| 47 | | - | SECTION 1. The legislature finds that the Hawaii film and television industry has continued to grow over the past twenty years due to state tax incentives and the resulting increase in the number of feature films, television series, and commercial productions filming in Hawaii, which has directly contributed to the increase in the number of trained local crew members as well as service and equipment vendors. The legislature further finds that the existing motion picture, digital media, and film production income tax credit, which currently provides a twenty-two or twenty-seven per cent refundable tax credit for Hawaii-based film and television projects, has attracted a number of blockbuster feature films and long-running television series to the State. This tax incentive is ideally suited for large, studio-funded projects that search locations across the globe to find ones that meet both their artistic and financial requirements. The legislature also finds that the tax credit claiming process is both expensive and time-consuming. Voluminous reports are required, department of taxation rules relating to the tax credit are confusing and cumbersome, and it can take more than two years to receive the tax credit. While these issues do not deter large-budget projects, the burden on smaller-budget projects is substantial. The legislature additionally finds that smaller projects, with total budgets around $5,000,000 and wages around $2,000,000, generally rely more heavily on local crew members since the cost of hiring a nonresident crew member can exceed $2,000 per week in additional costs. Some smaller projects may also attempt to pay crew members as independent contractors in order to save money. That practice does not meet federal and state labor laws, subjects local crew members to potentially uninsured injury claims, and results in a reduction in state tax and unemployment insurance collections. Accordingly, the purpose of this Act is to address these issues and encourage the growth of local independent film and television productions by: (1) Requiring the department of business, economic development, and tourism to administer a workforce development incentive rebate program that incentivizes local independent film and television productions; (2) Establishing a new film studio tax credit; and (3) Amending the administration of the motion picture, digital media, and film production income tax credit. SECTION 2. Chapter 201, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows: "§201- Workforce development incentive; rebate program. (a) The department shall administer a workforce development incentive rebate program that incentivizes local independent film and television productions. (b) Beginning January 1, 2024, each eligible employer shall receive a rebate equal to fifty per cent of all Hawaii W-2 wages paid for the filming of film, television, commercial, and print projects, which shall be capped at $50,000 per employee, per project; provided that no eligible employer shall receive more than $1,000,000 in total rebates. (c) To receive a rebate under this section, an eligible employer shall submit project information, a cost report, a payroll report, and the department of taxation statement of Hawaii income tax withheld and wages paid (form HW‑2), or an equivalent document showing all Hawaii W-2 wages paid, to the department quarterly or after completion of the project. (d) An eligible employer shall receive the rebate within thirty days of submitting the documentation required under subsection (c). (e) An eligible employer who claims a rebate under this section shall not be eligible for the motion picture, digital media, and film production income tax credit under section 235‑17 for the same project. (f) Rebates issued pursuant to this section shall not be subject to income tax or general excise tax. (g) The total amount of rebates allowed under this section in any applicable year shall be $2,500,000. (h) For the purposes of this section, "eligible employer" means a common law employer that: (1) Hires one or more employees; (2) Is registered to do business in the State; (3) Obtains a general excise license number; and (4) Has production insurance." SECTION 3. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows: "§235- Film studio tax credit. (a) 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. In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for film studio 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 that portion of the film studio costs for which the deduction is taken. The basis of eligible property for depreciation or accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed. In the alternative, the taxpayer shall treat the amount of the credit allowable and claimed as a taxable income item for the taxable year in which it is properly recognized under the method of accounting used to compute taxable income. (b) The amount of the credit shall be twenty-five per cent of film studio costs incurred during the taxable year for each film studio located in the State. (c) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year. (d) The director of taxation: (1) Shall prepare any forms that may be necessary to claim a tax credit under this section; (2) May require the taxpayer to furnish reasonable information to ascertain the validity of the claim for the tax credit made under this section; and (3) May adopt rules under chapter 91 necessary to effectuate the purposes of this section. (e) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of the credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. All claims for the tax credit under this section, including amended claims, 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. (f) No taxpayer that claims a credit under this section shall claim any other credit for the same film studio costs under this chapter. (g) This section shall not apply to film studio costs incurred after December 31, 2032. (h) Every taxpayer claiming a tax credit under this section, no later than ninety days following the end of each taxable year in which film studio costs were expended, shall submit a written, sworn statement to the department of business, economic development, and tourism, together with a third-party audit, that identifies: (1) All film studio costs as defined in subsection (k), if any, incurred in the previous taxable year; and (2) The amount of tax credits claimed pursuant to this section, if any, in the previous taxable year. 