HOUSE OF REPRESENTATIVES
TWENTY-SIXTH LEGISLATURE, 2011
STATE OF HAWAII
A BILL FOR AN ACT
relating to tax credits.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that the film industry in Hawaii is an important component of a diversified economy and that its financial impact can be strengthened significantly if existing incentives for the industry are adjusted.
The legislature also finds that there has been a dramatic increase in the number of state and local governments attempting to attract film productions. These jurisdictions have experienced dramatic increases in in-state spending and significant growth in workforce and infrastructure development. More productions in Hawaii would stimulate more direct and indirect tax revenue.
The legislature further finds that it is desirable to provide tools to the film industry to encourage similar dramatic growth in Hawaii because the film industry:
(1) Infuses significant amounts of new money into the economy, which is dispersed across many communities and businesses and which benefits a wide array of residents;
(2) Creates skilled, high-paying jobs;
(3) Has a natural dynamic synergy with Hawaii's top industry, tourism, and is used as a destination marketing tool for the visitor industry; and
(4) Is a clean, nonpolluting industry that values the natural beauty of Hawaii and its diverse multicultural population and wide array of architecture.
The legislature also finds that the industry has a strong desire to hire locally and invests in the training and workforce development of island-based personnel. It is the intent of this Act to continue to encourage this industry practice of hiring a significant number of residents and to support training and opportunities to those residents.
The legislature further finds that it is necessary to enhance the existing tax incentive programs that use the front-end budgeting methods normally used by the film industry and that lower production costs in order to allow Hawaii to compete with other film production centers in attracting a greater number of significant projects to the islands and to continue to build our local film industry infrastructure.
The purpose of this Act is to encourage the growth of the film industry by providing enhanced incentives that attract more film and television productions to Hawaii, thereby generating increased tax revenues.
SECTION 2. Section 235-17, Hawaii Revised Statutes, is amended to read as follows:
"§235-17 Motion picture, digital
and] film production, special or visual effects and animation,
and media infrastructure project income tax credit. (a) Any law to
the contrary notwithstanding, 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:
Fifteen] Thirty-five per cent of
the qualified production costs incurred by a qualified production in any county
of the State with a population of over seven hundred thousand; or [ (2) Twenty]
forty per cent of the qualified production costs incurred by a qualified
production in any county of the State with a population of seven hundred
thousand or less[ .]; and
(2) Five per cent of the qualified special or visual effects and animation production costs incurred by a qualified production in any county of the State; provided that this five per cent shall be in addition to any income tax credit set forth in paragraph (1).
(b) In addition to the credits described in subsection (a), beginning on or after July 1, 2011, and ending prior to January 1, 2016, the following credits shall apply:
(1) Twenty-five per cent of the qualified costs incurred for qualified media infrastructure projects in any county of the State with a population of over seven hundred thousand; or
(2) Forty per cent of the qualified costs incurred for qualified media infrastructure projects in any county of the State with a population of seven hundred thousand or less.
(c) The following shall apply to the qualified media infrastructure projects tax credits described in subsection (b):
(1) The base investment for a qualified media infrastructure project shall be in excess of $300,000;
(2) The qualified media infrastructure project tax credit shall be non-refundable. The portion of the tax credit that exceeds the tax liability of the taxpayer for the tax year may be carried forward to offset net income tax liability in subsequent tax years for a period not to exceed ten taxable years or until exhausted, whichever occurs first. The director of taxation may require the tax credits to be taken or assigned in the tax period in which the credit is earned or may structure the tax credit in the initial certification of the project to provide that only a portion of the tax credit be taken over the course of two or more years;
(3) The total qualified media infrastructure project tax credit allowed for any state-certified infrastructure project shall not exceed $25,000,000;
(4) If all or a portion of an infrastructure project is a facility that may be used for other purposes unrelated to production or post production activities, then the project shall be approved only if a determination is made that the multiple use facility will support and will be necessary to secure production or post production activity for the production and post production facility and the applicant provides sufficient contractual assurances that the facility will be used as a state-of-the-art production or post production facility, or as a support and component thereof, for the useful life of the facility. No tax credits shall be earned on such multiple use facilities until the production or post production facility is complete;
(5) Tax credits for infrastructure projects shall be earned only as follows:
(A) Construction of the infrastructure project shall begin within six months of the initial certification and shall be one hundred per cent completed within a five year time frame;
(B) Expenditures shall be certified by the director of taxation and credits shall not be earned until that certification;
(C) No tax credit shall be allowed for expenditures made for any infrastructure project after July 1, 2011, unless thirty per cent of the total base investment provided for in the initial certification of the project has been expended prior to that date; provided that the expenditures may be finally certified at a later date; and
(D) For purposes of allowing tax credits against state income tax liability or assignment of the tax credits, the tax credits shall be deemed earned at the time the expenditures are made, provided that all requirements of this subsection have been met and the tax credits have been certified;
(6) For state-certified infrastructure projects, the application for a qualified media infrastructure project tax credit shall include:
(A) A detailed description of the infrastructure project;
(B) A preliminary budget;
(C) A complete detailed business plan and market analysis;
(D) Estimated start and completion dates; and
(E) If the application is incomplete, additional information may be requested prior to further action by the director of taxation.
