Hawaii R&D Tax Credits

Hawaii's Tax Credit for Research Activities (§235-110.91) is similar to the federal R&D tax credit provided by IRC § 41, but research activities must be conducted in Hawaii.

Hawaii provides a refundable income tax credit for qualified high technology businesses (QHTBs) with Hawaii research activities subject to an annual cap of $5 million. To comply with this restriction, the Department of Business, Economic Development, and Tourism (DBEDT) shall certify credits on a first-come, first-served basis. With references to the base amount under IRC § 41 no longer applying after 2019, credit for all qualified research expenses may be taken without regard to the amount of expenses for previous years. The credit equals the federal credit claimed on Form 6765 multiplied by the ratio of expenses between Hawaii and the federal total.

Every QHTB claiming the R&D credit shall submit a written, certified statement to the department of business, economic development, and tourism identifying:

    (1)  Qualified expenditures, if any, expended in the previous taxable year; and

    (2)  The amount of tax credits claimed pursuant to this section, if any, in the previous taxable year.

The DBEDT will issue a certificate to the taxpayer after reviewing the QRE amounts, the credit amount certified for each taxable year, and the cumulative amount of the tax credit during the credit period. This certificate must be filed with the taxpayer's tax return with the Department of Taxation.

The 2022 Hawaii Form N-346A must be filed by i) March 30, 2023, if you are a calendar year filer or (ii) the day before the last day of the third month following the close of the taxable year, if you are a fiscal year filer. At the time Form N-346A is submitted, a “best estimate” is acceptable if the actual amounts or final numbers are not available. Upon completion, the Department will mail Part II to the QHTB at the address reported on the face of Form N-346A. The taxpayer claiming the credit shall attach the completed Part II of Form N-346A to Form N-346.

Requests for refunds must be completed on or before the end of the 12th month following the close of the taxable year for which the credit may be claimed (i.e. within 1 year).

A “Qualified High Technology Business” means a business that conducts more than 50% of its activities in qualified research, which means:

1. The same as in section 41(d) of the Internal Revenue Code;
2. The development and design of computer software for ultimate commercial sale, lease, license or to be otherwise marketed, for economic consideration. With respect to the software’s development and design, the business shall have substantial control and retain substantial rights to the resulting intellectual property;
3. Biotechnology;
4. Performing arts products;
5. Sensor and optic technologies;
6. Ocean sciences;
7. Astronomy; or
8. Non-fossil fuel energy-related technology.

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Learn more about Hawaii's R&D Tax Credit law here or in this Hawaiian government tax pdf. Here you can read frequently asked questions.

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R&D Tax Credit Available:

Yes

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Eligible Entities:

C-Corporation, S-Corporations, LLCs, Partnerships

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Deadline for Tax Filing:

Due with Hawaii Tax Return

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Data Required to Compute Credit:

Claim Period Hawaii Qualified R&D Expenses (QREs)

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What Information is needed?

Claim Period Federal Qualified R&D Expenses (QREs)

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Credit Carryforward:

None - excess is refundable

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The R&D tax credit equals:

• The amount of federal tax credit from Form 6765 multiplied by the percentage of eligible research expenses attributable to activities conducted in Hawaii.

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Specific Items to Note:

• Certification from the Department of Taxation is a prerequisite to claim the R&D credit. Every taxpayer claiming the credit must: (1) submit a properly completed Form N346A to the Department; and (2) attach the Department-issued certificate to their tax return as a prerequisite to claim the credit. Form N-346A allows taxpayers to submit the required certification information in order to receive the necessary certificate for the tax year.
• Every Qualified High Technology Business (QHTB) must submit a written, certified statement identifying any qualified expenditures made and the amount of the tax credits claimed during the taxable year to the Director of Taxation before March 31 of the year following the taxable year when the qualified investments or expenditures were made.
• The deadline to claim the credit, including amended claims, is 12 months after the close of the taxable year.
• QHTBs that claim the credit must complete and file an annual survey with the DBEDT by June 30 of each year.
• The program will expire on December 31, 2024, unless further legislation is passed.