Tuesday, October 22, 2019
Hawai'i Free Press

Current Articles | Archives

Tuesday, July 24, 2012
Audit: State Gave Away $1B Act 221 Tax Credits Without Verification of Eligibility
By Selected News Articles @ 8:47 PM :: 7378 Views :: Tax Credits

Audit of the Department of Taxation’s Administrative Oversight of High-Technology Business Investment and Research Activities Tax Credits

DoTAX Struggled To Manage a Deficient High-Technology Tax Credit Law

“It’s all in [my] head.” —DoTAX returns classifying officer’s response when asked why he does not have any written policies and procedures to guide him through the audit identification and selection process.

Report of State Auditor Marion M Higa  July, 2012

High-technology business investment and research activities tax credits were created in Act 178, Session Laws of Hawai‘i (SLH) 1999, as part of a broader effort by the State to stimulate the growth and development of high-technology industries in Hawai‘i. Although Act 178 contained eight initiatives, the tax credits would later become the hallmark of this legislation.

Initially, the tax credit was equivalent to 10 percent of the investment in each qualified high technology business (QHTB), with a maximum of $500,000 for the taxable year. In 2001, via Act 221, the tax credit was increased to 100 percent, claimable over five years with a maximum of $2 million per investment per QHTB, quadrupling the allowable amount per investment.

The law did not provide a maximum total cumulative amount of tax credits available to taxpayers, so the amount of tax expense to the State was unlimited. In addition, the research activities tax credit was a refundable credit and the amount was equal to 20 percent of all QHTB qualified research expenditures.

In our audit, we found that the tax credits law and its subsequent amendments, which sunset in 2010, did not contain any goals and performance measures to effectively measure the tax credits.  We also found that other states administer similar tax credits outside their taxation departments and their reporting requirements mandate disclosure of taxpayer information by law.

In addition, the numerous amendments to the law increased the number of tax credit claims and gave the Department of Taxation (DoTAX) more administrative responsibilities related to the tax credits.

Finally, because the law was silent as to the expectations of DoTAX, it implemented the tax credits as it had for all tax credits by issuing forms and guidance, auditing taxpayer returns, and reporting on the credits in its existing reports. As a result, the State can neither measure nor ensure the effectiveness of the nearly $1 billion in tax credits.

Taxpayers may receive tax credits for which they do not qualify

In 2004, the law was amended to require that DoTAX certify the amount of tax credits for all taxpayers claiming the credit by verifying the nature and amount of the qualifying investments. Given the high volume of applications and a short window of time in which to certify them, DoTAX performs only a high-level review that does not verify self-reported numbers; it basically just “checks the math” on the form. In addition, DoTAX audits only a fraction of all taxpayers claiming the tax credits. We utilized existing data from various reports and found that for tax years 2001–2004, an average of less than 3 percent of the total number of high-technology tax claims were audited.

Although the credits have sunset, there may be similar initiatives on the horizon that the Legislature may wish to support by way of state policy. At that time, the Legislature should consider imbedding a means to measure effectiveness, including specific goals, performance standards, and an evaluation process. Without well-understood expectations and the appropriate infrastructure in place to support the initiative, the State will never know the success of its policies.

Response of the Affected Agency

In its response, the department expressed its appreciation for our report. The department concurs with our finding that the continuous legislative changes since 1999 increased the complexity of the tax credit provision and the department’s responsibilities. To address our recommendations, the department is in the process of filling vacant and other positions needed to complete reporting on the tax credits for prior years. Lastly, the director assured us that the department will continue to review our recommendations for improvements.


PBN: Audit: Hawaii high-tech tax credits cost state $1B


TEXT "follow HawaiiFreePress" to 40404

Register to Vote


808 Silent Majority

808 State Update AM940


ACA Signups Hawaii



Alliance Defending Freedom

Aloha Life Advocates

Aloha Pregnancy Care Center

American Council of Trustees and Alumni

American Mothers of Hawaii



Antonio Gramsci Reading List

A Place for Women in Waipio

Audit The Rail

Ballotpedia Hawaii

Better Hawaii 

Blaisdell Memorial Project

Broken Trust

CAFR Hawaii

Castaway Conservative

Children's Alliance Hawaii

Children's Rights Institute

Christian Homeschoolers of Hawaii

Citizens for Recall

Cliff Slater's Second Opinion

Coffee Break

Conservative Forum for Hawaii

CSIS Pacific Forum

DAR Hawaii


DVids Hawaii

E Hana Kakou Kelii Akina

E Māua Ola i Moku o Keawe

Farmers For Choice Hawaii


Fix Oahu!

