HONOLULU – Governor Linda Lingle today vetoed two tax bills.  One would have undermined the State’s efforts to expand the economy and create new jobs, while the other would discourage charitable contributions.

The Governor vetoed SB 2001, a bill that would have retroactively eliminated previously promised investment tax credits that incentivize firms to create new technology-based jobs that help diversify Hawai‘i’s economy.  The bill would have forced the State to pick winners and losers by extending support to specific kinds of companies in the technology sector at the expense of other types of technology companies.

“The bill sends the wrong signal to entrepreneurs, business managers and investors that Hawai‘i State officials cannot be trusted to maintain promised investment incentives,” Governor Lingle stated.  “It would prove Hawai‘i’s word is no good and that we are willing to change the rules in the middle of the game when it suits us.  This would raise doubts in the future as to whether Hawai‘i is serious and reliable in its quest to diversify its economy and attract both new talent and new investments into the state.”

SB 2001 would have repealed the High Technology Business Investment tax credit and the Technology Infrastructure Renovation tax credit retroactively to May 1, 2010, six months earlier than the December 21, 2010 deadline stated in the current law.

Numerous individuals involved in innovative enterprises have spoken out about the adverse impacts this bill is having on their ability to raise money and add employees.

“I am vetoing this bill to send the message that Hawai‘i remains open for business and that we will live up to our commitments and keep the promises we have made,” the Governor added.

The bill also would have extended the Tax Credit for Research Activities by one year, from December 31, 2010 to December 31, 2011.  Although extension of research and development tax credits is a beneficial feature of this bill, its value does not outweigh the long-term negative economic impact Hawai‘i would suffer as a result of reneging on our previous promises.

On June 9, Lt. Governor James R. “Duke” Aiona, Jr., as acting Governor, vetoed another technology-related bill that would have suspended the Act 221 high tech investment and infrastructure renovation tax credits for three years.  SB 2401 also would have damaged Hawai‘i’s reputation as a reliable place to do business and discouraged investments.

Governor Lingle also vetoed HB 1907, a measure that would result in tax increases totaling more than $140 million over the next five years.  The bill would have capped itemized deductions for higher income individuals including deductions for medical expenses, mortgage interest and charitable contributions.

The non-profit community expressed concerns that this measure would discourage donations and contributions from individuals and small businesses since they would no longer be able to deduct these contributions on their State income tax returns.  Many social service organizations and other charitable groups depend heavily on individual donations to support their humanitarian efforts.

“Our community is still feeling the impacts of the recession and this is the time when we want to encourage donations to charitable organizations, not enact laws that hinder them,” said Governor Lingle.

The bill would also place obstacles in the way of businesses that want to purchase equipment and machinery to expand or improve their operations by changing the basis for the general excise tax refund on these purchases and delaying the ability of firms to obtain the credit until 2015.

“This tax increase will adversely hurt the State at the very time that we should be encouraging investment and spending to recharge our economy,” Governor Lingle stated.  “This bill discourages charitable giving, especially hurts homeowners, and discourages investments that result in job growth.”

Eleven Senators voted against SB 2001 and nine Senators voted against HB 1907, sufficient to sustain the Governor’s veto.

Report by Russell Pang from the governor’s office

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