In 1999, Act 178 established the Hawaii credit for increasing research activities.

Act 221, enacted in 2001, removed the requirement for "increasing" research activities. The credit is refundable and calculated without reference to a base period. To be eligible for the Hawaii credit, more than 50% of the activity claimed as qualified research must be performed in the state.

In 2004, the Legislature made further amendments to the research credit through the passage of Act 215, specifying that a company claiming the credit must be a qualified high technology business (QHTB) as defined under § 235-110.9, Hawaii Revised Statutes (HRS).

The activity may be one of the following:

1. IRC § 41 Research and Development.

   The company performs research as defined in Internal Revenue Code (IRC) § 41(d). In general, § 41 research and development is research that is directed at discovering information that is intended to eliminate uncertainty concerning the development or improvement of a business component and that employs an evaluative process generally capable of evaluating more than one alternative and fundamentally relying on principles of the physical or biological science, engineering, or computer science.

2. Development and design of computer software.

   The company develops and designs computer software for ultimate commercial sale, lease, license or to be otherwise marketed, for economic consideration. With respect to the software's development and design, the business has substantial control and retains substantial rights to the resulting intellectual property.

3. Biotechnology.

   The company is involved in research that adds to the fundamental knowledge of functional biological systems from the macro level to the molecular and subatomic levels for further application in the development of novel products, services, technologies, and subtechnologies.

4. Performing arts.

   The company produces either (1) audio files, video files, audiovideo files, computer animation, and other entertainment products perceived by or through the operation of a computer; or (2) commercial television or film products for sale or license, and reuse or residual fee payments from these products.

5. Sensor and optic technologies.
6. Ocean sciences.
7. Astronomy.
8. Nonfossil fuel energy-related technology.

This website focuses on the research activity related to the first of these QHTB components, "IRC § 41 Research and Development", specifically for software. Therefore, it is not an appropriate resource for understanding related issues such as the investment credit or allowable costs.