| 47 | | - | PART I SECTION 1. The purpose of this Act is to enhance Hawaii's status as a premier destination for film, television, and digital media production by modernizing the State's film and media production tax credits. This Act boosts the current incentives with an additional five per cent in credits for productions that meet the minimum filming requirements at a qualified production facility of the scale identified in the city and county of Honolulu's Ordinance 25-1. This Act encourages workforce development in film and media production, particularly on Oahu's west side and on the neighbor islands, by fostering local talent pipelines, supporting educational partnerships, and incentivizing the hiring of Hawaii residents in production roles. Finally, this Act also recognizes the critical role of privately financed investments in film production infrastructure, such as the planned development of a state‑of‑the-art production facility on university of Hawaii lands at West Oahu, in strengthening Hawaii's capacity to support high-quality productions. The adoption of Ordinance 25‑1 by the city and county of Honolulu to incentivize film studio development underscores the alignment of state and local efforts to build a robust and sustainable media industry. By enhancing Hawaii's film, television, and digital media tax credits in partnership with the city and county of Honolulu, this Act will create a favorable economic climate for private investment, ensure long‑term industry growth, and expand opportunities for local workers and communities across the islands. PART II SECTION 2. 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 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[:] equal to the sum of the following: (1) Either: (A) 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)] (B) 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[.]; and (2) An additional five per cent of the qualified production costs incurred by a qualified production that utilizes qualified production facilities located within the State. A qualified production occurring in more than one county may prorate its expenditures based upon the amounts spent in each county, if the population bases differ enough to change the percentage of tax credit. In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for qualified production costs incurred by the entity for the taxable year. The cost upon which the tax credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined by rule. If a deduction is taken under section 179 (with respect to election to expense depreciable business assets) of the Internal Revenue Code of 1986, as amended, no tax credit shall be allowed for those costs for which the deduction is taken. The basis for eligible property for depreciation of accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed." 2. By amending subsection (l) to read: "(l) Total tax credits claimed per qualified production shall not exceed [$17,000,000.] $ ." 3. 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 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. "Production facility" means a building or complex of buildings and associated backlot facilities on real property situated within the State in which pre-production, production, and post-production activities occur, that contain: (1) At least one sound stage; (2) Pre-production, production, and post-production offices; (3) Catering or dining facilities; (4) Parking; (5) Facades; and (6) Mill space, and that is closed to the general public and is within a footprint of the site plan that forms a secure compound that is clearly delineated with a tall perimeter enclosure. "Production facility" does not include buildings and facilities that are not used for pre‑production, production, and post-production activities, but are constructed or used in connection with the production facility, including hotel and lodging facilities, or portions thereof. "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. "Qualified production facility" means a production facility engaged in the production of a qualified production; provided that the production facility: (1) Is located within the State; (2) Is constructed after December 31, 2024; (3) Is located on real property that: (A) Is a minimum of seven to ten acres in size; and (B) Has been leased or purchased from the United States, the State, or any political subdivision thereof; and (4) Cost a minimum of $100,000,000 to design and construct." PART III SECTION 3. During the 1980s and 1990s, the legislature recognized the unfairness of having the general excise tax apply to payroll reimbursements and enacted exemptions specific to several discrete industries. Act 175, Session Laws of Hawaii 1988, now codified as section 237-23.5, Hawaii Revised Statutes, provides that the general excise tax does not apply to common paymasters that are reimbursed by related corporations that actually employ the workers paid. Act 351, Session Laws of Hawaii 1989, now codified as section 237-24.7(1), Hawaii Revised Statutes, provides that the general excise tax does not apply to amounts received for employee wages, salaries, payroll taxes, insurance premiums, and benefits, including retirement, vacation, sick pay, and health benefits, by a hotel operator. Act 252, Session Laws of Hawaii 1992, now codified as section 237-24.7(4), Hawaii Revised Statutes, provides that the general excise tax does not apply to similar amounts received by an orchard operator. Act 214, Session Laws of Hawaii 1998, now codified as section 237-24.7(8), Hawaii Revised Statutes, provides that the general excise tax does not apply to similar amounts received by a management company from related entities selling telecommunications services. In the preamble to Act 214, Session Laws of Hawaii 1998, the legislature discussed the exemptions for hotel