(7) An application fee shall be submitted with the application for a qualified media infrastructure project tax credit based on the following:
(A) Two-tenths of one per cent times the estimated total incentive tax credits; and
(B) The minimum application fee shall be four hundred dollars and the maximum application fee shall be five thousand dollars; and
(8) Prior to any final certification of a tax credit for a state-certified infrastructure project, the applicant for the infrastructure project tax credit shall submit to the director of taxation an audit of the expenditures audited and certified by an independent certified public accountant as determined by rule. Upon approval of the audit, the director of taxation shall issue a final tax credit certification letter indicating the amount of tax credits certified for the state-certified infrastructure project to the investors. Bank loan finance fees applicable to the qualified media infrastructure project expenditures, as certified by the director of taxation, and any general excise taxes that have been paid on the bank loan finance fees and remitted to the State may be included as part of the tax credit.
There shall be a qualified local crew training program rebate that shall be equal to fifty per cent of the hourly wages of each resident participant in a qualified local crew training program, and if incurred by a qualified production in any county of the State, shall be reimbursed up to the first nine hundred hours physically worked by the qualifying crew member in a specialized craft position.
A qualified production shall be exempt from the transient accommodations tax after thirty days of actual expenditures for transient accommodations incurred in the State.
A qualified production occurring in more than one county may prorate its expenditures based upon the amounts spent in each county, if the population bases differ enough to change the percentage of tax credit.
In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for qualified 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. Subsections (d) through (l) shall apply only to the production tax credits set forth in subsection (a).
(b)] (d) The [ credit] credits
allowed under [ this section] subsection (a) shall be claimed
against the net income tax liability for the taxable year[ .] in which
the credit is claimed. For the purposes of this section, "net income
tax liability" means net income tax liability reduced by all other credits
allowed under this chapter.
(c)] (e) If the production
tax credit under [ this section] subsection (a) 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] subsection (a) 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)] (f) To qualify for [ this]
a tax [ credit,] credit under subsection (a), a production
(1) Meet the definition of a qualified production [
in subsection (l)];
(2) Have qualified production costs totaling at least
(3) Provide the State, at a minimum, a shared-card, end-title screen credit, where applicable; and
(4) Provide evidence of reasonable efforts to hire
local talent and crew[
(5) Provide evidence of financial or
in-kind contributions or educational or workforce development efforts, in
partnership with related local industry labor organizations, educational
institutions, or both, toward the furtherance of the local film and television
and digital media industries].
(e)] (g) On or after July 1,
2006, no qualified production cost that has been financed by investments for
which a credit was claimed by any taxpayer pursuant to section 235‑110.9
is eligible for credits under this section.
(f)] (h) To receive [ the]
a tax [ credit] credit under subsection (a), the taxpayer
shall first prequalify the production for the credit by registering with the
department of business, economic development, and tourism during the
development or preproduction stage. Failure to comply with this provision may
constitute a waiver of the right to claim the credit.
(g)] (i) The director of
taxation shall prepare forms as may be necessary to claim a credit under [ this
section.] subsection (a). The director may also require the
taxpayer to furnish information to ascertain the validity of the claim for
credit made under [ this section] subsection (a) and may adopt
rules necessary to effectuate the purposes of this section pursuant to chapter
(h)] (j) Every taxpayer
claiming a tax credit under [ this section] subsection (a) for a
qualified production shall, no later than ninety days following the end of each
taxable year in which qualified production costs were expended, submit a
written, sworn statement to the department of business, economic development,
and tourism, identifying:
(1) All qualified production costs as provided by subsection (a), if any, incurred in the previous taxable year;
(2) The amount of tax credits claimed pursuant to [
section,] subsection (a), if any, in the previous taxable year; and
(3) The number of total hires versus the number of local hires by category (i.e., department) and by county.
