Film, Television, and Music Labor Expenditure Tax Credit
Increases the tax credit for performing arts products, sound recordings, and digital media products produced in the State, provided that certain expenditure levels and below-the-line hiring requirements are met. (SD1)
TWENTY-SECOND LEGISLATURE, 2004
STATE OF HAWAII
A BILL FOR AN ACT
relating to the entertainment industry.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that the film production, digital media and sound recording industries generate significant economic activity worldwide. As a result, several countries have taken steps to attract film production through financial incentives, and programs to promote the recording industry have been created to garner a greater share of music recording industry. Music sales alone, according to the Recording Industry Association of America, exceeded $32,000,000,000 in worldwide sales in 2002.
In an increasingly competitive international market, the legislature finds that Hawaii faces considerable competition from countries like Canada, which offers direct financial and tax incentives, labor credits, and aggressive marketing campaigns promoting the support of an industry that generates $4,000,000,000 annually.
Since 2001, similar competitive economic initiatives have been adopted by several states. Oklahoma, New Mexico, and more recently, Louisiana offer fifteen per cent tax credits or rebates and other attractive incentives that are generating tremendous amount of interest from the industry.
Hawaii experienced a considerable drop in film revenues from 2002-2003 while facing even stiffer competition. Moreover, video gaming market has now surpassed theatre box office revenues by generating $25,000,000,000 in 2002.
The legislature also recognizes that Hawaii has a uniquely talented performing arts community that produces rich, unique and diverse music forms. While Hawaiian and world music continue to enjoy increased popularity throughout the United States and elsewhere, the legislature finds that Hawaii's performing artists and music industry are an underutilized asset. Hawaii Mountain Apply recording executives have pointed to the fact that over thirty five of the one hundred most popular international downloads from Apple's I-Tunes site in 2003 were by Hawaiian musical recording artists. To increase economic activity in the State, increase the visibility of Hawaii's talented musicians, and preserve and protect Hawaii's cultural treasures, the legislature finds that the Hawaii recording industry should be included in all tax incentive packages for the performing arts industry.
In addition, the legislature acknowledges the highly evolving nature of the production aspects of the entertainment industry. New technologies, the rapid growth of the digital media sector - particularly the gaming and animation components - and the portability of the components of a production all contribute to an industry in rapid transition.
The purpose of this Act is diversify Hawaii's economy by expanding the State's current tax incentive packages for motion picture, television, and film production to include digital media and sound recording to keep pace with national and international competition.
SECTION 2. Section 235-17, Hawaii Revised Statutes, is amended to read as follows:
Motion picture and film production] Performing arts productions; income tax credit. (a) [ There] When the provision of subsection (d) are satisfied by a taxpayer, there shall be allowed to [
For purposes of this section:
"Below-the-line hires" means cast and crew including production, art construction, set dressing, props, camera, sound, stage and studio, electrical, grip, wardrobe, makeup, special effects, laboratory and film, food transportation, locations, editorial and other hires based on industry standard practice.
"Commercials" means advertising messages that are created by traditional or new media, including, but not limited to film, print, tape, or digital means. A series of advertising messages would qualify if all parts are produced at the same time and complies with minimum production costs in subsection (d).
"Performing arts products" means:
(1) Audio files, video files, audiovideo files, computer animation, and other entertainment products perceived by or through the operation of a computer; and
(2) Commercial television and film products for sale or license, and reuse or residual fee payments from these products.
"Post production" means services for film, video, or digital media that includes, but is not limited to, editing, film and video transfers, duplication, transcoding, dubbing, subtitling, credits, close captioning, audio production, special effects (visual and sound), graphics, or animation.
"Production" means activities directly related to the creation of imagery and content to be delivered via film, videotape, audio tape, digital media, print media, and other delivery systems including scripting, casting, set design, and construction, shooting, sound recording, editing and other activities based on industry standard practices.
"Sound recording" means a commercially and technically satisfactory master recording that results from the fixation of a series of musical, spoken, or other sounds, but not including the sounds accompanying a motion picture or other audio visual work, regardless of the nature of the material objects, such as disks, tapes, or other phonorecords, in which they are embodied.
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.
(b) 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 7.25 per cent effective January 1, 1999, of the costs incurred in the State in the production of motion picture or television films for actual expenditures for transient accommodations. 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. 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.]
(c)] (b) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year. For the purpose of this section, "net income tax liability" means net income tax liability reduced by all other credits allowed under this chapter.
(d)] (c) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of credits over liability shall be refunded to the taxpayer; provided that no refunds or payment on account of the tax credits allowed by this section shall be made for amounts less than $1. All claims, including any amended claims, for tax credits under this section shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.