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 film studio 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 this subsection. The taxpayer shall file the letter with the taxpayer's tax return for the film studio tax credit 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. (i) The department of business, economic development, and tourism shall: (1) Maintain records of the names of the taxpayers claiming the tax credits under subsection (a); (2) Provide a letter to the director of taxation specifying the amount of the tax credit per taxpayer for each taxable year that a tax credit is claimed and the cumulative amount of the tax credit for all years claimed; and (3) Submit a report to the legislature no later than twenty days prior to the convening of each regular session detailing the dollar amount claimed and name of the taxpayers claiming the credit. (j) If in any year the annual amount of certified credits reaches $25,000,000 in the aggregate, the department of business, economic development, and tourism shall immediately discontinue certifying credits and notify the department of taxation. In no instance shall the department of business, economic development, and tourism certify a total amount of credits exceeding $25,000,000 per year. (k) As used in this section: "Film studio costs" means costs incurred after January 1, 2024, to plan, design, and construct film studio infrastructure. "Film studio infrastructure" means: (1) A large area of external works with significant areas of hard standing adjacent to the studios for production companies' support gallery vans, trailers, general parking, and back lots; (2) Permanent space for: (A) Actors, presenters, and other on‑screen personnel, including dressing rooms, hair and make-up areas, and green rooms; (B) Catering and laundry facilities; and (C) Production spaces, including editing suites, galleries, screening rooms, and control rooms; (3) Spaces for: (A) Set design and set building; (B) Costume planning and script writing; (C) Set building workshops located next to the studio or stage that they are supporting; and (D) Office accommodation for pre‑production activities, regardless of whether they are in a single location and adjacent to individual studios or stages, or spread across the development; (4) Sound insulation required between studios and other spaces inside and outside the building, or acoustic isolation to avoid bleed into the space from nearby traffic or industrial activity; (5) Electrical power infrastructure: (A) To support demand of up to one megawatt in a standard thirty-thousand-foot production stage; (B) That is provided in a dimmer room that is duplicated within the stages; (C) Through which power connectivity is typically delivered via a combination of various-sized commando sockets and Powerlock 400A connectors; (D) That, to the extent necessary to respond to high electrical loads, employs backup generators and a high-voltage power network; and (E) That employs a utility-owned high-voltage substation as the point of connection to the studio site; (6) Potable water and fire system infrastructures that employ: (A) A single point of connection, which is then distributed across the development, unless this configuration is inappropriate for the purposes of the studio; (B) A fire hydrant network to comply with applicable laws, and fed either by: (i) A direct connection to the private network from the utility provider, dependent on guaranteed flow rate and pressure; or (ii) An indirect connection to the private network via storage tanks and a booster set; and (C) A sprinkler system, to the extent appropriate for the purposes of a studio; (7) Heating infrastructure for a studio; (8) Ventilation or cooling infrastructure for a production stage, through the use of displacement ventilation through low-level displacement outlets; (9) Information and communications technology and data infrastructure that: (A) Ensures the provision of a site-wide information and communications technology network, with appropriate storage capabilities; (B) Provides pre-production and post-production facilities with connectivity, as appropriate; and (C) Provides wi-fi connectivity across the site; and (10) Security infrastructure that provides perimeter protection that includes: (A) Secure perimeter fencing, to provide a physical and visual barrier; (B) Perimeter closed circuit television to monitor activities around the site boundary; (C) External lighting to provide secure and safe routes around the development and improved visibility for closed circuit television monitoring; and (D) Secure and managed entrances and exits for the site, to monitor all access. "Net income tax liability" means income tax liability reduced by all other credits allowed under this chapter." SECTION 4. Section 23-92, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows: "(c) This section shall apply to the following: (1) Sections 235-12.5 and 241-4.6--Credit for renewable energy technology system installed and placed in service in the State. For the purpose of section 23‑91(b)(5), this credit shall be deemed to have been enacted for an economic benefit; and (2) Section 235-17--Credit for [qualified] qualifying production [costs] expenditures incurred for a qualified motion picture, digital media, or film production." SECTION 5. Section 235-17, Hawaii Revised Statutes, is amended as follows: 1. By amending subsection (a) to read: "(a) [Any law to the contrary notwithstanding, there] 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.] (1) With respect to productions not within a designated enhanced film production zone: (A) Twenty per cent of the approved company's: (i) Qualifying non-resident payroll expenditures for employees who are not resident taxpayers, not to exceed $1,000,000 in payroll expenditures per person; and (ii) Qualifying production expenditures; or (B) Twenty-five per cent of the approved company's: (i) Qualifying resident payroll expenditures, not to exceed $1,000,000 in payroll expenditures per person; and (ii) Qualifying production expenditures; or (2) With respect to productions within a designated enhanced film production zone: (A) Twenty per cent of the approved company's: (i) Qualifying non-resident payroll expenditures for employees who are not resident taxpayers, not to exceed $1,000,000 in payroll expenditures per person; and (ii) Qualifying production expenditures; or (B) Thirty per cent of the approved company's: (i) Qualifying resident payroll expenditures for employees who are Hawaii resident taxpayers, not to exceed $1,000,000 in payroll expenditures per person; and (ii) Qualifying production expenditures. In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for [qualified] qualifying production [costs] expenditures incurred by the entity for the taxable year. The [cost] expenditures 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. Any taxpayer who claims a tax credit under this section shall not be eligible for a workforce development incentive rebate under section 201- for the same project. 