     (2)  May require the qualified taxpayer to furnish reasonable information to ascertain the validity of the claim for the tax credit made under this section; and

     (3)  May adopt rules under chapter 91 necessary to effectuate the purposes of this section.

     (g)  For the purposes of this section:

     "Broad line distributor" means a food service company that purchases a wide range of food products from manufacturers and stocks these goods in one of their distribution centers.  A "broad line distributor" may also offer value-added services designed to meet the needs of single-store restaurants and small chain restaurants.

     "Food hub" means a business or organization that actively manages the aggregation, distribution, and marketing of source-identified food products, primarily from local producers, to strengthen the business or organization's ability to satisfy wholesale, retail, and institutional demand.

     "Qualified taxpayer" means any farmer or rancher who is an individual, group of individuals, partnership, corporation, estate, trust, association, cooperative, broad line distributor, food hub, or other business enterprise or other legal entity who:

     (1)  Shares in the risk of producing an agricultural commodity in substantial commercial quantities; and

     (2)  Is entitled to a share of the agricultural commodity from the agricultural operation.

     "Qualified transportation costs" means costs incurred, including air freight, ocean freight, and land freight, in transporting the following between counties:

     (1)  Produce and agricultural goods; and

     (2)  Inputs used to produce an agricultural commodity, including but not limited to chemicals, feed, fertilizer, fuel, seeds, plants, supplies, equipment parts, and other inputs."

     SECTION 3.  New statutory material is underscored.

     SECTION 4.  This Act, upon its approval, shall apply to taxable years beginning after December 31, 2025.

Report Title:

Department of Agriculture; Department of Taxation; Income Tax Credit; Interisland Shipping; Agricultural Products and Inputs

Description:

Creates an income tax credit for transportation costs incurred by certain taxpayers who ship agricultural products and inputs between counties.  Applies to taxable years beginning after 12/31/2025.

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

STAND. COM. REP. NO. 50

Honolulu, Hawaii

RE:    S.B. No. 250

       S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2025

State of Hawaii

Sir:

     Your Committee on Agriculture and Environment, to which was referred S.B. No. 250 entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

     The purpose and intent of this measure is to provide an interisland produce shipping tax credit for transportation costs incurred by certain taxpayers who ship agricultural products and inputs between counties for taxable years beginning after December 31, 2025.  

     Your Committee received testimony in support of this measure from the Agribusiness Development Corporation; Hawaiʻi Farmers Union United; Hawaii Cattlemen's Council, Inc.; Hawaiʻi Farm Bureau; Hawaii Food Industry Association; Maui Chamber of Commerce; Larry Jefts Farms, LLC; and one individual.

     Your Committee received comments on this measure from the Department of Taxation and Tax Foundation of Hawaii.

     Your Committee finds that transportation costs in the State are disproportionately high due to Hawaii's unique island geography, which creates significant barriers for many local farmers, ranchers, and agricultural businesses in their ability to competitively market and sell their products.  Your Committee notes that the United States Department of Agriculture administers a reimbursement transportation cost payment program for geographically disadvantaged farmers and ranchers, including farmers and ranchers in Hawaii and the Pacific, for a portion of the cost to transport agricultural commodities or inputs (such as feed, fertilizers, and equipment) used to produce the agricultural commodities.  Your Committee believes that providing a similar state incentive will support local food production, while reducing the carbon footprint associated with importing goods from outside the State.  Your Committee further notes that alleviating the costs of interisland shipping for farmers and ranchers in the State will help level the playing field for neighbor island farmers and ranchers.

     Your Committee further finds that this measure, in its current form, contains conflicting provisions concerning deadlines for filing tax credit claims that may hamper the effective administration of the tax credit.  Amendments to this measure are therefore necessary to address these concerns.

     Accordingly, your Committee has amended this measure by:

     (1)  Deleting language that would have allowed the Department of Agriculture to certify credits for qualified taxpayers who could have claimed the credit in a previous taxable year but chose not to because the maximum annual credit amount was reached in that taxable year;

     (2)  Inserting language clarifying that no other tax credit or deduction may be claimed for qualified transportation costs for the taxable year;

     (3)  Inserting an effective date of July 1, 2050, to encourage further discussion; and

     (4)  Making technical, nonsubstantive amendments for the purposes of clarity and consistency.

     As affirmed by the record of votes of the members of your Committee on Agriculture and Environment that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 250, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 250, S.D. 1, and be referred to your Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committee on Agriculture and Environment,