(d) To qualify for this refundable tax credit, a production of a performing arts product shall satisfy the following requirements:
(1) A film, television, and motion picture production shall spend a minimum of $200,000 in Hawaii, except that productions that are produced and staffed with one hundred per cent Hawaii residents shall spend a minimum of $100,000 in Hawaii;
(2) A digital media production shall spend a minimum of $100,000 in Hawaii, except that productions that are produced and staffed with one hundred per cent Hawaii residents shall spend a minimum of $50,000 in Hawaii;
(3) A sound recording production shall spend a minimum of $20,000 in Hawaii;
(4) In the case of a film, television, or digital media production, at least fifty per cent of the below-the-line hires shall be Hawaii residents. In the case of a sound recording production, at least fifty per cent of all personnel hired to work on the sound recording shall be Hawaii residents. An exemption may be issued from the department of business, economic development, and tourism based on labor availability in both cases;
(5) Any wages attributable to the minimum cost thresholds shall have Hawaii income tax withheld, provided that the wage and tax information is subject to verification by the department of business, economic development, and tourism;
(6) Any performing arts products with acknowledgements and other credits shall acknowledge the support of the State of Hawaii in a manner determined through negotiations between the production and the State, including, but not limited to, a single on-screen credit and acknowledgement in a printed program;
(7) No production that has received financing by virtue of investments covered in section 235-110.9 is eligible for credits under this section.
(e) The director of taxation shall prepare forms as may be necessary to claim a credit under this section. The director may also require the taxpayer to furnish information to ascertain the validity of the claim for credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.
Every qualified taxpayer, no later than March 31 of each year in which qualified costs were expended in the previous taxable year, shall submit a written sworn statement to the director of business, economic development, and tourism, identifying:
(1) All costs qualifying under subsection (d), if any, incurred in the previous taxable year; and
(2) The amount of tax credit claimed pursuant to this section, if any, in the previous taxable year.
(f) The department of business, economic development, and tourism shall:
(1) Maintain records of the names of the taxpayers claiming the credits in subsection (a);
(2) Obtain the amount of the qualifying costs or expenditures;
(3) Total all qualifying and cumulative costs or expenditures that the department of business, economic development, and tourism certifies; and
(4) Certify the amount of the tax credit for each taxable year and the cumulative amount of the tax credit.
Upon each determination, the department of business, economic development, and tourism shall issue a certificate to the taxpayer verifying the qualifying costs or expenditure amounts, the credit amount certified for each taxable year, and the cumulative amount of the tax credit during the credit period. The taxpayer shall file the certificate with the taxpayer's tax return with the department of taxation. Notwithstanding the department of business, economic development, and tourism's certification authority under this section, the director of taxation may audit and adjust certification to conform to the facts."
SECTION 3. Section 235-110.9, Hawaii Revised Statutes, is amended by amending subsection (e) to read as follows:
"(e) As used in this section:
"Qualified high technology business" means a business, employing or owning capital or property, or maintaining an office, in this State; provided that:
(1) More than fifty per cent of its total business activities are qualified research; and provided further that the business conducts more than seventy-five per cent of its qualified research in this State; or
(2) More than seventy-five per cent of its gross income is derived from qualified research; and provided further that this income is received from:
(A) Products sold from, manufactured in, or produced in this State; or
(B) Services performed in this State.
(3) To qualify for the investment tax credit, a business producing performing art products as defined in section 235-7.3 shall meet the following criteria:
(A) Any performing art product shall acknowledge the support of the State of Hawaii in a manner determined through negotiations between the production and the State, including, but not limited to, a single line on-screen credit or acknowledgement in a printed program; and
(B) The business shall create two full-time Hawaii-based jobs for at least one year that pays a salary commensurate to film recording, or in the case of a sound recording production, sound recording industry standards for every $1,000,000 in tax credit issued, except that, if the production is unable to meet this job requirement, the business shall meet one of the following requirements:
(i) At least twenty-five per cent of the project's post production shall be conducted in the State of Hawaii as measured by the total post production budget, or
(ii) At least twenty-five per cent of the project's digital effects shall be conducted in the State of Hawaii as measured by the project's total digital effects budget; and
(iii) Any wages attributed to the minimum cost thresholds shall have Hawaii income tax witheld provided that the wage and tax information is subject to verification by the department of business, economic development, and tourism.
"Qualified research" means the same as defined in section 235-7.3.
(f)[ ]] This section shall not apply to taxable years beginning after December 31,[
SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 5. This Act, upon approval, shall apply to taxable years beginning after December 31, 2003, and shall not apply to taxable years after December 31, 2010; provided that sections 235-17 and 235-110.9, Hawaii Revised Statutes, shall be reenacted in the form in which they read on the day before the effective date of this Act.