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. Tax incentive agreements for approved companies under the tax credit program shall include a listing of the enhanced film production zones as of the date of the Hawaii film office's approval of the project. Once an approved company enters into a tax incentive agreement, the listed enhanced film production zones shall maintain the enhanced benefits for the term of the agreement, regardless of any change in the status of the enhanced film production zones. The approved company shall separately account for the requisite expenditures within enhanced film production zones. If the approved company demonstrates to the satisfaction of the department of taxation that it is not practical to use a separate accounting method to determine the expenditures within the enhanced film production zones, the approved company shall determine the correct expenditures within the enhanced film production zones using an alternative method approved by the department of taxation. All previously approved tax credits shall remain valid until the stated expiration date." 2. By amending subsection (d) to read: "(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] qualifying production [costs] expenditures 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 proof of contact for every supporting union, signatory or non-signatory, including IATSE, SAG, Teamsters, IBEW, DGA AFM, and others, and a list of all members and their position titles that will be employed on the production; provided that, for all other production staff, the production shall provide a list of names, position titles, and state resident status; (8) Provide proof of contact for every supporting union, signatory or non-signatory, including IATSE, SAG, Teamsters, IBEW, DGA AFM, and others, and a list of all members and their position titles that will be employed on the production, to qualify for an open and accessible epermit or standard film permit; provided that, for all other production staff, the production shall provide a list of names, position titles, and state resident status; [(7)] (9) Be compliant with all applicable requirements under title 14, including tax return filing and payments; and [(8)] (10) 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." 3. By amending subsection (f) to read: "(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. Each prequalified production shall provide the department of business, economic development, and tourism a shooting schedule not later than seven days before the commencement of filming. If there are changes to the production schedule, an updated schedule shall be submitted to the department of business, economic development, and tourism. The department of business, economic development, and tourism shall conduct unannounced on-site audits based on the information the production submitted in the preproduction registration. If discrepancies are found between the preproduction submission and the actual onsite production, the production shall have seven working days to comply with the certified preproduction documentation. A follow-up onsite audit shall be conducted within one week of the seven-working day deadline. If the production remains noncompliant, the tax credit under this section shall be forfeited." 4. By amending subsections (h) to (j) to read: "(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] qualifying production [costs] expenditures were expended, submit a written, sworn statement, verified by an independent third‑party auditor, to the department of business, economic development, and tourism that identifies: (1) All [qualified] qualifying production [costs] expenditures 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] qualifying production [costs] expenditures 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] qualifying production [costs] expenditures 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[.]; (5) Publish on its website: (A) A detailed list of film production goods and services vendor requirements; and (B) The names of qualified productions and the amount of the tax credits certified per qualified production per filing year; and (6) Provide the legislature with an annual rolling six-year forecast that details future productions; proposed schedule; and corresponding infrastructure, workforce, goods, and service needs. (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] qualifying production [costs] expenditures 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." 5. By amending subsections (n) and (o) to read: "(n) The total amount of tax credits allowed under this section in any particular year shall be $50,000,000; [however, if] provided that in 2024, the total amount of tax credits allowed under this section shall be $75,000,000. If the total amount of credits applied for in any particular year prior to January 1, 2024, 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.] 