2015 Hawaii Revised Statutes
TITLE 14. TAXATION
235. Income Tax Law
235-111.5 High technology; sale of unused net operating loss carryover.

§235-111.5 High technology; sale of unused net operating loss carryover. (a) A qualified high technology business as defined in section 235-7.3 may apply to the department to sell its unused net operating loss carryover to another taxpayer. If approved by the department, a qualified high technology business may sell its unused net operating loss carryover to another taxpayer in an amount equal to at least seventy-five per cent of the amount of the surrendered tax benefit, computed at the corporate rate pursuant to section 235-71; provided that the qualified high technology business may sell no more than $500,000 of its unused net operating loss carryover to another taxpayer per year. In the case of partnerships, limited liability partnerships, limited liability companies classified as partnerships, and S corporations, each partner, member, or shareholder may sell its share of the entity's total net operating loss. The tax benefit purchased by the buyer shall be claimed in the year for which the sale is approved by the department. Any use of the purchased net operating loss carryover for tax carryback or carryforward purposes shall comply with applicable law. The income from the sale of the net operating loss carryover received by the seller shall be reported on its tax return in the taxable year received but shall not be considered taxable income.

(b) No application for the sale of unused net operating losses shall be approved if the seller is a qualified high technology business that:

(1) Has demonstrated positive net income in either of the two previous full years of ongoing operations as determined on its financial statements;

(2) Has demonstrated a ratio of one hundred ten per cent or greater of operating revenues divided by operating expenses in either of the two previous full years of operations as determined on its financial statements; or

(3) Is directly or indirectly at least fifty per cent owned or controlled by another corporation that has demonstrated positive net income in either of the two previous full years of ongoing operations as determined on its financial statements or is part of a consolidated group of affiliate corporations, as filed for federal income tax purposes, that in the aggregate has demonstrated positive net income in either of the two previous full years of ongoing operations as determined on its combined financial statements.

In the case of partnerships, limited liability partnerships, limited liability companies classified as partnerships, and S corporations, the application for the sale of unused net operating losses shall only be approved to the extent that all partners, members, or shareholders certify that they have not received a tax benefit from the losses.

(c) As used in this section:

"Net operating loss" means a net operating loss for income tax purposes occurring in the two taxable years preceding the year in which the sale of net operating loss carryover occurs.

"Surrendered tax benefit" means the tax liability saved if the net operating loss carryforward could have been used by the qualified high technology business.

(d) This section shall only apply to sales of net operating loss carryovers after December 31, 2000, and before January 1, 2004. [L 2000, c 297, §3; am L 2001, c 221, §11]