Report Title:

Payroll Tax Credit; Motion Picture and Film Production


Expands the tax credit for motion picture and film production to include up to an unspecified amount of the costs of wages and salaries, capped at $25,000 per employee; includes commercials in motion picture and film production.


S.B. NO.









relating to motion picture and film production.



SECTION 1. The legislature finds that governments around the globe increasingly recognize the tangible and intangible benefits of attracting film production to their countries. Many have taken steps to attract film production through financial incentives incentives that have contributed to the propensity of the U.S. film industry to produce U.S. films abroad in recent years.

The legislature further finds that the Canadian government offers a number of programs in support of the country's film industry, including direct financial and tax incentives, labor credits, and aggressive marketing campaigns promoting their support of the industry.

For example, the total value of film and television production in Canada was over $3,500,000,000 in 1999, a twenty per cent increase over the previous year and triple the amount for 1992-1993. A considerable portion of the growth of the Canadian industry focused on the television and miniseries film production market, which has been the major growth market in the film industry over the past decade.

According to the U.S. Department of Commerce's Media Migration Report, published in January 2001, Canada has developed the most extensive incentive program with a wide variety of wage and tax credits, financing packages, and fund for equity investment. The report describes the process as follows:

"With a relatively non-developed film industry, a country such as Canada attracts initial production through a series of tax incentives, building the basic infrastructure for film development. As the industry relocates in small amounts at first, below-the-line cast and crew (production, art construction, set dressing, props, camera, sound, stage & studio, electrical, grip, wardrobe, makeup, special effects, laboratory & film, food transportation, locations, editorial, etc.) become trained, making them part of the infrastructure used to attract future productions. As more films begin to relocate, more infrastructure is developed (film studios, sound stages, recording studios, set development, etc.). It then becomes easier for a project to relocate. At this point, the country can then offer tax incentives for using local labor, providing even more cost savings to relocations. The end result, as is the case in Canada, is a group of production "clusters" that can attract a large number of both locally developed productions and runaways (film productions that relocate to foreign countries.)"

The purpose of this Act is to expand Hawaii's current tax credits for motion picture and film production to keep pace with national and international competition.

SECTION 2. Section 235-17, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter, an income tax credit which shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed. The amount of the credit shall be up to four per cent of the costs, excluding wages and salaries, and up to twenty-two per cent of the costs of wages and salaries incurred in the State in the production of motion picture or television films[.]; provided that the tax credit for wages and salaries shall apply only to the first $25,000 per employee. The director of taxation shall specify by rule a schedule of allowable tax credits based on the principle that greater tax credits shall be allowed for greater benefits to the state economy.

For the purposes of this section, motion picture and film production shall include commercials that advertise products and services to consumers.

In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for production costs incurred by the entity for the taxable year. The cost upon which the tax credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined by rule.

If a deduction is taken under section 179 (with respect to election to expense depreciable business assets) of the Internal Revenue Code of 1986, as amended, no tax credit shall be allowed for those costs for which the deduction is taken.

The basis for eligible property for depreciation of accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2003.