Hawaii R&D Tax Credit Application Process Explained

Hawaii and the R&D Tax Credit

State Credit Name: Tax Credit for Research Activities

Expiration Date: December 31, 2024

Who Can Apply? Corporations and flow-through entities

Credit Carry Forward: No

About the Credit: The taxpayer must have claimed and received the federal research tax credit to qualify for the Hawaii state research credit.

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Special Notes: Taxpayers must submit a written, certified statement providing the QRE’s in the prior taxable year and the amount of tax credits claimed by March 31st of each filing year.

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Swanson Reed is one of the only companies in the United States to exclusively focus on R&D tax credit preparation. Swanson Reed’s office location at 500 Ala Moana Blvd Downtown, Honolulu, Hawaii provides R&D tax credit consulting and advisory services to Honolulu, East Honolulu, Pearl City, Hilo and Kailua.

If you have any questions or need further assistance, please call or email our local Hawaii Partner on (808) 900-8865.
Feel free to book a quick teleconference with one of our Hawaii R&D tax credit specialists at a time that is convenient for you. Click here for more information about R&D tax credit management and implementation.

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Hawaii R&D Tax Credit Filing Instructions

To claim the Research and Development (R&D) tax credit in Hawaii, businesses generally need to meet specific eligibility requirements, primarily being a “Qualified High Technology Business” (QHTB) as defined by Hawaii Revised Statutes Section 235-7.3(c). This typically means conducting over 50% of activities in qualified research within Hawaii, being registered to do business in the state, and having fewer than 500 employees. Taxpayers must first claim the federal R&D tax credit under IRC Section 41 for the same qualified research expenses (QREs) to be eligible for the Hawaii credit.

The process involves several steps:

Certification from the Department of Business, Economic Development, and Tourism (DBEDT): Businesses must submit Form N-346A (Application for Certification of Tax Credit for Research Activities) to the DBEDT. This form, along with supporting documentation detailing the qualified research expenditures, is typically due by March 31st following the taxable year in which the research was conducted.
Annual Survey: QHTBs claiming the credit are also required to complete and file an annual survey electronically with the DBEDT by June 30th of each calendar year following the calendar year in which the credit may be claimed. Failure to submit this survey can result in a waiver of the credit.
Claiming the Credit on Tax Return: Once the DBEDT certifies the credit, they will issue a certificate. This certificate, along with Hawaii Form N-346 (Tax Credit for Research Activities) and a copy of the federal Form 6765 (Credit for Increasing Research Activities), must be attached to the taxpayer’s Hawaii income tax return (e.g., Form N-11 for individuals, N-20 for partnerships, N-35 for S corporations, etc.). The deadline to claim the credit, including amended claims, is generally 12 months after the close of the taxable year.

It’s important to note that the Hawaii R&D tax credit program was set to expire on December 31, 2024, unless further legislation was passed. Therefore, it is crucial to verify the current status of the program and any updated requirements with the Hawaii Department of Taxation or the DBEDT.