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State program

Hawaii Research and Development Credit

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  • Refundable
  • Pre-approval required

Last reviewed November 2026

2026 change: Act 24, SLH 2026 (SB 3125, signed May 21, 2026) moves the repeal of the Tax Credit for Research Activities (HRS § 235-110.91) up to January 1, 2029, from January 1, 2030 under Act 139, SLH 2024. The repeal is an outright repeal of the statute with no transition or savings rule. Certification for a year's expenses is requested by March 31 of the following year, so certification and claims for calendar 2028 expenses would fall after the statute is repealed. The Department of Taxation's announcement on Act 24 (Announcement No. 2026-06) describes no transition rule allowing 2028 expenses to be certified or claimed in 2029, so businesses should not plan on a credit for 2028 research. The last year that can be certified under the current law is calendar 2027 (certification by March 31, 2028).

At a glance

  • Jurisdiction: Hawaii (HI)
  • Credit name: Tax Credit for Research Activities (TCRA), HRS § 235-110.91.
  • Administering agency: Department of Business, Economic Development and Tourism (DBEDT) certifies credits; Department of Taxation processes claims.
  • Rate(s) and base: The federal IRC § 41 credit (from Form 6765) multiplied by the ratio of Hawaii qualified research expenses to total qualified research expenses.
  • Refundable? Yes. Any excess over income tax is refunded (no refund under $1).
  • Transferable? No. Pass-through entities allocate the credit to owners.
  • Carryforward: Not applicable; the excess is refunded.
  • Annual cap / proration: $5 million aggregate certified credits per year for all taxpayers, certified first-come, first-served. Once the cap is reached, DBEDT stops certifying; claims are not prorated.
  • Pre-approval / application and deadline: Required. Submit Form N-346A to DBEDT for certification through DBEDT's online application before March 31 of the year after the research (for 2025 expenses, the window ran March 2 to March 31, 2026). The statute requires DBEDT's annual survey by June 30, but DBEDT's application process requires the survey (Part B) by the same March 31 deadline. Claim the certified credit on Form N-346 within 12 months after the close of the taxable year; missing any requirement waives the credit.
  • Forms: N-346A (DBEDT certification), N-346 (claim) attached to Form N-11, N-15, N-20, N-30, N-35, N-40 or N-70NP with the DBEDT certification and federal Form 6765; Schedule CR where required; Schedule K-1s for flow-through credits.
  • Sunset / recent changes: Act 139 (2024) limited eligibility to small businesses and extended the credit to taxable years beginning before January 1, 2030. Act 24 (2026) accelerates the repeal of the statute to January 1, 2029, with no transition rule for 2028 expenses.

What it is

Hawaii offers a refundable credit for qualified high technology businesses that conduct most of their activities in qualified research in Hawaii. The credit mirrors the federal credit, scaled to the Hawaii share of research spending, and is subject to a small $5 million statewide cap allocated on a first-come, first-served basis.

Who can claim it

Qualified high technology businesses that:

  • are small businesses with no more than 500 employees (Act 139, SLH 2024, for taxable years beginning after December 31, 2023);
  • are registered to do business in Hawaii;
  • conduct more than 50% of their activities in qualified research in Hawaii;
  • claim the federal IRC § 41 credit for the same year; and
  • complete DBEDT's annual survey and obtain DBEDT certification.

How it is calculated

  1. Compute the federal research credit on federal Form 6765.
  2. Divide Hawaii QREs by total QREs (rounded to six decimal places).
  3. Multiply the federal credit by that ratio to get the tentative TCRA.
  4. Add any flow-through credit from partnerships, S corporations, estates, trusts or cooperatives.
  5. DBEDT certifies the amount; the certified amount is claimed and any excess over tax is refunded.
    For tax year 2025, DBEDT certified $3.3 million for 20 businesses (about 8.4% of their $39.3 million of QREs); the cap was not reached.

How to claim it

  1. File Form N-346A (current version only; DBEDT rejects older versions) through DBEDT's online application before March 31 following the calendar year of the expenses. The date and time DBEDT receives the N-346A sets the applicant's place in line. Apply early: certification is first-come, first-served against the $5 million cap.
  2. Complete the DBEDT survey and spreadsheet (Part B of the application) by the March 31 deadline. The statute separately requires the annual survey by June 30.
  3. Attach Form N-346, the DBEDT certification (N-346A) and federal Form 6765 to the Hawaii return. Claim within 12 months after the close of the taxable year, including amended claims.
  4. Federal Form 6765 note: Section G is optional for tax years beginning before 2026 and required for tax years beginning after December 31, 2025, except for qualified small businesses electing the payroll offset and filers with total QREs of $1.5 million or less and gross receipts of $50 million or less that report the credit on an original return (the small-filer exception does not apply to amended returns or refund claims).

Recent changes

  • Act 139, SLH 2024: Restricted the credit to small businesses with no more than 500 employees and extended it through December 31, 2029, for taxable years beginning after December 31, 2023.
  • Act 24, SLH 2026 (SB 3125), signed May 21, 2026: Amends Act 261, SLH 2019 (as amended by Act 139, SLH 2024) so that the repeal of HRS § 235-110.91 takes effect January 1, 2029 instead of January 1, 2030. The act contains no transition rule for expenses incurred in 2028.
  • HB 2546 (2026): Would have replaced first-come, first-served certification with proration and changed the deadline to March 1. It was not enacted; current rules remain first-come, first-served with a March 31 deadline.
  • Act 35, SLH 2026: Conforms Hawaii to the IRC as amended through December 31, 2025, for taxable years beginning after December 31, 2025.

Likely examiner questions

These questions illustrate what an examiner may ask about this credit. They are drafts for illustration and should be reviewed by a specialist before use. Most state claims also face standard questions: where the research was physically performed, how wages, supplies and contract research were apportioned between Hawaii and other locations, how Hawaii amounts reconcile to federal Form 6765, the Hawaii credit and carryforward schedule for each year claimed, and whether the claiming entity is the one subject to Hawaii tax.

  1. Provide the DBEDT certification and proof that N-346A was filed before March 31.
  2. Show the employee count (no more than 500) and Hawaii business registration.
  3. Demonstrate that more than 50% of the business's activities are qualified research in Hawaii.
  4. Provide federal Form 6765 and the Hawaii/total QRE ratio, with location support for wages and supplies.
  5. Show the DBEDT survey (Part B of the application) was completed by the March 31 application deadline, and in any case by the statutory June 30 date.
  6. Show the claim was filed within 12 months after the taxable year closed.
  7. For flow-through credits, provide the K-1s and the entity name and EIN.

Common weak spots

  • Missing the March 31 certification deadline or applying after the cap is used up.
  • Not meeting the 500-employee or more-than-50%-research tests.
  • Applying a federal rate to Hawaii QREs instead of using the federal credit × Hawaii ratio.
  • Claim filed more than 12 months after year-end.
  • Planning on the credit for 2028 or later research; the statute is repealed January 1, 2029, before 2028 expenses could be certified.

Next steps

Important

This page is general information, not tax advice. Rules change; confirm current requirements with the state revenue agency or a qualified tax professional. creditARMOR is a free service. Passing this mock audit does not guarantee that your claim will pass an IRS or state examination. If needed, Swanson Reed can assist you with representation before the IRS. creditARMOR and TaxTrex are products of Swanson Reed.

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