SB 2887: Income Tax Credit; Hawaiian Home Lands; Agricultural Investment Costs

A BILL FOR AN ACT

RELATING TO AGRICULTURE.

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

     SECTION 1.  The purpose of this Act is to establish a nonrefundable income tax credit for certain agricultural investment costs incurred for agricultural activities conducted on Hawaiian home lands.

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

     "§235-    Hawaiian home lands; agricultural investment tax credit.  (a)  There shall be allowed to each eligible taxpayer a nonrefundable tax credit against the taxpayer's net income tax liability for qualified agricultural investment costs incurred during the taxable year for agricultural activities conducted on Hawaiian home lands.

     (b)  The amount of the tax credit allowed under this section shall be equal to       per cent of the qualified agricultural investment costs incurred during the taxable year; provided that the total credit claimed by any taxpayer in a taxable year shall not exceed $          .

     (c)  The tax credit allowed under this section shall not reduce the taxpayer's net income tax liability below zero.  Any excess credit may be carried forward to subsequent taxable years until exhausted.

     (d)  The department of taxation, in consultation with the department of Hawaiian home lands, shall adopt rules pursuant to chapter 91 necessary to carry out the purposes of this section.

     (e)  As used in this section:

     "Agricultural business" has the same meaning as in section 235-110.93.

     "Eligible taxpayer" means any person engaged in an agricultural business who holds a valid lease, license, or right-of-entry issued by the department of Hawaiian home lands and conducts agricultural activities on Hawaiian home lands designated for subsistence agriculture, supplemental agriculture, or pastoral use pursuant to the Hawaiian Homes Commission Act of 1920, as amended.

     "Qualified agricultural investment costs" means expenditures incurred by an eligible taxpayer for agricultural purposes on Hawaiian home lands, including:

     (1)  The plans, design, engineering, construction, renovation, repair, maintenance, and equipment for agricultural infrastructure, including roads, utilities, irrigation systems, water storage facilities, water pipelines, ditches, reservoirs, and agricultural processing facilities used primarily for agricultural purposes;

     (2)  Equipment used primarily to cultivate, grow, harvest, or process agricultural products;

     (3)  Regulatory processing, feasibility studies, and legal, engineering, accounting, and other consultant services directly related to agricultural development or water access for agricultural activities;

     (4)  The planting and establishment of orchard or fruit-bearing crops, including the purchase of planting materials, soil preparation, planting, fertilization, irrigation, weed control, and pest management; and

     (5)  The clearing of former sugar or pineapple plantation lands that have been out of agricultural use for more than five years, including the removal of trees and debris, and soil restoration necessary to return the land to productive agricultural use."

     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, 2026.

Report Title:

Income Tax Credit; Hawaiian Home Lands; Agricultural Investment Costs

Description:

For taxable years beginning after 1/1/2027, establishes a nonrefundable income tax credit for certain agricultural investment costs incurred for agricultural activities conducted on Hawaiian home lands.  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 agriculture.

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

     SECTION 1.  The legislature finds that article XI, section 3, of the Hawaii State Constitution, sets out the framework for state policies to promote agriculture and the conservation of productive agricultural lands in the State.  To address the issue of important agricultural lands, Act 183, Session Laws of Hawaii 2005 (Act 183), established standards, criteria, and mechanisms to identify important agricultural lands and directed the department of agriculture and biosecurity to develop a program of incentives to promote agricultural viability.  Act 183 was further amended by Act 233, Session Laws of Hawaii 2008, to provide for the designation of public lands as important agricultural lands by requiring the department of agriculture and biosecurity and department of land and natural resources to jointly identify the state-owned lands that should be designated as important agricultural lands.

     The legislature further finds that section 204(a) of the Hawaiian Homes Commission Act, 1920, as amended, provides that Hawaiian home lands shall be under the control of the department of Hawaiian home lands requiring the use of lands in accordance with the Hawaiian Homes Commission Act.