2024. (o) For the purposes of this section: "Above-the-line production crew" means employees involved with the production of a motion picture or entertainment production whose salaries are negotiated before the commencement of production, including actors, directors, producers, and writers. "Approved company" means an eligible production company approved for incentives under this section. "Below-the-line production crew" means employees involved with the production of a motion picture or entertainment production, except above-the-line production crew. "Below‑the‑line production crew" includes: (1) Casting assistants; (2) Costume design; (3) Extras; (4) Gaffers; (5) Grips; (6) Location managers; (7) Production assistants; (8) Set construction staff; (9) Set design staff; and (10) Transportation staff. "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. "Enhanced film production zone" means an area: (1) That is a designated film production zone that follows a same geographic area as a state enterprise zone under chapter 209E; and (2) In which qualifying production expenditures and qualifying payroll expenditures are made. "Excluded expenditures" means: (1) Post-production expenditures for footage shot outside of the State, marketing, publicity, story tights, or distribution; (2) Any expenditures for work or services not conducted or rendered in the State; (3) In any instance in which services are conducted or rendered both in the State and outside the State, the work that is conducted or rendered outside of the State; (4) Expenditures for services not performed at the filming site, unless the vendor is based in the State; (5) Expenditures for goods that were not purchased or rented or leased in the State from a vendor based in Hawaii, including goods shipped or delivered from the Hawaii vendor's location outside of the State, unless more than a de minimis amount of the type of goods held and shipped or delivered from outside the State are normally held in inventory in the ordinary course of business in the State by the Hawaii vendor; provided that, for the purposes of this paragraph, a vendor that acts as a conduit to enable purchases or rentals to qualify that would not otherwise qualify shall not be considered to be a vendor based in the State; (6) Expenditures for goods not used in the State; (7) Freight or shipping charges incurred relating to a vendor not based in the State; or (8) Any transaction subject to taxation under chapter 238, for which taxes have not been demonstrably paid; provided that, for the purposes of this paragraph, use taxes paid by the production company itself shall be considered to have been demonstrably paid. "Hawaii-based company" means a business: (1) That has its principal place of business in the State; or (2) With not less than fifty per cent of: (A) Its property located in the State; and (B) Its payroll paid in the State. "Payroll" means salary, wages, or other compensation including related benefits, paid to employees and withheld and paid pursuant to section 235-62. "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. "Production partner" means a director, producer, production supervisor or manager, director of photography, production designer, casting director, production company, production services company, or post-production services company. "Qualified production": (1) Means [a production,] an approved company, 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. "Qualifying nonresident payroll expenditure" means payroll paid to nonresident cast and crew: (1) For wages subject to Hawaii income tax withholding for that portion of their salary that is earned in the State; and (2) For their work on a project: (A) That: (i) Is produced by a Hawaii-based company; (ii) Is produced by a Hawaii subsidiary company of the applicant production company; (iii) Is produced by a production company in which an owner, member, or principal is a Hawaii resident taxpayer; or (iv) Engages a Hawaii resident taxpayer or company to serve as a production partner to the applicant production company; and (B) For which the applicant company, or the individual or company serving as its production partner, has been associated with the production in Hawaii of at least two nationally-distributed motion pictures within the previous ten years and has filed Hawaii state income taxes for the three most recent taxable years, as verified by the department of taxation. "Qualifying payroll expenditure" means compensation that is: (1) Paid to above-the-line production crew and below‑the‑line production crew for services performed in the State for work on a motion picture or entertainment production; and (2) Verified for proper remittance of withholding by the approved company or payroll service. ["Qualified] "Qualifying production [costs"] expenditures" 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] Qualifying production [costs] expenditures 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] "qualifying production [costs". "Qualified] expenditures. "Qualifying production [costs"] expenditures" does not include any costs funded by any grant, forgivable loan, or other amounts not included in gross income for purposes of this chapter. "Qualifying production expenditures" does not include excluded expenditures. "Qualifying resident payroll expenditure" means payroll paid to resident cast and crew: (1) Domiciled in the State and physically present in the State for not fewer than nine months of the qualified production's taxable year; and (2) Whose wages are subject to section 235-61." SECTION 6. There is appropriated out of the general revenues of the State of Hawaii the sum of $80,184 or so much thereof as may be necessary for fiscal year 2023-2024 and the same sum or so much thereof as may be necessary for fiscal year 2024-2025 for the establishment of one full-time equivalent (1.0 FTE) program specialist VI position, which shall be exempt from chapter 76, Hawaii Revised Statutes, to manage the infrastructure and workforce development incentive rebate programs and listing, audit, and reporting requirements of section 235-17, Hawaii Revised Statutes. The sums appropriated shall be expended by the department of business, economic development, and tourism for the purposes of this Act. SECTION 7. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the invalidity does not affect other provisions or applications of the Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable. SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored. SECTION 9. This Act shall take effect on January 1, 2024; provided that: (1) Section 2 of this Act shall apply to qualifying wages paid on or after July 1, 2023, and before July 1, 2024; (2) Section 3 of this Act shall apply to film studio costs incurred after December 31, 2023, and before January 1, 2033; (3) Section 5 of this Act shall apply to qualifying production expenditures incurred after December 31, 2023; provided further that the amendments to section 235-17(n), Hawaii Revised Statutes, by section 5 of this Act shall take effect on July 1, 2023; (4) The amendments made to section 235-17, Hawaii Revised Statutes, by section 5 of this Act shall not be repealed when that section is reenacted on January 1, 2033, pursuant to section 4 of Act 88, Session Laws of Hawaii 2006, as amended by Act 89, Session Laws of Hawaii 2013, as amended by Act 143, Session Laws of Hawaii 2017, as amended by Act 217, Session Laws of Hawaii 2022; and (5) Section 6 of this Act shall take effect on July 1, 2023. |
