SB 768: Alternative Water Source Income Tax Credit; Water Conservation; Water Catchment; Water Delivery Services

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 water is essential to life and flourishing local communities, yet some communities, such as portions of the Ka‘ū region of Hawai‘i island, lack access to municipal water infrastructure, leaving residents to rely on water catchment systems and water delivery services to meet their basic needs.  Notably, areas that lack water resources are often highly impoverished, and a lack of water access can worsen preexisting economic precarity.

     The legislature additionally finds that water catchment systems can be cost-effective, reliable, and safe and reduce consumer demand for fresh water.  Water catchment systems can promote water conservation; mitigate flooding; and conserve energy needed to pump, treat, and transport fresh water for consumer use.

     The purpose of this Act is to provide one alternative water source income tax credit to taxpayers who either install, place into service, or repair a water catchment system or to taxpayers who purchase water delivery services.

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

     "§235-    Alternative water source tax credit.  (a)  Each taxpayer who files an individual income tax return for a taxable year may claim an income tax credit equal to the lesser of:

     (1)        per cent of the costs of installing, placing into service, or repairing a water catchment system on a residential property located in the State that is owned by the taxpayer; or

     (2)        per cent of the costs of purchasing water delivery services of at least two hundred fifty gallons of water during the taxable year to a residential property located in the State that is owned by the taxpayer;

provided that the amount of the tax credit claimed under this section by a taxpayer shall not exceed $500 per taxable year; provided further that if a residential property that qualifies for the credit is owned by more than one taxpayer in the same taxable year, the tax credit may only be claimed by one taxpayer in that taxable year.

     (b)  A taxpayer shall be limited to claiming only one of the credit amounts in subsection (a)(1), (2), or (3).  If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of the credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted; provided that no credit forward shall be claimed more than five years after the initial claim for credit is made under this section.

     (c)  All claims for a tax credit under this section, including any 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.

     (d)  The director of taxation shall prepare any forms that may be necessary to claim a tax credit under this section.  The director may also require the taxpayer to furnish reasonable information to ascertain the validity of the claim for the credit and adopt rules, pursuant to chapter 91, necessary to implement this section.

     (e)  For the purposes of this section:

     "Water catchment system" means a system of catching rainwater from a surface and transporting it through a conveyance system to a storage container with a minimum capacity of one thousand gallons on a residential property located in the State that is owned by the taxpayer.

     "Water delivery service" means a service that delivers fresh water to a residential property located in the State that is owned by the taxpayer."

     SECTION 3.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect on December 31, 2050; provided that section 2 shall apply to taxable years beginning after December 31, 2026.

Report Title:

Alternative Water Source Income Tax Credit; Water Conservation; Water Catchment; Water Delivery Services

Description:

Creates an alternative water source income tax credit for taxpayers who install, place in service, or repair a water catchment system or who purchase water delivery services.  Applicable to taxable years beginning after 12/31/2026.  Effective 12/31/2050.  (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 water is essential to life and flourishing local communities, yet some communities, such as portions of the Ka‘ū region of Hawai‘i island, lack access to municipal water infrastructure, leaving residents to rely on water catchment systems and water delivery services to meet their basic needs.  Notably, areas that lack water resources are often highly impoverished, and a lack of water access can worsen preexisting economic precarity.

     The legislature additionally finds that water catchment systems can be cost-effective, reliable, and safe and reduce consumer demand for fresh water.  Water catchment systems can promote water conservation; mitigate flooding; and conserve energy needed to pump, treat, and transport fresh water for consumer use.

     The purpose of this Act is to provide one alternative water source income tax credit to taxpayers who either install, place into service, or repair a water catchment system or to taxpayers who purchase water delivery services.

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

     "§235-     Alternative water source tax credit.  (a)  Each taxpayer who files an individual income tax return for a taxable year may claim a refundable income tax credit equal to the lesser of:

     (1)  The costs of installing, placing into service, or repairing a water catchment system on a residential property located in the State that is owned by the taxpayer;

     (2)  The costs of purchasing water delivery services of at least two hundred fifty gallons of water during the taxable year to a residential property located in the State that is owned by the taxpayer; or

     (3)  $500.

     (b)  A taxpayer shall be limited to claiming only one of the credit amounts in subsection (a)(1), (2), or (3).  The tax credit claimed by a taxpayer pursuant to this section shall be deductible from the taxpayer's net income tax liability, if any, for the tax year in which the tax credit is properly claimed.  If the tax credit claimed by a taxpayer exceeds the amount of income tax payments due from the taxpayer, the excess of credits over payments due shall be refunded to the taxpayer; provided that tax credits properly claimed by an individual who has no income tax liability shall be paid to the individual; provided further that no refunds or payment on account of the tax credits allowed by this section shall be made for amounts less than $1.

     (c)  All claims for a tax credit under this section, including any 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.

     (d)  The director of taxation shall prepare any forms that may be necessary to claim a tax credit under this section.  The director may also require the taxpayer to furnish reasonable information to ascertain the validity of the claim for the credit and adopt rules, pursuant to chapter 91, necessary to implement this section.

     (e)  As used in this section:

     "Water catchment system" means a system of catching rainwater from a surface and transporting it through a conveyance system to a storage container with a minimum capacity of one thousand gallons on a residential property located in the State that is owned by the taxpayer.

     "Water delivery service" means a service that delivers fresh water to a residential property located in the State that is owned by the taxpayer."

     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:

Alternative Water Source Income Tax Credit; Water Conservation; Water Catchment; Water Delivery Services

Description:

Creates an alternative water source income tax credit for taxpayers who install, place in service, or repair a water catchment system or who purchase water delivery services.

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. 2162

Honolulu, Hawaii

RE:     S.B. No. 768

        S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Sir:

     Your Committee on Health and Human Services, to which was referred S.B. No. 768 entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

     The purpose and intent of this measure is to create an alternative water source income tax credit for taxpayers who install, place in service, or repair a water catchment system or who purchase water delivery services.

     Your Committee received testimony in support of this measure from one individual.

     Your Committee received testimony in opposition to this measure from the Libertarian Party of Hawaii.

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

     Your Committee finds that water is essential to life and flourishing local communities, yet some communities, such as portions of the Kaʻū region of Hawaiʻi island, lack access to municipal water infrastructure, leaving residents to rely on water catchment systems and water delivery services to meet their basic needs.  Your Committee further finds that water catchment systems can be cost-effective, reliable, and safe, and reduce consumer demand for fresh water.  This measure establishes a tax incentive to support the use of water catchment systems as a viable means of providing safe and reliable water access for communities.

     Your Committee has amended this measure by:

     (1)  Making the income tax credit nonrefundable;

     (2)  Inserting language to make the income tax credit based on a percentage of eligible costs, rather than a fixed amount;

     (3)  Clarifying that the amount of the tax credit shall not exceed $500 per taxable year;

     (4)  Inserting language to clarify that if a residential property that qualifies for the income tax credit is owned by more than one taxpayer in the same taxable year, the tax credit may only be claimed by one taxpayer in that taxable year;

     (5)  Inserting language to clarify that no credit forward shall be claimed more than five years after the initial claim for the tax credit;

     (6)  Inserting an effective date of December 31, 2050, to encourage further discussion;

     (7)  Making it apply to taxable years beginning after December 31, 2026; and

     (8)  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 Health and Human Services that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 768, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 768, S.D. 1, and be referred to your Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committee on Health and Human Services,