and orchard operators and then stated, "It is important that the same exemption be extended to telecommunications businesses, because of the highly mobile nature of telecommunications jobs. Also, the general excise tax was never intended to serve, in effect, as a tax on payrolls." The legislature notes that, in Tax Information Release No. 2024-04, the department of taxation has stated that the general excise tax applies to all amounts that a payroll service company receives from a film production company, unless there is a specific statutory exemption for those amounts. Accordingly, the purpose of this part is to exempt from the general excise tax reimbursement to a motion picture project employer for employee wages, salaries, payroll taxes, insurance premiums, and employment benefits. SECTION 4. Section 237-24.75, Hawaii Revised Statutes, is amended to read as follows: "§237-24.75 Additional exemptions. In addition to the amounts exempt under section 237-24, this chapter shall not apply to: (1) Amounts received as a beverage container deposit collected under chapter 342G, part VIII; (2) Amounts received by the operator of the Hawaii convention center for reimbursement of costs or advances made pursuant to a contract with the Hawaii tourism authority under section 201B‑7; [and] (3) Amounts received by a professional employer organization that is registered with the department of labor and industrial relations pursuant to chapter 373L, from a client company equal to amounts that are disbursed by the professional employer organization for employee wages, salaries, payroll taxes, insurance premiums, and benefits, including retirement, vacation, sick leave, health benefits, and similar employment benefits with respect to covered employees at a client company; provided that this exemption shall not apply to amounts received by a professional employer organization after: (A) Notification from the department of labor and industrial relations that the professional employer organization has not fulfilled or maintained the registration requirements under this chapter; or (B) A determination by the department that the professional employer organization has failed to pay any tax withholding for covered employees or any federal or state taxes for which the professional employer organization is responsible. As used in this paragraph, "professional employer organization", "client company", and "covered employee" shall have the meanings provided in section 373L-1[.]; and (4) Amounts received by a motion picture project employer from a client equal to amounts that are disbursed by the motion picture project employer for employee wages, salaries, payroll taxes, insurance premiums, and benefits, including retirement, vacation, sick leave, health benefits, and similar employment benefits with respect to motion picture project workers at a client. As used in this paragraph, "motion picture project employer", "client", and "motion picture project worker" have the same meaning as defined in section 3512 of the Internal Revenue Code of 1986, as amended." PART IV SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored. SECTION 6. This Act shall take effect on July 1, 2050; provided that: (1) Section 2 shall apply to taxable years beginning after December 31, 2024; and (2) Section 4 shall take effect on July 1, 2025. |
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| 47 | + | PART I SECTION 1. The purpose of this Act is to enhance Hawaii's status as a premier destination for film, television, and digital media production by modernizing the State's film and media production tax credits. This Act boosts the current incentives with an additional five per cent in credits for productions that meet the minimum filming requirements at a qualified production facility of the scale identified in the city and county of Honolulu's Ordinance 25-1. This Act encourages workforce development in film and media production, particularly on Oahu's west side and on the neighbor islands, by fostering local talent pipelines, supporting educational partnerships, and incentivizing the hiring of Hawaii residents in production roles. Finally, this Act also recognizes the critical role of privately financed investments in film production infrastructure, such as the planned development of a state‑of‑the-art production facility on University of Hawaii lands at West Oahu, in strengthening Hawaii's capacity to support high-quality productions. The adoption of Ordinance 25‑1 by the city and county of Honolulu to incentivize film studio development underscores the alignment of state and local efforts to build a robust and sustainable media industry. By enhancing Hawaii's film, television, and digital media tax credits in partnership with the city and county of Honolulu, this Act will create a favorable economic climate for private investment, ensure long‑term industry growth, and expand opportunities for local workers and communities across the islands. PART II SECTION 2. 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 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[:] equal to the sum of the following: (1) Either: (A) 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)] (B) 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[.]; and (2) An additional five per cent of the qualified production costs incurred by a qualified production that utilizes qualified production facilities located within the State of Hawaii. 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." 2. By amending subsection (l) to read: "(l) Total tax credits claimed per qualified production shall not exceed [$17,000,000.] $ ." 3. 