(i)] (k) The department of
business, economic development, and tourism shall:
(1) Maintain records of the names of the taxpayers and qualified productions thereof claiming the tax credits under subsection (a);
(2) Obtain and total the aggregate amounts of all qualified production costs per qualified production and per qualified production per taxable year; and
(3) Provide a letter to the director of taxation specifying the amount of the tax credit per qualified production for each taxable year that a tax credit is claimed under subsection (a) and the cumulative amount of the tax credit for all years claimed.
Upon each determination required under this subsection, the department of business, economic development, and tourism shall issue a letter to the taxpayer, regarding the qualified production, specifying the qualified production costs and the tax credit amount qualified for in each taxable year a tax credit is claimed. The taxpayer for each qualified production shall file the letter with the taxpayer's tax return for the qualified production to the department of taxation. Notwithstanding the authority of the department of business, economic development, and tourism under this section, the director of taxation may audit and adjust the tax credit amount to conform to the information filed by the taxpayer.
(j)] (l) Total production
tax credits claimed under this section per qualified production shall
not [ exceed $8,000,000.] be capped; provided that the qualified media
infrastructure project income tax credits shall be capped at $25,000,000 in the
(k)] (m) A
taxpayer eligible to claim a tax credit under this section may assign all or a
portion of a tax credit under this section to any assignee. A taxpayer may
claim a portion of a tax credit and assign the remaining amount. A tax credit
assignment under this section shall be irrevocable. The tax credit assignment
under this subsection shall be made on a form prescribed by the director of
taxation. A taxpayer claiming a tax credit under this section shall send a
copy of the completed assignment form to the department of taxation in the tax
year in which the assignment is made and shall attach a copy of the form to the
tax return on which the tax credit is claimed.
(k)] (n) Qualified productions
shall comply with subsections [ (d), (e), (f), and (h).] (f), (g),
(h), and (j).
(l)] (o) For the purposes of
"Base investment" means the costs incurred and financial investment made to operate and sustain a qualified media infrastructure project.
(1) Means an advertising message that is filmed using film, videotape, or digital media, for dissemination via television broadcast or theatrical distribution;
(2) Includes a series of advertising messages if all parts are produced at the same time over the course of six consecutive weeks; and
(3) Does not include an advertising message with Internet-only distribution.
"Digital media" means production methods and platforms directly related to the creation of cinematic imagery and content, specifically using digital means, including but not limited to digital cameras, digital sound equipment, and computers, to be delivered via film, videotape, interactive game platform, or other digital distribution media (excluding Internet-only distribution).
"Director" means the director of taxation.
"Post production" means production activities and services conducted after principal photography is completed, including but not limited to editing, film and video transfers, duplication, transcoding, dubbing, subtitling, credits, closed captioning, audio production, special effects (visual and sound), graphics, and animation.
"Production" means a series of activities that are directly related to the creation of visual and cinematic imagery to be delivered via film, videotape, or digital media and to be sold, distributed, or displayed as entertainment or the advertisement of products for mass public consumption, including but not limited to scripting, casting, set design and construction, transportation, videography, photography, sound recording, interactive game design, and post production.
"Qualified local crew training programs" means the development and operation of a training program for State job creation with a focus on film, video, television and digital media production or post-production, with a budget of $1,000,000 or greater. Commercials or other short form formats, with a shooting schedule of less than eighteen days shall be excluded from participation.
"Qualified media infrastructure project" means the development, construction, renovation, or operation of a film, video, television, or media production or post-production facility and the immovable property and equipment related thereto, or any other facility which supports and is a necessary component of such proposed infrastructure project, that is located in an county of the State; provided that the facility may include a movie theater or other commercial exhibition facility to assist in offsetting operating costs of the production or postproduction facility, but shall not include a facility used to produce pornographic matter or a pornographic performance.
(1) Means a production, with expenditures in the State, for the total or partial production of a feature-length motion picture, short film, made-for-television movie, commercial, music video, interactive game, television series pilot, single season (up to twenty-two episodes) of a television series regularly filmed in the State (if the number of episodes per single season exceeds twenty-two, additional episodes for the same season shall constitute a separate qualified production), television special, single television episode that is not part of a television series regularly filmed or based in the State, national magazine show, or national talk show. For the purposes of subsections (d) and (j), each of the aforementioned qualified production categories shall constitute separate, individual qualified productions; and
(2) Does not include: daily news; public affairs programs; non-national magazine or talk shows; televised sporting events or activities; productions that solicit funds; productions produced primarily for industrial, corporate, institutional, or other private purposes; and productions that include any material or performance prohibited by chapter 712.
