HRS § 235-17 — Motion picture, digital media, and film production income tax credit


§235-17 Motion picture, digital media, and
film production income tax credit. [Repeal and reenactment on January
1, 2033. L 2022, c 217, §4.] (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 that 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:
(1) Twenty-two 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-seven 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.
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.
(b) The credit allowed under this section
shall be claimed against the net income tax liability for the taxable year.
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) 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 any of the foregoing provision shall
constitute a waiver of the right to claim the credit.
(d) To qualify for this tax credit, a
production shall:
(1) Meet the definition of a qualified production
specified in subsection (o);
(2) Have qualified production costs totaling at least
$100,000;
(3) Provide the State a qualified Hawaii promotion,
which shall be at a minimum, a shared-card, end-title screen credit, where
applicable;
(4) Provide evidence of reasonable efforts to hire
local talent and crew;
(5) Provide evidence when making any claim for
products or services acquired or rendered outside of this State that reasonable
efforts were unsuccessful to secure and use comparable products or services
within this State;
(6) 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;
(7) Provide evidence of reasonable efforts to comply
with all applicable requirements under title 14, including tax return filing
and payments; and
(8) Provide complete responses to the department of
taxation's inquiries and document requests, in the form prescribed by the
department, no later than ninety days from the inquiry or request;
provided that a taxpayer shall be given notice of
and an opportunity to cure any failure to meet the requirements of this
subsection, including chapter 237, within thirty days of receipt of the notice;
provided further that nothing in this subsection shall
be interpreted as waiving any act required by this section.
(e) 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) To receive the tax credit, 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.
(g) 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.
(h) Every taxpayer claiming a tax credit under
this section 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 that identifies:
(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
this section, if any, in the previous taxable year; and
(3) The number of total hires versus the number of
local hires by category and by county.
This information may be reported from the department
of business, economic development, and tourism to the legislature pursuant to
subsection (i)(4).
(i) 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;
(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 and the cumulative amount of the tax
credit for all years claimed; and
(4) Submit a report to the legislature no later than
twenty days prior to the convening of each regular session detailing the
non-aggregated qualified production costs that form the basis of the tax credit
claims and expenditures, itemized by taxpayer, in a redacted format to preserve
the confidentiality and that shall include the dollar amount claimed, name of
company, and name of the qualified production of the taxpayers claiming the
credit.
(j) Upon each determination required under
subsection (i), 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; provided that the department
of business, economic development, and tourism shall issue the letter to the
taxpayer no later than seven months after receipt of the taxpayer's statement under
subsection (h). 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.
(k) Each taxpayer claiming a tax credit under
this section shall submit to the department of business, economic development,
and tourism a fee for the motion picture, digital media, and film production
income tax credit in an amount equal to 0.2 per cent of the tax credit claimed
by the qualified production no later than the deadline stated in subsection
(c). The department of business, economic development, and tourism may
prescribe the form and method by which this fee is remitted, including through
electronic means. The fees collected under this subsection shall be deposited
into the Hawaii film and creative industries development special fund under
section 201-113.
(l) Total tax credits claimed per qualified
production shall not exceed $17,000,000.
(m) Qualified productions shall comply with
subsections (d), (e), (f), (h), and (k).
(n) The total amount of tax credits allowed
under this section in any particular year shall be $50,000,000; however, if the
total amount of credits applied for in any particular year exceeds the
aggregate amount of credits allowed for that year under this section, the
excess shall be treated as having been applied for in the subsequent year and
shall be claimed in the subsequent year; provided that no excess shall be
allowed to be claimed after December 31, 2032.
(o) For the purposes of this section:
"Commercial":
(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.
"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 production":
(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 (l), each of the aforementioned qualified production
categories shall constitute separate, individual qualified productions; and
(2) Does not include:
(A) News;
(B) Public affairs programs;
(C) Non-national magazine or talk shows;
(D) Televised sporting events or activities;
(E) Productions that solicit funds;
(F) Productions produced primarily for
industrial, corporate, institutional, or other private purposes; and
(G) 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 at the highest rate of tax or
income tax under this chapter if the costs are not subject to general excise
tax 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, including rentals and fees for use of state and county facilities
and locations that are not subject to general excise tax under chapter 237 or
income tax under this chapter;
(7) Rentals of vehicles and lodging 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; and
(11) Other direct production costs specified by the
department in consultation with the department of business, economic
development, and tourism;
provided that any government-imposed fines,
penalties, or interest that are incurred by a qualified production within the
State shall not be "qualified production costs". "Qualified production costs" does not include any costs funded by any
grant, forgivable loan, or other amounts not included in gross income for
purposes of this chapter.