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| 47 | + | SECTION 1. The legislature finds that the Hawaii film and television industry has continued to grow over the past twenty years due to state tax incentives and the resulting increase in the number of feature film, television series, and commercial productions filming in Hawaii, which has directly contributed to the increase in the number of trained local crew members as well as service and equipment vendors. The legislature further finds that the existing motion picture, digital media, and film production income tax credit, which currently provides a twenty-two or twenty-seven per cent refundable tax credit for Hawaii-based film and television projects, has attracted a number of blockbuster feature films and long-running television series to the State. This tax incentive is ideally suited for large, studio-funded projects that search locations across the globe to find ones that meet both their artistic and financial requirements. The legislature also finds that the tax credit claiming process is both expensive and time-consuming. Voluminous reports are required, department of taxation rules relating to the tax credit are confusing and cumbersome, and it can take more than two years to receive the tax credit. While these issues do not deter large-budget projects, the burden on smaller-budget projects is substantial. The legislature additionally finds that smaller projects, with total budgets around $5,000,000 and wages around $2,000,000, generally rely more heavily on local crew members since the cost of hiring a nonresident crew member can exceed $2,000 per week in additional costs. Some smaller projects may also attempt to pay crew members as independent contractors in order to save money. That practice does not meet federal and state labor laws, subjects local crew members to potentially uninsured injury claims, and results in a reduction in state tax and unemployment insurance collections. Accordingly, the purpose of this Act is to address these issues and encourage the growth of local independent film and television productions by: (1) Requiring the department of business, economic development, and tourism to administer a workforce development incentive rebate program that incentivizes local independent film and television productions; (2) Establishing a new film studio tax credit; and (3) Amending the administration of the motion picture, digital media, and film production income tax credit. SECTION 2. Chapter 201, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows: "§201- Workforce development incentive; rebate program. (a) The department shall administer a workforce development incentive rebate program that incentivizes local independent film and television productions. (b) Beginning January 1, 2024, each eligible employer shall receive a rebate equal to per cent of all Hawaii W-2 wages paid for the filming of film, television, commercial, and print projects, which shall be capped at $ per employee, per project; provided that no eligible employer shall receive more than $ in total rebates. (c) To receive a rebate under this section, an eligible employer shall submit project information, a cost report, a payroll report, and the department of taxation statement of Hawaii income tax withheld and wages paid (form HW‑2), or an equivalent document showing all Hawaii W-2 wages paid, to the department quarterly or after completion of the project. (d) An eligible employer shall receive the rebate within thirty days of submitting the documentation required under subsection (c). (e) An eligible employer who claims a rebate under this section shall not be eligible for the motion picture, digital media, and film production income tax credit under section 235‑17 for the same project. (f) Rebates issued pursuant to this section shall not be subject to income tax or general excise tax. (g) The total amount of rebates allowed under this section in any applicable year shall be $2,500,000. (h) For the purposes of this section, "eligible employer" means a common law employer that: (1) Hires one or more employees; (2) Is registered to do business in the State; (3) Obtains a general excise license number; and (4) Has production insurance." SECTION 3. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows: "§235- Film studio tax credit. (a) 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. In the case of a partnership, S corporation, estate, trust, the tax credit allowable is for film studio 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 that portion of the film studio costs for which the deduction is taken. The basis of eligible property for depreciation or accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed. In the alternative, the taxpayer shall treat the amount of the credit allowable and claimed as a taxable income item for the taxable year in which it is properly recognized under the method of accounting used to compute taxable income. (b) The amount of the credit shall be per cent of film studio costs incurred during the taxable year for each film studio located in the State. (c) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year. (d) The director of taxation: (1) Shall prepare any forms that may be necessary to claim a tax credit under this section; (2) May require the taxpayer to furnish reasonable information to ascertain the validity of the claim for the tax credit made under this section; and (3) May adopt rules under chapter 91 necessary to effectuate the purposes of this section. (e) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of the credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. All claims for the tax credit under this section, including amended claims, 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. (f) No taxpayer that claims a credit under this section shall claim any other credit for the same film studio costs under this chapter. (g) This section shall not apply to film studio costs incurred after December 31, 2032. (h) Every taxpayer claiming a tax credit under this section, no later than ninety days following the end of each taxable year in which film studio costs were expended, shall submit a written, sworn statement to the department of business, economic development, and tourism, together with a third party audit, that identifies: (1) All film studio costs as defined in subsection (k), if any, incurred in the previous taxable year; and (2) The amount of tax credits claimed pursuant to this section, if any, in the previous taxable year. 