Hawaii Research and Development Tax Credit Summary

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:

  • The claim for the Hawaii credit is made by attaching to the applicable income tax return Forms N-346 and N-346A, including a copy of federal Form 6765.
  • The credit is waived if the taxpayer fails to claim it by the end of the 12th month following the close of the tax year when the research expenditures were incurred.
  • Excess R&D Tax Credit is refundable.
  • The Department of Business, Economic Development, and Tourism (DBEDT) certifies the credit instead of the Department of Taxation and that the credit has a combined cap for all taxpayers of $5 million.
  • The DBEDT will certify on a first-come, first-served basis and will stop certifying once the $5 million cap has been met.
  • Taxpayers eligible for the credit must submit their application to DBEDT no later than March 31st following the taxable year in which the activities were conducted.
  • The online application opens on March 1st
  • Taxpayers must submit a completed and executed Form N-346A, and the order in which these forms are received by DBEDT will determine the order in which credits are allocated. Incomplete or non-executed forms will not be accepted; however, taxpayers may resubmit, but their credit allocation priority will be based on the date and time that the resubmission is received
  • Taxpayers must then complete an online questionnaire no later than March 31st. Credits will not be allocated for those who fail to complete the questionnaire by the deadline.
  • DBEDT will return Form N-346A to qualifying taxpayers, specifying the amount of credit that the taxpayer has been certified to receive.
  • Taxpayers who do not qualify for the credit or for whom credits cannot be certified because the $5 million aggregate cap has been exceeded will be notified in writing.

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 2014 year study.

The company qualified for the federal R&D Tax Credits of $98,000 and an additional refundable credit of $73,500 in Hawaii state R&D Tax Credits.

FEDERAL
HAWAII
Year
Total QREs
Credit
Total QREs
Credit
2014
$1,000,000
$98,000
$750,000
$73,500