Film Production; Tax Credit
Increases the motion picture and television production tax credit up to 8 percent for costs incurred on counties with a population over 700,000, and up to 10 percent for costs incurred on counties with a population of 700,000 or less; includes commercials; allows the tax credit to be claimed only upon declaration by the Governor after certain fiscal and budgetary conditions have been met; requires the Hawaii television and film development board to review tax incentives for the purchase, utilization, and sale of television and motion picture production equipment in the State. (SB359 HD2)
TWENTY-SECOND LEGISLATURE, 2003
STATE OF HAWAII
A BILL FOR AN ACT
relating to film industry.
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 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 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 infrastructure 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 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. California's "Film California First" program reimburses up to $300,000 for qualified productions that film public properties in California.
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 to read as follows:
"§235-17 Motion picture and film production; income tax credit. (a) [
There] When the provisions of subsection (f) are met, 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] eight per cent of the costs incurred [ in the State] in 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; provided that the amount of the tax credit shall be up to ten 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 subsection, "commercials" means advertising messages that are created by traditional or new media, including but not limited to film, tape, or digital means.
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) 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) 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.
(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.
(f) The motion picture and film production income tax credit may be claimed only upon a declaration by the governor. The governor shall issue a declaration allowing taxpayers to claim the motion picture and film production income tax credit when general fund tax collections at the close of each of two successive fiscal years exceed 7.5 per cent of general fund tax collections for each of the prior two fiscal years. The director of taxation shall notify the governor of general fund tax collections at the close of every year."
SECTION 3. Section 235-7.3, Hawaii Revised Statutes, is amended by amending the definition of "qualified high technology business" in subsection (c) to read as follows:
""Qualified high technology business" means a business that conducts more than fifty per cent of its activities in qualified research[
.]; provided that a taxpayer that has claimed a credit pursuant to section 235-17 for the taxable year in which it seeks to qualify as a qualified high technology business, shall not be a "qualified high technology business" for the purposes of this section for that taxable year."
SECTION 4. The Hawaii television and film development board, with participation from Hawaii's broader film and media industry, shall review, analyze, and propose recommendations on possible tax or other incentives that may be enacted and implemented to encourage the acquisition, use, and local availability of television and movie production equipment in the State.
The Hawaii television and film development board shall submit its findings and recommendations, including proposed legislation, to the legislature at least twenty days prior to the convening of the regular session of 2004.
SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 6. This Act, upon approval, shall apply to taxable years beginning after December 31, 2002, and shall be repealed January 1, 2008.