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 film studio 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 this subsection. The taxpayer shall file the letter with the taxpayer's tax return for the film studio tax credit 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. (i) The department of business, economic development, and tourism shall: (1) Maintain records of the names of the taxpayers claiming the tax credits under subsection (a); (2) Provide a letter to the director of taxation specifying the amount of the tax credit per taxpayer for each taxable year that a tax credit is claimed and the cumulative amount of the tax credit for all years claimed; and (3) Submit a report to the legislature no later than twenty days prior to the convening of each regular session the dollar amount claimed, name of company, and name of the qualified production of the taxpayers claiming the credit. (j) If in any year the annual amount of certified credits reaches $25,000,000 in the aggregate, the department of business, economic development and tourism shall immediately discontinue certifying credits and notify the department of taxation. In no instance shall the department of business, economic development and tourism certify a total amount of credits exceeding $25,000,000 per year. (k) As used in this section: "Film studio costs" means costs incurred after January 1, 2024, to plan, design, and construct film studio infrastructure. "Film studio infrastructure" means: (1) A large area of external works with significant areas of hard standing adjacent to the studios for production companies' support gallery vans, trailers, general parking and back lots; (2) Permanent space for: (A) Actors, presenters, and other on‑screen personnel, including dressing rooms, hair and make-up areas, and green rooms; (B) Catering and laundry facilities; and (C) Production spaces, including editing suites, galleries, screening room and control rooms; (3) Spaces for: (A) Set design and set building; (B) Costume planning and script writing; (C) Set building workshops located next to the studio or stage that they are supporting; and (D) Office accommodation for pre‑production activities, regardless of whether they are in a single location and adjacent to individual studios or stages, or spread across the development; (4) Sound insulation required between studios and other spaces inside and outside the building, or acoustic isolation to avoid bleed into the space from nearby traffic or industrial activity; (5) Electrical power infrastructure: (A) To support demand of up to one megawatt in a standard thirty-thousand foot production stage; (B) That is provided in a dimmer room that is duplicated within the stages; (C) Through which power connectivity is typically delivered via a combination of various-sized commando sockets and Powerlock 400A connectors; (D) That, to the extent necessary to respond to high electrical loads, employs backup generators and a high-voltage power network; and (E) That employs a utility-owned high-voltage substation as the point of connection to the studio site; (6) Potable water and fire system infrastructures that employ: (A) A single point of connection, which is then distributed across the development, unless this configuration is inappropriate for the purposes of the studio; (B) A fire hydrant network to comply with applicable laws, and fed either by: (i) A direct connection to the private network from the utility provider, dependent on guaranteed flow rate and pressure; or (ii) An indirect connection to the private network via storage tanks and a booster set; and (C) A sprinkler system, to the extent appropriate for the purposes of a studio; (7) Heating infrastructure for a studio; (8) Ventilation or cooling infrastructure for a production stage, through the use of displacement ventilation through low-level displacement outlets; (9) Information and communications technology and data infrastructure that: (A) Ensures the provision of a site-wide information and communications technology network, with appropriate storage capabilities; (B) Provides pre-production and post-production facilities with connectivity, as appropriate; and (C) Provides wi-fi connectivity across the site; and (10) Security infrastructure that provides perimeter protection that includes: (A) Secure perimeter fencing, to provide a physical and visual barrier; (B) Perimeter closed circuit television to monitor activities around the site boundary; (C) External lighting to provide secure and safe routes around the development and improved visibility for closed circuit television monitoring; and (D) Secure and managed entrances and exits for the site, to monitor all access. "Net income tax liability" means income tax liability reduced by all other credits allowed under this chapter." SECTION 4. Section 23-92, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows: "(c) This section shall apply to the following: (1) Sections 235-12.5 and 241-4.6--Credit for renewable energy technology system installed and placed in service in the State. For the purpose of section 23‑91(b)(5), this credit shall be deemed to have been enacted for an economic benefit; and (2) Section 235-17--Credit for [qualified] qualifying production [costs] expenditures incurred for a qualified motion picture, digital media, or film production." SECTION 5. Section 235-17, Hawaii Revised Statutes, is amended as follows: 1. By amending subsection (a) to read: "(a) [Any law to the contrary notwithstanding, there] 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.] (1) With respect to productions not within a designated enhanced film production zone: (A) Twenty per cent of the approved company's: (i) Qualifying non-resident payroll expenditures for employees who are not resident taxpayers, not to exceed $1,000,000 in payroll expenditures per person; and (ii) Qualifying