"Qualified production costs" means the costs incurred by a qualified production within the State that are subject to the general excise tax under chapter 237 or income tax under this chapter and that have not been financed by any investments for which a credit was or will be claimed pursuant to section 235‑110.9. Qualified production costs include but are not limited to:
(1) Costs incurred during preproduction such as location scouting and related services;
(2) Costs of set construction and operations, purchases or rentals of wardrobe, props, accessories, food, office supplies, transportation, equipment, and related services;
(3) Wages or salaries of cast, crew, and musicians;
(4) Costs of photography, sound synchronization, lighting, and related services;
(5) Costs of editing, visual effects, music, other post-production, and related services;
(6) Rentals and fees for use of local facilities and locations;
(7) Rentals of vehicles and lodging, including any transient accommodations tax under chapter 237D, for cast and crew;
(8) Airfare for flights to or from Hawaii, and interisland flights;
(9) Insurance and bonding;
(10) Shipping of equipment and supplies to or from
Hawaii, and interisland shipments; [
(11) Costs for equipment or items not readily obtainable in the State which are passed through a qualified resident vendor and upon which a mark-up and general excise tax are paid;
(12) Bank loan finance fees applicable to the qualified production expenditures as finally certified by the director of taxation to the extent that a general excise tax is paid and remitted to the State. For the purposes of this section, banks providing loans to qualified productions shall be considered service vendors that are providing services to a production company where the motion picture film product consists in part of the value of services provided and shall be subject to the one-half of one per cent tax rate under section 237-18(c); and
(11)] (13) Other direct production costs
specified by the department in consultation with the department of business,
economic development, and tourism.
"Qualified special or visual effects and animation production" means special and or visual effects and animation created primarily with digital technologies for designing, modeling, rendering, lighting, painting, greenscreen, animating, and compositing for qualified productions."
SECTION 3. Section 237D-3, Hawaii Revised Statutes, is amended to read as follows:
"§237D-3 Exemptions. This chapter shall not apply to:
(1) Health care facilities including all such facilities enumerated in section 321-11(10);
(2) School dormitories of a public or private educational institution providing education in grades kindergarten through twelve, or of any institution of higher education;
(3) Lodging provided by nonprofit corporations or associations for religious, charitable, or educational purposes; provided that this exemption shall apply only to the activities of the religious, charitable, or educational corporation or association as such and not to any rental or gross rental the primary purpose of which is to produce income even if the income is used for or in furtherance of the exempt activities of such religious, charitable, or educational corporation or association;
(4) Living accommodations for persons in the military on permanent duty assignment to Hawaii, including the furnishing of transient accommodations to those military personnel who receive temporary lodging allowances while seeking accommodations in Hawaii or while awaiting reassignment to new duty stations outside the State;
(5) Low-income renters receiving rental subsistence from the state or federal governments and whose rental periods are for durations shorter than sixty days;
(6) Operators of transient accommodations who furnish accommodations to full-time students enrolled in an institution offering post-secondary education. The director of taxation shall determine what shall be deemed acceptable proof of full-time enrollment. This exemption shall also apply to operators who furnish transient accommodations to students during summer employment;
(7) Accommodations furnished without charge such as,
but not limited to, complimentary accommodations, accommodations furnished to
contract personnel such as physicians, golf or tennis professionals, swimming
and dancing instructors, and other personnel to whom no salary is paid or to
employees who receive room and board as part of their salary or compensation; [
(8) Accommodations furnished to foreign diplomats and
consular officials who are holding cards issued or authorized by the United
States Department of State granting them an exemption from state taxes[
(9) Accommodations furnished beyond thirty days to the cast and crew of a qualified production, as defined in section 235-17."
SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 5. This Act shall take effect upon its approval.
Film Production Tax Credits; Exemption
Amends the motion picture, digital media, and film production tax credit to provide a designated income tax credit for certain qualifying counties. Removes tax credit caps. Provides an additional bonus for qualifying spending related to computer aided special or visual effects and animation. Establishes a non-refundable tax credit with a carry forward period of up to ten years to encourage film production development in certain qualified counties. Allows for a certain exemption from the transient accommodation tax for stays exceeding thirty days. Permits certain production tax credits to be assigned.
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.