Millions of dollars in state income tax credits available to investors who funnel capital to Hawai'i's fledgling technology sec-tor will likely never be claimed, according to state tax officials.

Investors claim the tax credits over five years after putting money into high-technology companies. But some investors appear to be leaving credits on the table.

The amount claimed so far has been less than what state tax officials originally thought it would be when the program was launched in 2001.

"Having seen this play out for a number of years, I would say there's a significant amount that will never be used," said tax department Director Kurt Kawafuchi. "I can say that with hundred-percent certainty. It's a big number, it's not like 5 percent" that could go unclaimed. "Whe-ther its 25 or 40 (percent) it's hard for me to pin that down," Kawafuchi said.

From 2001 through 2004, the program cost the state about $125 million in forgone tax revenues. There is another $56 million waiting to be claimed based on investments made in the first four years of the program. Kawafuchi says not all of that will be claimed.

Officials had expected most credits would eventually be claimed in part because the credits can be transferred to investors with greater tax liabilities.

Created in 2001 under Act 221, the credits provide a 100 percent or more tax break for technology investments. Although qualifications for the program were tightened in 2004 under Act 215, the credits are still considered generous compared with those offered by other states.

Uncertainty over the value of credits claimed in the future could complicate the task of determining the costs and benefits of the program that sunsets in 2010.

No one knows how many credits will be generated or claimed, though some forecasts put the cost of the program to the state between $600 million to $1 billion in lost tax revenue over the life of the 10-year program — figures that equate to the level of investments in local companies. Pinning down the benefits of the program has been even more difficult than determining the costs.

For example, technology job growth lagged behind overall job growth in Hawai'i in rising by just 350 new positions between 2001 and 2005, according to one state report. However, according to separate tax department draft figures, companies benefitting from the credits reported creating 4,234 jobs between 2001 and 2004. That figure includes jobs created at technology and performing arts businesses, but excludes potential job losses during that period. Proponents of the tax credits argue that it will take time for startup technology companies to add jobs.

Through 2004, the total potential state liability created during the 10-year program's first four years was about $181.2 million, according to the tax department. However, the actual costs are likely to be lower because some credits will never be claimed, Kawafuchi said. That's because some businesses benefiting from the program have failed or left Hawai'i, which invalidates any unclaimed credits. In other instances Mainland investors that did not have Hawai'i tax liability were unable to find Hawai'i taxpayers willing to participate in the program. The tax credit program allows local technology investors to swap equity in a company with a Mainland investor in exchange for more tax credits.

"There's a whole variety of reasons that over the five years (from what) we've seen now I know there's a pretty good percentage (of credits) that will never be used," Kawafuchi said.

Among the companies that likely will no longer be eligible to participate in the tax credit program is Kapolei-based Hoku Scientific Inc. The company recently warned investors that a drop in research expenditures and a workforce reduction in its Hawai'i fuel cell business means investors may no longer qualify for tax credits.

"We don't do as much research as we once did," said Chief Executive Dustin Shindo. "As we go that way, I think it's fair to say at some point we may no longer qualify."

However, the impact on Hoku's tax credit eligible investors likely will be minimal, Shindo said.

"If they lost any credits, it's not likely they lost all of it," he said. "They probably claimed most by now."

Hoku also exemplifies how difficult it can be to determine the economic benefits of the credits. That's because Hoku, which is one of Hawai'i's best-known technology companies, is in the midst of a major expansion outside of Hawai'i. Hoku, which now employs about 20 people locally after layoffs in December, has started construction on a $260 million polysilicon production plant in Idaho that will initially employ 200 people.

Hoku also is considering selling its less than two-year-old, $6 million Kapolei headquarters.

Any criticism of Hoku's moves is unwarranted, Shindo said, noting that Idaho officials gave Hoku a 99-year lease for 64 acres of land for $1 a year.

"You could never get that in Hawai'i," he said. "I think it would be a mistake to say that Hawai'i missed out on all that opportunity.

"That business if it does well will also help our solar (installation) business in Hawai'i"

Lowell Kalapa, head of the Tax Foundation of Hawai'i research group, said the uncertainty over how much of the credits will be left on the table "reflects how poorly thought out this whole idea of giving tax credits to promote these activities is."

"You have to look at what is an inhibitor or a disincentive to promoting high-tech activities in Hawai'i," Kalapa said. Kama'aina "are not going to come back (to Hawai'i) if they can't afford housing or if they're not going to get paid as much as they would on the Mainland."

Reach Sean Hao at shao@honoluluadvertiser.com.