Tax Credits for Film and Performing Arts
Expands Hawaii's current tax incentive package for motion picture and film production, and includes a refundable production tax credit.
TWENTY-SECOND LEGISLATURE, 2004
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO TAX CREDITS FOR FILM AND PERFORMING ARTS.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
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 United States film industry to produce United States 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 the Canadian film and television industry is close to $4 billion annually. The British Columbia film industry alone has grown significantly over the past fifteen years from a fledgling industry to one that now generates more than $1 billion in direct annual expenditures.
According to the United States Department of Commerce's Media Migration Report, Canada has developed the most extensive incentive program with a wide variety of wage and tax credits, financing packages, and funds 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 and studio, electrical, grip, wardrobe, makeup, special effects, laboratory and 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 infrastructures is developed (film studios, sound stages, recording studios, set developments, 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)."
Since 2001, similar competitive economic initiatives have been adopted by several states, including Oklahoma, which offers a cash rebate of fifteen per cent of documented expenditures in the state directly related to film and television production, and New Mexico, which offers a fully refundable income tax credit equal to fifteen per cent of film production costs, among several other incentives such as a gross receipts tax deduction, film investment program, and workforce development fund. Louisiana is the latest United States jurisdiction to pass a package of very attractive incentives that like New Mexico are generating a tremendous amount of interest from the industry. These include a combination of investment and labor tax credits as well as exclusion from sales and use tax.
The purpose of this Act is to expand Hawaii's current tax incentive package for motion picture and film production to keep pace with national and international competition.
SECTION 2. Section 235-17, Hawaii Revised Statutes, is amended to read as follows:
"§235-17 Motion picture and film production; income tax credit. (a) [
There] When the provisions of subsection (d) are satisfied, 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] fifteen per cent of the costs incurred in [ the State] any county with a population over seven hundred thousand in the production of motion picture or television films[ .] or commercials that advertise products and services to consumers; or up to twenty per cent of the costs incurred in any county with a population of seven hundred thousand or less in the production of motion picture or television films or commercials that advertise products and services to consumers. 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.
As used in this section, "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 section (d).
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 the 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 that $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 motion picture, television, or commercial production must satisfy the following requirements:
(1) The production must spend a minimum of $200,000 in the State of Hawaii;
(2) At least twenty-five per cent of the below-the-line hires must be Hawaii residents;
(3) Any film, television, or entertainment product with acknowledgments 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 acknowledgment in a printed program;
(4) No more than $2,000,000 in credits can be claimed or shall be allowed, per production; and
(5) 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 section 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 (a) 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 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.
(g) In the event that total claims for the credit exceed $10,000,000 for any calendar year, the department of business, economic development, and tourism shall certify credits on a pro rata basis for the total value of claims submitted for that calendar year. Should a taxpayer not receive the full amount of credits for which the taxpayer is eligible for a given calendar year, that taxpayer may carry forward the balance of any credits in future tax years, but in no event shall a credit be allowed after December 31, 2011. Tax credits claimed in subsequent years shall also be subject to the $10,000,000 cap for the year the credits are claimed. In no instance, shall the total amount of certified credits exceed $10,000,000 per year. The total credits claimed under this section shall not exceed $60,000,000."
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:
"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 and editorial.
"Production" means activities directly related to the creation of imagery and content to be delivered via film, videotape, digital media, print media and other delivery systems including scripting, casting, set design and construction, shooting and editing.
"Qualified high technology business" means a business, employing or owning capital or property, or maintaining an office, in this State; providing 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 film, television, or entertainment product with acknowledgments 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 line on-screen credit or acknowledgment in a printed program; and
(B) The business shall create two full-time Hawaii-based jobs for at least one year that pay a salary commensurate to film 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:
(i) At least twenty-five per cent of the project's post production must take place in the State of Hawaii; or
(ii) At least twenty-five per cent of the project's digital effects must take place in the State of Hawaii.
"Qualified research" means the same as defined in section 235-7.3."
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, 2004, and shall not apply to
taxable years after December 31, 2010; provided that sections 235-17 and 235-110.9(e), Hawaii Revised Statutes, shall be reenacted in the form in which they read on the day before the effective date of this Act.