RELATING TO STATE ENTERPRISE ZONES.

SB2360

THE SENATE

S.B. NO.

2360

THIRTY-THIRD LEGISLATURE, 2026

STATE OF HAWAII

A BILL FOR AN ACT

RELATING TO STATE ENTERPRISE ZONES
.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

PART I

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SECTION
1.
�
The legislature finds that the
enterprise zone program was established in 1986 for the purpose of stimulating
business, agricultural, and industrial growth in areas to revitalize
neighborhoods by providing public benefits to local companies.
�
In addition to stimulating business activity,
the enterprise zone program also promotes job preservation and job creation in
areas designated by the counties and approved by the governor.
�
Benefits for local companies include
permitting and zoning assistance, fee waivers, tax relief, and more.

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The
legislature further finds that the most common industries participating in the
enterprise zone program are agricultural production or processing,
manufacturing, and wholesaling and distribution.
�
Other eligible industries include aviation or
maritime repair or maintenance; telecommunications switching and delivery
systems; information technology design and production; medical research and
clinical trials; for-profit training programs in international business management
or environmental remediation; biotechnology research, development, production,
or sales; repair or maintenance of assisted technology equipment; certain call
centers; and wind energy producers.

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The
legislature additionally finds that, for decades, a manufacturer of tangible
products has only been eligible for enterprise zone program benefits if over
one-half of the gross sales of its products are to wholesalers and the sale
takes place within the enterprise zone.
�

This qualification was established before modern revolutions in
manufacturing and retail sales.
�
Since
the program's establishment, business models have significantly changed, and
local manufacturers now often skip selling to wholesalers and go directly to
retail, making those manufacturers ineligible to participate in the enterprise
zone program.
�
Allowing local
manufacturers that sell directly to retail to be eligible for the enterprise
zone program will help lift local businesses and promote job creation and job
preservation for local families looking to thrive in Hawaii.

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Accordingly,
the purpose of this part is to modernize the enterprise zone program by
allowing additional activities within an enterprise zone to qualify for
enterprise zone benefits, specifically:

����
(1)
�
Retail and
wholesale activity by a local manufacturer made within the enterprise zone;

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(2)
�
The
processing of value-added agriculture products; and

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(3)
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The
provision of professional services by health care professionals in health-care
related sectors
.

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SECTION

2
.
�

Section 209E-2, Hawaii Revised Statutes, is amended as follows:

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1.
�
By adding
two new definitions to be appropriately
inserted and to read:

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"
"Tangible
personal property" means property that can be touched or felt and can be
relocated.
�
"Tangible personal
property" does not include electricity, real property, or intellectual
property.

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"Value-added
agricultural product" means a product that has been processed, enhanced,
or otherwise modified beyond its raw state in a manner that increases its
economic value and that meets the criteria established for the seal of quality
program by the department of agriculture
and
biosecurity
under
section 148-63.
"

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2.
�

By amending the definition of "eligible business activity" to
read:

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""Eligible
business activity" means the:

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(1)
�
Manufacture of tangible personal
property, the wholesale sale of tangible personal property as described in
section 237-4,
the sale of tangible personal property manufactured and sold
at retail in the enterprise zone for consumption or use by the purchaser and
not for resale,
or a service business as defined in this section;

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(2)
�
Production of agricultural products where
the business is a producer as defined in section 237-5, [
or
] the
processing of agricultural products[
,
]
or value-added agricultural
products,
all or some of which were grown within an enterprise zone;

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(3)
�
Research, development, sale, or
production of all types of genetically-engineered medical, agricultural, or
maritime biotechnology products;
[
or
]

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(4)
�
Production of electric power from wind
energy for sale primarily to a public utility company for resale to the public;

or

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(5)
�
The
provision of professional services by health care professionals in health-care
related sectors, including but not limited to home health care agencies,
specialized care practices, and health coaching;

provided that medical cannabis dispensary
activities pursuant to chapter 329D shall not be considered an eligible
business activity for the purposes of this chapter."

PART II

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SECTION 3.
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This part shall apply to business firms that are designated as a
qualified business for the purposes of chapter 209E, Hawaii Revised Statutes,
on or after July 1, 2026.

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SECTION 4.
�

Section 209E-9, Hawaii Revised Statutes, is amended by amending
subsection (b) to read as follows:

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"(b)
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A business firm may also be eligible to be designated a qualified
business for purposes of this chapter if the business:

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(1)
�
Is actively engaged in the conduct of a
trade or business in an eligible business activity in an area immediately [
prior
to
]
before
the area being designated an enterprise zone;

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(2)
�
Meets the requirements of subsection
(a)(2); and

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(3)
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Either:

���������
(A)
�
Increases its average annual number of
full-time employees employed at the business' establishment or establishments
within enterprise zones located within the same county by at least ten per cent

by the end of the first year of operation, and by at least
fifteen per cent by the end of each of the fourth, fifth, sixth, [
and
]
seventh
, eighth, and ninth
years of operation, and for businesses
eligible for tax credits extending past the [
seventh
]
ninth
year,
at least maintains that higher level of employment during each subsequent
taxable year; provided that the percentage increase shall be based upon the
employee count at the beginning of the initial year of operation within the
enterprise zone or zones; or

