Does this apply to my farm?
If you are just starting up your farm or are still in the early stages of growth, it probably doesn’t make sense to apply for this program right away. Some of the primary benefits of enrolling in this program are a 100% exemption from GET and a State income tax credit. However, once you are enrolled, this tax credit decreases annually (80% first year, 70% second year, etc.) for 7 years. As a start up, or growing business, you probably aren’t going to be making that much in terms of revenues so subsequently your taxes will probably not be that significant, essentially the 80% credit would be wasted on years where you are not generating much taxable income anyway. The examples in the Hawaiʻi Revised Statutes administrative rules are for companies generating $100,000 in sales and in those examples the credits range from $250 to $400+. Most likely, the credits and GET savings you would get at a lower level of sales might not be worth starting now and then getting the lower %’s 5-7 years down the line when your sales will hopefully be much higher. However there are some county benefits such as priority permit processing, zoning or build permit waivers, property tax adjustments, etc. that may still make it worth while to enroll now. Also, the program has a hiring requirement which you might not be able or willing to meet as a start up business. If, after considering your situation you are thinking of enrolling in this program, here is some basic information to get you started:
What is the Enterprise Zone Partnership Program?
Hawaiʻi’s Enterprise Zones Partnership (EZ) Program was established in 1986 by the state as a partnership with the four counties to increase employment in areas where jobs are most needed. The EZ Program goal is to help stimulate growth in certain types of businesses like manufacturing and wholesaling, and in industries such as biotechnology, information technology, and agriculture. The program gives State & County benefits to companies in an effort to stimulate business activity, job preservation, and job creation in areas where they are most appropriate or most needed.
Benefits and Eligibility
Businesses which satisfy annual requirements will qualify for the following State tax benefits for up to seven consecutive years:
- 100% exemption from the General Excise Tax (GET)
- The GET exemption applies only to revenues from EZ-eligible activities
- Licensed contractors are also exempt from GET on construction done for an EZ enrolled business at their EZ company site
- An 80% non-refundable State income tax credit the first year
- This non-refundable credit goes down 10% each year for 6 more years – ending at 20%
- An additional non-refundable income tax credit equal to 80% of annual Unemployment Insurance premiums the first year
- This non-refundable credit goes down 10% each year for 6 more years – ending at 20%
In addition to the above, each county will offer eligible businesses additional benefits that may include one or more of the following:
- Priority permit processing
- Zoning or building permit waivers or variances
- Property tax adjustments
- Priority consideration for federal job training or community development funds
To be eligible, your farm must reside in one of the enterprise zone locations (see the locations and map on the DBEDT EZ site: https://invest.hawaii.gov/business/ez/#zones) and at least half of your annual gross income must be from one of the eligible activities (which includes agricultural production or processing).
Requirements
Startups (newly established businesses) in an EZ and businesses moving to an EZ must maintain at least a 10% increase in the number of full-time employees each year for 7 years. This is required to receive the State tax benefits. Existing businesses, i.e., those located in the EZ when it was established, must maintain at least a 10% increase in the number of full-time employees each year for the first 3 years. For years 4 through 7, businesses must increase the full-time employee number by 15% each year. Agricultural businesses may increase gross sales by 2% annually in lieu of meeting the hiring requirements
All companies in the program must do the following annually:
- Be sure your eHawaii.gov Account is linked to your company account.
- Complete the End-of-Year Report at the end of each tax year.
- Allocate and apportion gross receipts from EZ-eligible activities that take place in the county throughout each tax year.
- Track of the number of full-time employees during each pay period throughout each tax year (Full-time = 20 or more hours per week per pay period). Leased employees working 20 or more hours per week may be counted as full-time employees.
- Attach copies of the certification letter to your State General Excise Tax reconciliation form and your State income tax return.
- Complete and attach State Tax Department Form 756 (enterprise zones tax credit) to the State income tax return.
- Contact your county EZ coordinator for instructions on how to claim the county’s EZ tax benefits, if applicable.
Additional information and county benefits and contact information can be found on the Department of Business, Economic Development & Tourism’s Enterprise Zone website at https://invest.hawaii.gov/business/ez/.