production expenditures; or (B) Twenty-five per cent of the approved company's qualifying resident payroll expenditures, not to exceed $1,000,000 in payroll expenditures per person; or (2) With respect to productions within a designated enhanced film production zone: (A) Twenty per cent of the approved company's: (i) Qualifying non-resident payroll expenditures for employees who are not resident taxpayers, not to exceed $1,000,000 in payroll expenditures per person; and (ii) Qualifying production expenditures; or (B) Thirty per cent of the approved company's qualifying resident payroll expenditures for employees who are Hawaii resident taxpayers, not to exceed $1,000,000 in payroll expenditures per person. In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for [qualified] qualifying production [costs] expenditures incurred by the entity for the taxable year. The [cost] expenditures 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. Any taxpayer who claims a tax credit under this section shall not be eligible for a workforce development incentive rebate under section 201- for the same project. 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. Tax incentive agreements for approved companies under the tax credit program shall include a listing of the enhanced film production zones as of the date of the Hawaii state film office's approval of the project. Once an approved company enters into a tax incentive agreement, the listed enhanced film production zones shall maintain the enhanced benefits for the term of the agreement, regardless of any change in the status of the enhanced film production zones. The approved company shall separately account for the requisite expenditures within enhanced film production zones. If the approved company demonstrates to the satisfaction of the department of taxation that it is not practical to use a separate accounting method to determine the expenditures within the enhanced film production zones, the approved company shall determine the correct expenditures within the enhanced film production zones using an alternative method approved by the department of taxation. All previously approved tax credits shall remain valid until the stated expiration date." 2. By amending subsection (d) to read: "(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] qualifying production [costs] expenditures 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 proof of contact for every supporting union, signatory or non-signatory, including IATSE, SAG, Teamsters, IBEW, DGA AFM, and others, and a list of all members and their position titles that will be employed on the production; provided that, for all other production staff, the production shall provide a list of names, position titles and state resident status; (8) Provide proof of contact for every supporting union, signatory or non-signatory, including IATSE, SAG, Teamsters, IBEW, DGA AFM, and others, and a list of all members and their position titles that will be employed on the production, to qualify for an open and accessible epermit or standard film permit; provided that, for all other production staff, the production shall provide a list of names, position titles and state resident status; [(7)] (9) Be compliant with all applicable requirements under title 14, including tax return filing and payments; and [(8)] (10) 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." 3. By amending subsection (f) to read: "(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. Each prequalified production shall provide the department of business, economic development, and tourism a shooting schedule not later than seven days before the commencement of filming. If there are changes to the production schedule, an updated schedule shall be submitted to the department of business, economic development, and tourism. The department of business, economic development, and tourism shall conduct unannounced on-site audits based on the information the production submitted in the preproduction registration. If discrepancies are found between the preproduction submission and the actual onsite production, the production shall have seven working days to comply with the certified preproduction documentation. A follow-up onsite audit shall be conducted within one week of the seven-working day deadline. If the production remains noncompliant, the tax credit under this section shall be forfeited." 4. By amending subsections (h) to (j) to read: "(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] qualifying production [costs] expenditures were expended, submit a written, sworn statement, verified by an independent third‑party auditor, to the department of business, economic development, and tourism that identifies: (1) All [qualified] qualifying production [costs] expenditures 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] qualifying production [costs] expenditures 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] qualifying production [costs] expenditures 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[.]; (5) Publish on its website: (A) A detailed list of film production goods and services vendor requirements; and (B) The names of qualified productions and the amount of the tax credits certified per qualified production per filing year; and (6) Provide the legislature with an annual rolling six-year forecast that details future productions, proposed schedule, and corresponding infrastructure, workforce, goods, and service needs. (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] qualifying production [costs] expenditures 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." 5. By amending subsections (n) and (o) to read: "(n) The total amount of tax credits allowed under this section in any particular year shall be $50,000,000; [however, if] provided that in 2024, the total amount of tax credits allowed under this section shall be $75,000,000. If the total amount of credits applied for in any particular year prior to January 1, 2024 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.] 