HAR § 18-235-17-10 — Qualified production costs; generally

(a) Qualified production costs are production costs that are directly attributable to and incurred by a qualified production in the State that are subject to the: (1) General excise tax at the highest rate under chapter 237, HRS, if the payee is engaged in business in the State; or (2) Income tax under chapter 235, HRS, if the costs are not subject to tax under chapters 237 and chapter 238, HRS. Example 1: ABC Airlines is a commercial airline that flies from Los Angeles, California to Honolulu, Hawaii. ABC Airlines has business operations in the State; however, it also has business operations in other jurisdictions. ABC Airlines is subject to Hawaii income tax on an apportioned basis. J3T Productions contracts with ABC Airlines to transport its cast and crew from Los Angeles, California to Honolulu, Hawaii to shoot a motion picture. Although the cost of roundtrip airfare on ABC Airlines is not subject to general excise tax, it is a qualified production cost for HRS §235-17 §18-235-17-10 purposes of the credit under section 235-17, HRS, because ABC Airlines is subject to Hawaii income tax. Example 2: 123 Catering, a Hawaii limited liability company, is a vendor to local productions for catering services. 123 Catering is engaged in business in the State and is therefore subject to general excise tax. J3T Productions contracts with 123 Catering to provide plate lunches to its cast and crew for a production taking place in the State. The cost of catering services provided by 123 Catering to J3T Productions is a qualified production cost for purposes of the credit under section 235-17, HRS, because the amount paid to 123 Catering is subject to general excise tax at the highest rate. J3T Productions must submit 123 Catering’s general excise tax license number as part of the production report required under section 18-235-17-03(b). Example 3: J3T Productions, a California-based production company doing business in the State, ships filming equipment from California to the State to produce a commercial. J3T Productions contracts with two shipping companies: SlugShip, a same-day air travel parcel shipping company, to ship copies of the scripts, contracts, and costumes; and BugShip, a freight forwarder, to ship cameras, set materials, rigging, and other large objects. Both shipping companies have a presence in the State, as well as on the mainland, and are subject to Hawaii income tax on an apportioned basis and general excise tax. The shipping costs incurred from both SlugShip and BugShip are qualified production costs on an apportioned basis to the extent that those amounts are subject to Hawaii income or general excise taxes. Example 4: Gus Grip, a resident of California, is hired as an employee by J3T Productions to help film a movie in the State. Under state law, the wages of Gus Grip earned in the State are subject to Hawaii income tax under section 235-4(b), HRS, and section 18-235-4-03. Gus Grip’s wages, to the extent earned in the State, are a qualified production cost. Example 5: Sam Staff, a resident of California, is a full-time employee of J3T Productions working out of J3T’s California headquarters. J3T sends Sam Staff to work in the State temporarily. Sam Staff’s wages that are earned while working in the State are a qualified production cost because the wages are subject to Hawaii income tax. Example 6: Molly Makeup is hired as an employee by J3T Productions to perform for the filming of a movie in the State. J3T Productions also agrees to rent Molly Makeup’s kit box from her for $1,000 per month. Molly Makeup’s wages are qualified production costs because they are subject to Hawaii income tax to the extent they are earned in the State. The $1,000 per month paid to Molly Makeup for the rental of her kit box is a qualified production cost because it is subject to general excise tax at the highest rate. J3T Productions must submit Molly Makeup’s general excise tax license number as part of the production report required under section 18-235-17-03(b). Example 7: Assume the same facts as Example 6, except that J3T Productions treats the $1,000 per month to rent Molly Makeup’s kit box as additional wages to Molly Makeup and the amount is reported on Molly Makeup’s Form W-2. The $1,000 per month paid to Molly Makeup for the rental of her kit box is a qualified production cost because it is subject to Hawaii income tax to the extent it is earned in the State. Example 8: Lenny Loaner, a resident of California, agrees to film a movie in the State for J3T Productions through the contracting of Lenny Loaner’s loan-out company. J3T Productions pays fees to Lenny Loaner’s loan-out company for services provided in the State that represent wages or salary for Lenny Loaner. The amounts paid to Lenny Loaner’s loan-out company are qualified production costs to the extent that they are subject to general excise tax at the highest rate. J3T Productions must submit Lenny Loaner’s general excise tax license number as part of the production report required under section 18-235-17-03(b).