     Accordingly, the purpose of this Act is to amend the important agricultural land qualified agricultural cost tax credit to include Hawaiian home lands designated for subsistence agriculture, supplemental agriculture, or pastoral in the definition of "important agricultural lands" and expand the definition of "qualified agricultural costs" to include costs relating to the planting of orchard or fruit-bearing crops, which typically take longer to yield or return and the improvement of former sugar and pineapple plantation lands.

     SECTION 2.  Section 235-110.93, Hawaii Revised Statutes, is amended by amending subsection (k) to read as follows:

     "(k)  [As used in] For the purposes of this section:

     "Agricultural business" means any person with a commercial agricultural, silvicultural, or aquacultural facility or operation, including:

     (1)  The care and production of livestock and livestock products, poultry and poultry products, apiary products, and plant and animal production for nonfood uses;

     (2)  The planting, cultivating, harvesting, and processing of crops; and

     (3)  The farming or ranching of any plant or animal species in a controlled salt, brackish, or freshwater environment;

provided that the principal place of the agricultural business is maintained in the State and more than fifty per cent of the land the agricultural business owns or leases, excluding land classified as conservation land, is important agricultural land.

     "Important agricultural lands" means lands identified and designated as important agricultural lands pursuant to part III of chapter 205[.], and Hawaiian home lands designated for subsistence agriculture, supplemental agriculture, or pastoral.

     "Net income tax liability" means income tax liability reduced by all other credits allowed under this chapter.

     "Qualified agricultural costs" means expenditures for:

     (1)  The plans, design, engineering, construction, renovation, repair, maintenance, and equipment for:

          (A)  Roads or utilities, primarily for agricultural purposes, where the majority of the lands serviced by the roads or utilities, excluding lands classified as conservation lands, are important agricultural lands;

          (B)  Agricultural processing facilities in the State, primarily for agricultural purposes, where the majority of the crops or livestock processed, harvested, treated, washed, handled, or packaged are from agricultural businesses;

          (C)  Water wells, reservoirs, dams, water storage facilities, water pipelines, ditches, or irrigation systems in the State, primarily for agricultural purposes, providing water for lands, the majority of which, excluding lands classified as conservation lands, are important agricultural lands; and

          (D)  Agricultural housing in the State, exclusively for agricultural purposes; provided that:

               (i)  The housing units are occupied solely by farmers or employees for agricultural businesses and their immediate family members;

              (ii)  The housing units are owned by the agricultural business;

             (iii)  The housing units are in the general vicinity, as determined by the department of agriculture, of agricultural lands owned or leased by the agricultural business; and

              (iv)  The housing units conform to any other conditions that may be required by the department of agriculture;

     (2)  Feasibility studies, regulatory processing, and legal and accounting services related to the items under paragraph (1);

     (3)  Equipment, primarily for agricultural purposes, used to cultivate, grow, harvest, or process agricultural products by an agricultural business; [and]

     (4)  Regulatory processing, studies, and legal and other consultant services related to obtaining or retaining sufficient water for agricultural activities and retaining the right to farm on lands identified as important agricultural lands[.];

     (5)  Planting of orchard or fruit-bearing crops on not less than       acres, including:

          (A)  The purchase of planting materials, including seeds, transplants, cuttings, and grafted plants; and

          (B)  Tillage, including the preparation of the soil, planting, weed control, fertilizing, irrigation, and pest management; and

     (6)  The clearing of, removal of trees and debris from, and soil restoration to correct any nutrient deficiency that is present on former sugar and pineapple plantation lands that have been out of agricultural use for more than five years and are to be used primarily for agricultural purposes."

     SECTION 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 4.  This Act, upon its approval, shall apply to taxable years beginning after December 31, 2026.

Report Title:

Important Agricultural Land Qualified Agricultural Cost Tax Credit; Hawaiian Home Lands; Important Agricultural Lands; Qualified Agricultural Costs

Description:

For taxable years beginning 1/1/2027, amends the Important Agricultural Land Qualified Agricultural Cost Tax Credit to:  (1) include Hawaiian home lands designated for subsistence agriculture, supplemental agriculture, or pastoral in the definition of "important agricultural lands"; and (2) expand the definition of "qualified agricultural costs" to include costs relating to the planting of orchard or fruit-bearing crops, or expenditures related to the clearing of former sugar and pineapple plantation lands.

