HAR § 18-235-17-11 — Qualified production costs; credit calculation for certain equipment costs

(a) For equipment that is purchased for more than $25,000 and specifically for use for a qualified production in the State, the amount that may be claimed as a qualified production cost in the first year the equipment is used for a qualified production shall be limited to the cost incurred for the equipment divided by the applicable recovery period under the modified accelerated cost recovery system determined by the Internal Revenue Service; provided that a deduction has not been taken under section 179 of the Internal Revenue Code of 1986, as amended, with respect to the equipment. Example: XYZ Production Company purchased a camera to film an underwater scene of a feature film in Hawaii. The camera was purchased for $60,000 and has a recovery period under the modified accelerated cost recovery system determined by the Internal Revenue Service of 5 years. A deduction under section 179 of the Internal Revenue Code of 1986, as amended, was not taken with respect to the camera. The amount that may be claimed as a qualified production cost in the first year the equipment is used for a qualified production is $12,000, which is the $60,000 purchase price divided by the applicable recovery period of 5 years. (b) For equipment that a taxpayer owned prior to beginning production in the State or that a taxpayer has previously claimed qualified production costs for a qualified production in the State and that has an applicable recovery period under the modified accelerated cost recovery system determined by the Internal Revenue Service of 5 years or more, the taxpayer may claim the amount of the depreciation allowance as a qualified production cost. The amount claimed as a qualified production cost shall be prorated to reflect the amount of time that the equipment is actually used during the calendar year; provided that a deduction has not been taken under section 179 of the Internal Revenue Code of 1986, as amended, with respect to the equipment. The depreciation allowance under state law shall be utilized to calculate the credit amount under this section. Example 1: XYZ Production Company has cameras that it ships to the State to film a production for six months. All of these cameras were purchased by the production company prior to production in the State and have been utilized as equipment for the past few years on other film projects. These cameras are available on a checkout basis for all productions being created by XYZ Production Company. Assume that the cameras have an applicable recovery period under the modified accelerated cost recovery system determined by the Internal Revenue Service of 5 years and assume further that a deduction under section 179 of the Internal Revenue Code of 1986, as amended, was not taken with respect to the cameras and that depreciation deductions have been taken in prior years. If XYZ Production Company is entitled to take a $1,000 state depreciation allowance for the cameras for the calendar year, XYZ Production Company may claim $500 as a qualified production cost that represents the $1,000 depreciation allowance adjusted for the time the cameras were used in the State. Example 2: XYZ Production Company purchased a camera to film an underwater scene of a feature film in Hawaii. The camera was purchased for $60,000 and has a recovery period under the modified accelerated cost recovery system determined by the Internal Revenue Service of 5 years. A deduction under section 179 of the Internal Revenue Code of 1986, as amended, was not taken with respect to the camera. The amount that may be claimed as a qualified production cost in the first year the equipment is used for a qualified production is $12,000, which is the $60,000 purchase price divided by the applicable recovery period of 5 years. In the subsequent year XYZ Production uses the camera for the qualified production for six months of the year. XYZ Production is entitled to a $10,000 state depreciation allowance for the camera. XYZ Production may claim $5,000 as a qualified production cost that represents the $10,000 depreciation allowance adjusted for the time the camera was used in the State.