2024. (o) For the purposes of this section: "Above-the-line production crew" means employees involved with the production of a motion picture or entertainment production whose salaries are negotiated before the commencement of production, including actors, directors, producers, and writers. "Approved company" means an eligible production company approved for incentives under this section. "Below-the-line production crew" means employees involved with the production of a motion picture or entertainment production, except above-the-line production crew. "Below‑the‑line production crew" includes: (1) Casting assistants; (2) Costume design; (3) Extras; (4) Gaffers; (5) Grips; (6) Location managers; (7) Production assistants; (8) Set construction staff; (9) Set design staff; and (10) Transportation staff. "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. "Enhanced film production zone" means an area: (1) That is a designated film production zone that follows a same geographic area as a state enterprise zone under chapter 209E; and (2) In which qualifying production expenditures and qualifying payroll expenditures are made. "Excluded expenditures" means: (1) Post-production expenditures for footage shot outside of the State, marketing, publicity, story tights, or distribution; (2) Any expenditures for work or services not conducted or rendered in the State; (3) In any instance in which services are conducted or rendered both in the State and outside the State, the work that is conducted or rendered outside of the State; (4) Expenditures for services not performed at the filming site, unless the vendor is based in the State; (5) Expenditures for goods that were not purchased or rented or leased in the State from a vendor based in Hawaii, including goods shipped or delivered from the Hawaii vendor's location outside of the State, unless more than a de minimis amount of the type of goods held and shipped or delivered from outside the State are normally held in inventory in the ordinary course of business in the State by the Hawaii vendor; provided that, for the purposes of this paragraph, a vendor that acts as a conduit to enable purchases or rentals to qualify that would not otherwise qualify shall not be considered to be vendor based in the State; (6) Expenditures for goods not used in the State; (7) Freight or shipping charges incurred relating to a vendor not based in the State; or (8) Any transaction subject to taxation under chapter 238, for which taxes have not been demonstrably paid; provided that, for the purposes of this paragraph, use taxes paid by the production company itself shall be considered to have been demonstrably paid. "Hawaii-based company" means a business: (1) That has its principal place of business in the State; or (2) With not less than fifty per cent of: (A) Its property located in the State; and (B) Its payroll paid in the State. "Payroll" means salary, wages, or other compensation including related benefits, paid to employees and withheld and paid pursuant to section 235-62. "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. "Production partner" means a director, producer, production supervisor or manager, director of photography, production designer, casting director, production company, production services company, or post-production services company. "Qualified production": (1) Means [a production,] an approved company, 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. "Qualifying nonresident payroll expenditure" means payroll paid to nonresident cast and crew: (1) Whose wages are subject to Hawaii income tax withholding for that portion of their salary that is earned in the State; and (2) For their work on a project: (A) That: (i) Is produced by a Hawaii-based company; (ii) Is produced by a Hawaii subsidiary company of the applicant production company; (iii) Is produced by a production company in which an owner, member, or principal is a Hawaii resident taxpayer; or (iv) Engages a Hawaii resident taxpayer or company to serve as a production partner to the applicant production company; and (B) For which the applicant company, or the individual or company serving as its production partner, has been associated with the production in Hawaii of at least two nationally-distributed motion pictures within the previous ten years and has filed Hawaii state income taxes for the three most recent taxable years, as verified by the department of taxation. "Qualifying payroll expenditure" means compensation that is: (1) Paid to above-the-line production crew and below‑the‑line production crew for services performed in the State for work on a motion picture or entertainment production; and (2) Verified for proper remittance of withholding by the approved company or payroll service. ["Qualified] "Qualifying production [costs"] expenditures" 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] Qualifying production [costs] expenditures 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] "qualifying production [costs". "Qualified] expenditures. "Qualifying production [costs"] expenditures" does not include any costs funded by any grant, forgivable loan, or other amounts not included in gross income for purposes of this chapter. "Qualifying production expenditures" does not include excluded expenditures. "Qualifying resident payroll expenditure" means payroll paid to resident cast and crew: (1) Domiciled in the State and physically present in the State for not fewer than nine months of the qualified production's taxable year; and (2) Whose wages are subject to section 235-61." SECTION 6. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the invalidity does not affect other provisions or applications of the Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable. SECTION 7. This Act shall take effect on January 1, 2024; provided that: (1) Section 2 of this Act shall apply to qualifying wages paid on or after July 1, 2023 and before July 1, 2024; (2) Section 3 of this Act shall apply to film studio costs incurred after December 31, 2023 and before January 1, 2033; (3) Section 5 of this Act shall apply to qualifying production expenditures incurred after December 31, 2023; provided further that the amendments to section 235-17(n), Hawaii Revised Statutes, by section 5 of this Act shall take effect on July 1, 2023; and (4) The amendments made to section 235-17, Hawaii Revised Statutes, by section 5 of this Act shall not be repealed when that section is reenacted on January 1, 2033, pursuant to section 4 of Act 88, Session Laws of Hawaii 2006, as amended by Act 89, Session Laws of Hawaii 2013, as amended by Act 143, Session Laws of Hawaii 2017, as amended by Act 217, Session Laws of Hawaii 2022. |
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