Are R&D Tax Credits Available in Hawaii?

Yes. The R&D Tax Credit is a valuable benefit for companies developing new products and services in Hawaii. Hawaii allows a refundable credit against corporate or personal income tax for expenditures on research activities to qualified high technology businesses (businesses that conduct more than 50% of their activities in qualified research). The credit is generally based on the federal research credit allowed under IRC Sec. 41 and is available for years 2013 through 2024.

Below is a summary of Hawaii's R&D Tax Credit:

  • Credit is equal to 20% of the qualified research expenditures incurred for the taxable year
  • The credit expires and does not apply for tax years beginning after December 31, 2024.
  • Taxpayers eligible for the credit must submit an application to The Department of Business, Economic Development, and Tourism (DBEDT) by March 31 following the taxable year in which the research was conducted. The online application opens on March 1st.
  • Taxpayers also must complete an online questionnaire containing the details of the qualifying expenditures, revenue and expense data, intellectual property filings, and information about related businesses. This survey must be completed by June 30th. Credits will not be allowed for those who fail to complete the questionnaire by the deadline.
  • DBEDT will certify credit claims on a first-come, first-served basis and will stop certifying once the amount claimed has reached a cap of $5 million.
  • DBEDT will issue a signed N-346A form upon approval. This form, along with Hawaii Form N-346 and Federal Form 6765, must be included in the applicable Hawaii income tax return.

Hawaii R&D Tax Credit Case Study

A Honolulu optical communications company had never before claimed the R&D Tax credit. This project involved a 2021 year study.

The company qualified for the federal R&D Tax Credits of $100,000 and an additional refundable credit of $150,000 in Hawaii state R&D Tax Credits.

Total QREs
Total QREs

You can read more about this Hawaii case study here.

Four-Part Test

Qualified research activities are defined by the four-part test outlined below

Technological in Nature
Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.

Permitted Purpose
Activities must be performed in an attempt to improve the functionality, performance, reliability, or quality of a new or existing business component.

Eliminate Uncertainty
Activities intended to discover information that could eliminate technical uncertainty concerning the development or improvement of a product.

All activities must include a process of experimentation including testing, modeling, simulating, and systematic trial and error.