SB2506 creates a temporary Hawaii income tax credit for taxpayers who pay to upgrade or convert a cesspool into a septic system or aerobic treatment unit system, or who connect a cesspool to a sewer system. The credit equals qualified expenses up to $10,000 per cesspool, with a special rule for residential large capacity cesspools that allows up to $10,000 per connected dwelling, subject to Department of Health certification. The credit is available only for taxable years beginning after December 31, 2027, and the program sunsets after December 31, 2032.
The bill also establishes administrative rules for how the credit is certified and claimed. The Department of Health would certify cesspools and qualified expenses, maintain records, and stop certifying credits once the annual statewide cap of $5 million is reached; the Department of Taxation would prepare forms, verify claims, and adopt implementing rules. Unused credit amounts may be carried forward to later tax years, and claims must generally be filed within 12 months after the close of the taxable year. The bill defines key terms such as cesspool, septic system, sewer system, wastewater, and aerobic treatment unit system.
SB2506 would amend chapter 235, Hawaii Revised Statutes, by adding a new refundable-style income tax credit mechanism against net income tax liability for cesspool remediation expenses, while also assigning new certification and reporting duties to the Department of Health and administrative rulemaking duties to the Department of Taxation. It would create a capped state tax expenditure of up to $5 million per year, with unused eligibility rolling into the next year if the cap is reached, and it would apply only to taxable years beginning after December 31, 2027, through December 31, 2032. The bill primarily affects cesspool owners, including residential property owners and certain entities such as partnerships, S corporations, estates, and trusts.
The available context suggests generally favorable treatment of the bill, as reflected by its introduction as part of a county package and its referral for further committee consideration rather than immediate rejection. The bill’s stated purpose is to provide financial assistance for cesspool upgrades and sewer connections, indicating a policy approach aimed at encouraging wastewater system conversion through tax incentives. No vote record or committee transcript is provided, so there is no evidence in the record of formal opposition or amendment debate.
The main likely points of contention are fiscal cost, administrative complexity, and the limited pilot treatment for residential large capacity cesspools. The $5 million annual cap may concern budget watchers and tax administrators, while the Department of Health’s role in certifying all cesspools and qualified expenses could raise implementation questions. The bill’s special allowance for only up to two residential large capacity cesspools as a pilot program may also draw scrutiny from stakeholders seeking broader eligibility, while others may question whether the $10,000 cap is sufficient to offset conversion costs.