���������
(B)
�
Increases its gross sales of
agricultural crops produced, or agricultural products processed within
enterprise zones located within the same county by two per cent annually.
"

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SECTION 5.
�

Section 209E-10, Hawaii Revised Statutes, is amended as follows:

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1.
�

By amending subsection (a) to read:

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"(a)
�

The department shall certify annually to the department of taxation the
applicability of the tax credit provided in this chapter for a qualified
business against any taxes due the State.
�

Except for the general excise tax, the credit shall be eighty per cent
of the tax due for the first tax year, seventy per cent of the tax due for the
second tax year, sixty per cent of the tax due for the third
tax
year,
fifty per cent of the tax due
for
the fourth
tax
year, forty per
cent of the tax due
for
the fifth
tax
year, thirty per cent of
the tax due
for
the sixth
tax
year, and twenty per cent of the
tax due
for each of
the seventh [
year.
]
, eighth, and ninth tax
years.
�
For qualified businesses engaged in the manufacturing of
tangible personal property or the producing or processing of agricultural
products, the credit shall continue after the [
seventh
]
ninth tax

year at the rate of twenty per cent of the tax due for each of the subsequent
three tax years.
�
Any tax credit
not usable shall not be applied to future tax years."

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2.
�
By
amending subsection (c) to read:

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"(c)
�

In addition to any tax credit authorized under this section, any
qualified business shall be entitled to a tax credit against any taxes due the
State in an amount equal to a percentage of unemployment taxes paid.
�
The amount of the credit shall be equal to
eighty per cent of the unemployment taxes paid during the first year, seventy
per cent of the taxes paid during the second year, sixty per cent of the taxes
paid during the third year, fifty per cent of the taxes paid during the fourth
year, forty per cent of the taxes paid during the fifth year, thirty per cent
of the taxes paid during the sixth year, and twenty per cent of the taxes paid
during
each of
the seventh [
year.
]
, eighth, and ninth years.
�
�
For qualified businesses engaged in the
manufacturing of tangible personal property or the producing or processing of
agricultural products, the credit shall continue after the [
seventh
]
ninth

year in an amount equal to twenty per cent of the taxes paid during each of the
subsequent three tax years.
"

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SECTION 6.
�

Section 209E-11, Hawaii Revised Statutes, is amended to read as follows:

����
"
�209E-11
�
State general excise exemptions.
�
The department shall certify annually to
the department of taxation that any qualified business is exempt from the
payment of general excise taxes on the gross proceeds from
an
eligible business activity as defined in this chapter;

provided
that agricultural businesses other than those engaged in the production of
genetically-engineered agricultural products shall not be exempt from the
payment of general excise taxes on the gross proceeds of agricultural retail sales.
�
The gross proceeds received by a contractor
licensed under chapter 444 shall be exempt from the general excise tax for
construction within an enterprise zone performed for a qualified business
within an enterprise zone or a business that has been approved by the
department to enroll into the enterprise zone program.
�
The exemption shall extend for a period not
to exceed [
seven
]
nine
years;
provided that for qualified businesses engaged in the
manufacturing of tangible personal property or the producing or processing of
agricultural products, the exemption shall extend for a period not to exceed [
ten
]

twelve
years; provided further that if a force majeure event occurs,
then the period of time shall be tolled until the force majeure event ceases.
"

PART III

����
SECTION 7.
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Statutory material to be repealed is bracketed and stricken.
�
New statutory material is underscored.

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SECTION 8.
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This Act shall take effect on July 1, 2026; provided that:

����
(1)
�
Section
5 shall apply to taxable years beginning after December 31, 2026; and

����
(2)
�
Section
6 shall take effect on January 1, 2028.

INTRODUCED BY:

_____________________________

Report Title:

State
Enterprise Zones; Qualified Business; State Business Tax Credit; General Excise
Tax; Eligible Business Activities; Retail Sales; Value-Added Agricultural
Products; Health Care Services; Exemption; Extension

Description:

Amends
the definition of "eligible business activity" for Enterprise Zone
Program purposes to include retail sales of tangible personal property
manufactured and sold in the enterprise zone that is to be used or consumed by
the purchaser and not for resale, the processing of value-added agricultural
products grown within an enterprise zone, and the provision of professional
services by health care professionals in health-care related sectors.
�
Extends the eligibility period of the state
business tax credit and general excise tax exemption for qualified businesses
within state Enterprise Zones from 7 years to 9 years.
�
Extends the eligibility period of the general
excise tax exemption for qualified businesses within state Enterprise Zones engaged
in the manufacturing of tangible personal property or the producing or
processing of agricultural products from 10 years to 12 years.
�
Makes the extension of the state business tax
credit eligibility period applicable to taxable years beginning after
12/31/2026.
�
Makes the extension of the
general excise tax exemption eligibility period take effect on 1/1/2028.

The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.