Yes to Tax Credits for All Emerging Industries in Act 221

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In the Jan. 26, 2002 issue of The Honolulu Advertiser, (see Tareq Hoque, recent chair of the Hawaii Technology Trade Association (HTTA), discussed a progressive local tax incentive known as Act 221. Its purpose is to help emerging industries in Hawaii find investors.

Hoque at first sounds quite happy about this law, calling it fabulous, and has HTTA take credit for “work[ing] hard with our legislators to get it passed,” but then he spends the rest of his op-ed complaining about it, saying the film industry has exploited the bill.


So Hoque is glad that Act 221 exists, but is upset that the movie industry also receives this tax credit when filming in Hawaii. He says this is detrimental to our state’s residents, repeating that the credit comes at the considerable expense of Hawaii’s taxpayers. His solution: For the state Department of Taxation to revamp the law so that only tech companies can benefit from the tax credit. I do not think this is a very intelligent strategy, since I worked for three rather high profile high-tech startup companies and 2/3 of them are not around anymore, not to mention the countless high-tech companies in Hawaii I’ve seen go down in recent years. The odds just aren’t very good. We should not be putting all our economic eggs in the tech basket.

Hoque also takes issue with “Blue Crush,” implying that the producers came in, took their tax credits and left, somehow exploiting the state. Au contraire — “Blue Crush” director John Stockwell liked it here so much that despite all the bad press his picture received in Hawaii, he stayed and brought his current project here as well. If bringing in and retaining outside expertise isn’t a necessary thing in building an industry from scratch, I don’t know what is.

I am both a longtime member of the technology industry and someone just beginning in the film production business. I am also very concerned about our economy and have been for the past decade or so. Having seen both industries up close and personal, I strongly disagree with Hoque’s very one-sided view. When movie companies receive the tax credit, they don’t really cost private citizens anything. When the film project “The Big Bounce” got a $50 million tax credit, it didn’t steal $50 million from anyone. Its investors got a tax credit as an added incentive to invest in producing a piece of intellectual property — the common bond of all industries covered in Act 221. All emerging industries in Hawaii which 221 is trying to stimulate (biotech, ocean sciences, astronomy, optic sensors, nonfossil fuel energy, software and performing arts products) all produce intellectual property. The big picture and overall goal is a concerted effort to shift towards a knowledge-based economy and intellectual property is its foundation. Perhaps some of the wording in the act needs to change; a more accurate description of a QHTB (Qualified High Tech Business aka a company which qualifies for the tax credits) might be Qualified Targeted Industry Business.

As many lawmakers point out, like State House Economic Development Committee Chair Rep. Brian Schatz says, Act 221 should in fact be expanded to benefit even more industries. “We want to provide clarity and predictability for investors … so we don’t want to change the law at all,” Schatz says in a Dec. 20, 2002, article in Pacific Business News. Innovation needs to be encouraged in Hawaii as much as possible, and Act 221 does just that.

What confuses me about Hoque’s commentary is his very obviously contradictory message. On HTTA’s own Web site, they say “with the help of our lawmakers, HTTA created and continues to protect Act 221 …. HTTA’s position is and continues to be no changes to Act 221.” It seems to me that Hoque is quite in favor of big changes to Act 221 — that was the whole point of his article, wasn’t it? Also, in a Dec. 20 article in Pacific Business News, Ann Chung, HTTA’s executive director, says “As far as we understand, nothing is going forward [regarding changes to Act 221]. From our standpoint we would like no changes for Act 221.” If that is the case, I’m wondering why Mr. Hoque bothered to submit his article at all.

The big picture for Act 221 is the business creation and economic development in Hawaii it encourages, ”’period”’ The benefits from the tax credits aren’t just the returns on successful high-tech companies (and there are few to point to), but a diversified economy. If Hawaii can create burgeoning industries besides that of tourism, more of our best and brightest will be able to stay at home.

Hawaii’s economy is in the dumps, and we need to act fast to fix it. Whatever industry gets the steroid is fine by me. If a cost-benefit analysis needs to be done regarding some so-called abuses of Act 221, fine — but now is ”’not”’ the time. We cannot make up the rules up as we go along. We should allow the law to work as written until its sunset date in two years, and ”’then”’ look at its long-term effects (after the long term is actually up) and make changes as needed. We need Act 221 for our financial survival, and we need it as it is currently written.

”’Stacey Hayashi worked as a software engineer at three Hawaii high-tech startups from 1998 to 2002: Digital Island, WorldPoint, and and was on the founding team of the E-List, a techie/business networking group. She is currently co-owner and co founder of DVD Shop Hawaii and owns and operates several successful e-commerce businesses. She is now trying to find financing for the production of an independent motion picture drama about the Americans of Japanese Ancestry who fought in World War II. She can be reached at:”’