Are R&D Tax Credits
Available in Hawaii?
Yes. Hawaii provides a refundable R&D Tax Credit for companies developing new products and services. The state credit is available to qualified high technology businesses (those conducting more than 50% of their activities in qualified research) and is generally based on the federal R&D credit under IRC §41.
Hawaii R&D Tax Credit
Credit amount:
Equal to the federal credit (Form 6765) multiplied by the percentage of eligible research expenses attributable to Hawaii-based activities.
Eligibility:
Companies must have no more than 500 employees.
Cap:
$5 million annual cap on the total credits available statewide.
Expiration:
The credit is available through tax years ending before January 1, 2030.
Forms required:
DBEDT-issued Form N-346A, Hawaii Form N-346, and Federal Form 6765 must accompany the Hawaii income tax return.
Application process
File with the Department of Business, Economic Development, and Tourism (DBEDT) by March 31 following the taxable year.
Complete an online questionnaire by June 30 with expenditure, revenue, IP, and related business details.
Credits are certified on a first-come, first-served basis until the $5M cap is reached.
Hawaii R&D Tax Credit
Credit amount:
Equal to the federal credit (Form 6765) multiplied by the percentage of eligible research expenses attributable to Hawaii-based activities.
Eligibility:
Companies must have no more than 500 employees.
Cap:
$5 million annual cap on the total credits available statewide.
Expiration:
The credit is available through tax years ending before January 1, 2030.
Forms required:
DBEDT-issued Form N-346A, Hawaii Form N-346, and Federal Form 6765 must accompany the Hawaii income tax return.
Application process
File with the Department of Business, Economic Development, and Tourism (DBEDT) by March 31 following the taxable year.
Companies must have no more than 500 employees.
Credits are certified on a first-come, first-served basis until the $5M cap is reached.
Hawaii R&D Tax Credit Case Study
A Honolulu optical communications company had never claimed the R&D credit before. This project involved a 2024 study year.
The company qualified for a federal R&D Tax Credit of $100,000 and an additional refundable Hawaii state R&D Tax Credit of $150,000.
FEDERAL | HAWAII | |||
Year | Total QREs | Credit | Total QREs | Credit |
2024 | $1,000,000 | $100,000 | $750,000 | $150,000 |
Federal R&D Tax Credit Summary
Year | Total QREs | Credit |
2024 | $1,000,000 | $100,000 |
Hawaii R&D Tax Credit Summary
Year | Hawii Credit |
2024 | $150,000 |
Criteria for Qualifying Research Activities
The four-part test below defines what counts as qualified research activities
Purpose of the Research
The activity should develop or improve a business component, such as a product, process, software, formula, technique, or invention, by enhancing functionality, performance, reliability, or quality.
Resolving Uncertainty
The work must address technical uncertainties, such as determining the optimal design, method, or approach to achieve the desired outcome. The results should not be known in advance.
Systematic Experimentation
Eligible research must follow a structured experimentation process, including trial and error, modeling, simulation, or testing alternatives to reach the intended improvement.
Technological Basis
The activity must rely on hard sciences such as engineering, physical or biological sciences, or computer science. Artistic, social science, or routine data collection work does not qualify.
Why the R&D Tax Credit Matters ?
Since 1981, the R&D Tax Credit has helped businesses save billions in federal and state taxes. The credit enables companies to hire more staff, expand R&D, invest in facilities, and drive innovation. Thousands of businesses across multiple industries take advantage of this benefit each year.