Follow the Money Hawaii

Frank in Hawaii

Front Page Magazine

Frontline: The Fixers

Genetic Literacy Project

Get Off Your Butts!

God, Freedom, America

Grassroot Institute


Hawaii Aganst Assisted Suicide

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii Coalition Against Legalized Gambling

Hawaii ConCon Info

Hawaii Credit Union Watch

Hawaii Crime Victims' Rights

Hawaii Crop Improvement Association

Hawaii Debt Clock

Hawaii Defending Marriage

Hawaii Defense Foundation

Hawaii Families for Educational Choice

Hawaii Family Advocates

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federalist Society

Hawaii Federation of Republican Women

Hawaii Firearm Community

Hawaii Fishermen's Alliance

Hawaii Future Project

Hawaii Gathering of Eagles

Hawaii History Blog

Hawaii Homeschool Association

Hawaii Jihadi Trial

Hawaii March for Life

Hawaii Meth Project

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Right to Life -- Big Island

Hawaii Right to Life -- Oahu

Hawaii Shield Law Coalition

Hawaii Shippers Council

Hawaii Smokers Alliance

Hawaii State Data Lab

Hawaii Together

Heritage Foundation

HI Coalition Against Legalized Gambling



Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Homeless Crisis

Honolulu Navy League

Honolulu Traffic

Horns of Jericho Blog

House Minority Blog

House Republican Caucus YouTube


Hump Day Report

I Vote Hawaii

If Hawaii News

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

Investigative Project on Terrorism

Iowa Meets Maui

Jackson v Abercrombie

Jihad Watch

Judgepedia Hawaii

July 4 in Hawaii

Kahle v New Hope

Kakaako Cares

Kau TEA Party

Kauai Co GOP

Keep Hawaii's Heroes


Land and Power in Hawaii

Legislative Committee Analysis Tool

Lessons in Firearm Education

Lingle Years

Malulani Foundation

Managed Care Matters -- Hawaii

Malama Pregnancy Center of Maui

Mauna Kea Recreational Users Group


Middle East Forum--The Legal Project

Mililani Conservatives for Change

Military Home Educators' Network Oahu

Missile Defense Advocacy

MIS Veterans Hawaii

Muslim Brotherhood in America

NAMI Hawaii



National Christian Foundation Hawaii

National Parents Org Hawaii

National Wind Watch

New Zeal

NFIB Hawaii News

No GMO Means No Aloha

Northwest Economic Policy Seminar

Not Dead Yet, Hawaii

Now What I Really Think

NRA-ILA Hawaii

Oahu Alternative Transport

ObamaCare Abortion Hawaii


OHA Lies

Opt Out Today


Pacific Aviation Museum

Patients Rights Council Hawaii

PEACE Hawaii

People vs Machine

Pritchett Cartoons 

Pro-GMO Hawaii



Rental by Owner Awareness Assn

Republican Party -- Hawaii State

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

Robotics Organizing Committee

Salvage The Rail

Save the Plastic Bag

School Choice in Hawaii


SIFE Remington

SIFE W. Oahu 

Sink the Jones Act

Smart About Marijuana--Hawaii

St Marianne Cope

State Budget Solutions Hawaii

State Policy Network

Statehood for Guam

Tax Foundation of Hawaii

The Harriet Tubman Agenda

The Long War Journal

The Real Hanabusa

Time Out Honolulu

Truth About Trade & Technology - Hawaii

UCC Truths

Union Members Know Your Rights

US Tax Foundation Hawaii Info

Valor in the Pacific

VAREP Honolulu


West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii