Hawaii Tax Credit for Research Activities (Rev. 2016)

Tax Credit for Research Activities (Rev. 2016)
Form N-346 (Rev. 2020) Tax Credit for Research Activities
Clear Form

STATE OF HAWAII—DEPARTMENT OF TAXATION

		

			
FORM
	
	

TAX CREDIT FOR RESEARCH ACTIVITIES	

TAX
YEAR

		
		 N-346
	 Or fiscal year beginning ________________, 20___, and ending _________________, 20____	
20__
(REV. 2020)
ATTACH TO FORM N-11, N-15, N-20, N-30, N-35, N-40, OR, N-70NP
Name(s) as shown on tax return	

SSN or FEIN

  NOTE: If you received a Schedule K-1 from a flow-through entity, skip lines 1 and 2 and start on line 3.

1	 Enter the amount of your eligible research expenses reported on federal Form(s) 6765
for the tax year and the amount of your eligible research expenses attributable to
research activity conducted IN HAWAII for the tax year: (See instructions. Attach
a copy of federal Form(s) 6765).
	
Column A	
Column B
	
Reported On federal Form 6765	
IN HAWAII
	a	
Certain amounts paid or
	
incurred to energy consortia... 	 1a
	
b	 Basic research payments to
	
qualified organizations............ 	 1b
	c	
Wages for qualified services
	(do not include wages used in
	
figuring the federal work
	
opportunity credit)........................ 	 1c
	d	
Cost of supplies...................... 	 1d
	e	
Rental or lease costs of
	computers............................... 	 1e
	f	Enter the applicable
	
percentage of contract
	
research expenses................. 	 1f
	g	
Total Eligible Research
	
Expenses. Add lines 1a
	
through 1f, and enter result..... 	 1g
	
2	 Tentative tax credit for research activities.
Multiply the amount in line 1g, Column B by 0.20 (20%)................................................... 	 2
3	 Flow through of Hawaii tax credit for research activities received from other entities, if any.
Check the applicable box below. Enter the name and Federal Employer I.D. No. of Entity:






	
	a	 Partner — enter appropriate amount from Schedule K-1 (Form N-20).......................
	
	b	 S Corp. shareholder — enter the appropriate amount from Schedule K-1 (Form N-35) .........
	
	c	 Beneficiary — enter the appropriate amount from the Schedule K-1 (Form N-40).
	
	d	 Patron — enter the amount from federal Form 1099-PATR..................................... 	 3
4	 Total credit allowed — Add lines 2 and 3. Enter the result here, rounded to the nearest
dollar, and on the appropriate line for the credit on Schedule CR. For Pass-through
entities, enter this amount on the appropriate lines of your tax return............................... 	 4

N346_I 2020A 01 VID01

ID NO 01

FORM N-346
(REV. 2020)	

GENERAL INSTRUCTIONS
Note: In order to claim the Hawaii tax credit for research activities,
you must also claim the federal tax credit for increasing research
activities under section 41 of the Internal Revenue Code (IRC).
Note: The tax credit for research activities can only be claimed by
qualified high technology businesses. “Qualified high technology
business” is defined in section 235-7.3(c), Hawaii Revised Statutes.
Act 270, Session Laws of Hawaii (SLH) 2013 (Act 270), which reenacts
the Hawaii tax credit for research activities (TCRA), applies to taxable
years beginning after December 31, 2012, and sunsets for taxable years
beginning after December 31, 2019.
In particular, Act 270 adopts IRC section 41 as of December 31, 2011,
with the further requirement that eligible research expenses do not include
research expenses incurred outside of Hawaii. If the amount of the Hawaii
credit exceeds the amount of the taxpayer’s Hawaii tax liability (if any) for
the applicable tax year, the difference is refunded to the taxpayer.
Significantly, Act 270 adopts the base amount as set forth under IRC
section 41(c), such that only the increasing incremental amounts are eligible
for the credit. Act 270 also requires that in order for a taxpayer to claim
the Hawaii TCRA, said taxpayer must also claim the federal tax credit for
increasing research activities under IRC section 41. For more information,
see Tax Information Release No. 2013-02.
Act 261, SLH 2019, amends the TCRA by extending the credit through
2024, allowing the credit to be claimed for all research expenses incurred in
Hawaii without regard to the amount of expenses for previous years (base
amount), and imposing an annual cap of $5,000,000, effective for taxable
years beginning after December 31, 2019.

Purpose of Form
Use Form N-346 to figure and claim the TCRA under section 235110.91, Hawaii Revised Statutes (HRS).

Who May Claim the Credit
This credit may be claimed by a qualified high technology business
(QHTB) as defined under section 235-7.3(c), HRS. Any partnership, S
corporation, estate, trust, or cooperative that allocates this credit (including
a pro rata share of the credit from a flow-through entity) must attach Form
N-346, Form N-346A, and federal Form 6765 to its income tax return.
Taxpayers claiming their pro rata share of the credit must also attach a copy
of their Schedule K-1s.

When the Credit May Not Be Claimed
This credit may not be claimed if either of the following apply to your tax
situation:
(1)	 you are not claiming the federal tax credit for research activities under
IRC section 41.
(2)	 You have no eligible Hawaii research expenses.

Credit Requirements
To claim the credit, the following requirements must be satisfied:
(1)	 The credit must be certified by the Department of Business, Economic
Development and Tourism (DBEDT). See Form N-346A for more
information.
(2)	 The credit form (Form N-346), certification form (Form N-346A), federal
Form 6765, Schedule K-1s (pro rata share credit claims), and Schedule
CR (for tax returns for which Schedule CR is required) must be attached

PAGE 2
to the taxpayer’s income tax return.
(3)	 The QHTB must complete an annual survey as prescribed by DBEDT.
See DBEDT’s website dbedt.hawaii.gov for more information.
Failure to satisfy these requirements shall constitute a waiver of the right
to claim the credit. The total amount of the certified tax credits is limited
to $5,000,000 in the aggregate for all taxpayers in every taxable year after
December 31, 2019, provided that no claim for the tax credit shall be made
for research expenses incurred after December 31, 2024. Certification is
issued on a first-come, first-served basis.

Calculation of the Hawaii TCRA
In order for a taxpayer to compute the amount of the Hawaii TCRA, it is
necessary for the taxpayer to compute the amount of the eligible research
expenses for research activities conducted in Hawaii. Calculate the Hawaii
TCRA by multiplying the eligible Hawaii research expenses by 0.20 (20%).

Deadline For Claiming the Credit
The deadline to claim the credit, including amended claims, is 12 months
after the close of your taxable year. You cannot claim the credit after the
deadline.

SPECIFIC INSTRUCTIONS
Note: If you are claiming your share of the TCRA from a partnership,
S corporation, estate, trust, or cooperative, skip lines 1 through 4 and
start on line 5.
Enter your fiscal or short tax year in the space provided.
Line 1a through 1f, Column A — Enter in Column A the amount of the
eligible research expenses reported on federal Form(s) 6765 for the tax
year. Attach a copy of your federally filed Form 6765(s) for the tax year to
Form N-346.
Note: The tax credit is allocated by DBEDT on a calendar year basis.
This means that after tax year 2020, the tax credit allocated to a fiscal year
taxpayer may cover eligible research expenses incurred by the taxpayer
in the same year as the calendar year and in the previous tax year. In this
case, the fiscal year taxpayer may need to attach federal Forms 6765 that
were filed for more than one tax year.
Lines 1a through 1f, Column B — Enter in Column B the amount of the
eligible research expenses attributable to research activity conducted IN
HAWAII for the tax year and which are part of the amounts reported on lines
2a through 2f, Column A.
Note: Expenses attributable to research activities OUTSIDE HAWAII do
not qualify for the credit.
Line 2 — Multiply the amount on line 1g, Column B by 0.20 (20%). Enter
the result here. This is your tentative TCRA.
Line 3 — If you are claiming your share of the TCRA from a partnership,
S corporation, estate, trust, or cooperative, then enter the amount here.
Also, enter the name and federal employer identification number of any
flow-through entity who has passed the TCRA through to you. If additional
space is needed, include the information on an attached schedule.
Line 4 — Add lines 2 and 3. This is your total TCRA allowed for the tax
year. Enter the amount here, rounded to the nearest dollar, and on the
appropriate line for the credit on Schedule CR. For pass-through entities,
enter this amount on the appropriate lines of your tax return.