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. 2565

Honolulu, Hawaii

RE:     S.B. No. 2887

        S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Sir:

     Your Committees on Agriculture and Environment and Hawaiian Affairs, to which was referred S.B. No. 2887 entitled:

"A BILL FOR AN ACT RELATING TO AGRICULTURE,"

beg leave to report as follows:

     The purpose and intent of this measure is to, for taxable years beginning January 1, 2027, amend the Important Agricultural Land Qualified Agricultural Cost Tax Credit to:

     (1)  Include Hawaiian home lands designated for subsistence agriculture, supplemental agriculture, or pastoral in the definition of "important agricultural lands"; and

     (2)  Expand the definition of "qualified agricultural costs" to include costs relating to the planting of orchard or fruit-bearing crops, or expenditures related to the clearing of former sugar and pineapple plantation lands.

     Your Committees received testimony in support of this measure from the Department of Hawaiian Home Lands and CARES.

     Your Committees received comments on this measure from the Department of Agriculture and Biosecurity, Department of Taxation, and Hawaiʻi Farm Bureau.

     Your Committees find that a key goal of the State is to achieve food sovereignty and to reduce Hawaii's reliance on food importation.  Previous legislation has established mechanisms to identify important agricultural lands critical to the success of agriculture in the State.  An integral part of this important agricultural lands framework is the Important Agricultural Land Qualified Agricultural Cost Tax Credit, which bolsters economically productive agriculture in the State.  Your Committees further find that subsistence agriculture, supplemental agriculture, or pastoral use on Hawaiian Home Lands, and certain agricultural practices, particularly for perennial crops and land restoration face eligibility barriers for the Important Agricultural Land Qualified Agricultural Cost Tax Credit despite their contributions to the State's goals.

     Your Committees acknowledge the concerns raised in testimony that emphasized the importance of maintaining the existing structure of the Important Agricultural Land Qualified Agricultural Cost Tax Credit.  Your Committees further acknowledge that this tax credit was designed to encourage landowners to commit land to permanent agricultural use in exchange for incentives.  Your Committees further note that the framework of the important agricultural lands program, including the Important Agricultural Land Qualified Agricultural Cost Tax Credit, requires agricultural lands to undergo a formal dedication process.  This measure would not require agriculture on Hawaiian Home Lands to undergo this dedication process.

     Your Committees note that the companion to this measure, H.B. No. 2017, H.D. 1 (2026), which was previously heard by the House of Representatives, establishes a separate Hawaiian Home Lands Agricultural Investment Tax Credit.  Your Committees believe that a tailored tax credit for agricultural activities conducted on Hawaiian Home Lands, while preserving the integrity and clarity of the existing Important Agricultural Land Qualified Agricultural Cost Tax Credit is more prudent.  Therefore, your Committees find that the language of H.B. 2017, H.D. 1 (2026), is preferable because it aligns incentives with the distinct land tenure structure governing Hawaiian Home Lands.

     Accordingly, your Committees have amended this measure by:

     (1)  Deleting its contents and inserting the contents of H.B. No. 2017, H.D. 1 (2026), a measure that:

          (A)  Establishes a nonrefundable income tax credit for certain qualified agricultural investment costs incurred for agricultural activities conducted on Hawaiian Home Lands; and

          (B)  Includes appropriate legislative findings; and

     (2)  Inserting an effective date of July 1, 2050, to encourage further discussion.

     As affirmed by the records of votes of the members of your Committees on Agriculture and Environment and Hawaiian Affairs that are attached to this report, your Committees are in accord with the intent and purpose of S.B. No. 2887, as amended herein, and recommend that it pass Second Reading in the form attached hereto as S.B. No. 2887, S.D. 1, and be referred to your Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committees on Agriculture and Environment and Hawaiian Affairs,