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 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. "Production facility" means a building or complex of buildings and associated backlot facilities on real property situated within the State in which pre-production, production, and post-production activities occur, that contain: (1) At least one sound stage; (2) Pre-production, production, and post-production offices; (3) Catering or dining facilities; (4) Parking; (5) Facades; and (6) Mill space, and that is closed to the general public and is within a footprint of the site plan that forms a secure compound that is clearly delineated with a tall perimeter enclosure. The term excludes buildings and facilities that are not used for pre‑production, production, and post-production activities, but are constructed or used in connection with the production facility, including hotel and lodging facilities, or portions thereof. "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. "Qualified production facility" means a production facility engaged in the production of a qualified production; provided that the production facility: (1) Is located within the State; (2) Is constructed after December 31, 2024; (3) Is located on real property that: (A) Is a minimum of ten acres in size; and (B) Has been leased or purchased from the United States, the State, or any political subdivision thereof; and (4) Cost a minimum of $100,000,000 to design and construct." PART III SECTION 3. During the 1980s and 1990s, the legislature recognized the unfairness of having the general excise tax apply to payroll reimbursements and enacted exemptions specific to several discrete industries. Act 175, Session Laws of Hawaii 1988, now codified as section 237-23.5, Hawaii Revised Statutes, provides that the general excise tax does not apply to common paymasters that are reimbursed by related corporations that actually employ the workers paid. Act 351, Session Laws of Hawaii 1989, now codified as section 237-24.7(1), Hawaii Revised Statutes, provides that the general excise tax does not apply to amounts received for employee wages, salaries, payroll taxes, insurance premiums, and benefits, including retirement, vacation, sick pay, and health benefits, by a hotel operator. Act 252, Session Laws of Hawaii 1992, now codified as section 237-24.7(4), Hawaii Revised Statutes, provides that the general excise tax does not apply to similar amounts received by an orchard operator. Act 214, Session Laws of Hawaii 1998, now codified as section 237-24.7(8), Hawaii Revised Statutes, provides that the general excise tax does not apply to similar amounts received by a management company from related entities selling telecommunications services. In the preamble to Act 214, Session Laws of Hawaii 1998, the legislature discussed the exemptions for hotel and orchard operators and then stated, "It is important that the same exemption be extended to telecommunications businesses, because of the highly mobile nature of telecommunications jobs. Also, the general excise tax was never intended to serve, in effect, as a tax on payrolls." The legislature notes that, in Tax Information Release No. 2024-04, the department of taxation has stated that the general excise tax applies to all amounts that a payroll service company receives from a film production company, unless there is a specific statutory exemption for those amounts. Accordingly, the purpose of this part is to exempt from the general excise tax reimbursement to a motion picture project employer for employee wages, salaries, payroll taxes, insurance premiums, and employment benefits. SECTION 4. Section 237-24.75, Hawaii Revised Statutes, is amended to read as follows: "§237-24.75 Additional exemptions. In addition to the amounts exempt under section 237-24, this chapter shall not apply to: (1) Amounts received as a beverage container deposit collected under chapter 342G, part VIII; (2) Amounts received by the operator of the Hawaii convention center for reimbursement of costs or advances made pursuant to a contract with the Hawaii tourism authority under section 201B‑7; [and] (3) Amounts received by a professional employer organization that is registered with the department of labor and industrial relations pursuant to chapter 373L, from a client company equal to amounts that are disbursed by the professional employer organization for employee wages, salaries, payroll taxes, insurance premiums, and benefits, including retirement, vacation, sick leave, health benefits, and similar employment benefits with respect to covered employees at a client company; provided that this exemption shall not apply to amounts received by a professional employer organization after: (A) Notification from the department of labor and industrial relations that the professional employer organization has not fulfilled or maintained the registration requirements under this chapter; or (B) A determination by the department that the professional employer organization has failed to pay any tax withholding for covered employees or any federal or state taxes for which the professional employer organization is responsible. As used in this paragraph, "professional employer organization", "client company", and "covered employee" shall have the meanings provided in section 373L-1[.]; and (4) Amounts received by a motion picture project employer from a client equal to amounts that are disbursed by the motion picture project employer for employee wages, salaries, payroll taxes, insurance premiums, and benefits, including retirement, vacation, sick leave, health benefits, and similar employment benefits with respect to motion picture project workers at a client. As used in this paragraph, "motion picture project employer", "client", and "motion picture project worker" shall have the same meaning as in section 3512 of the Internal Revenue Code of 1986, as amended." PART IV SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored. SECTION 6. This Act shall take effect upon its approval; provided that: (1) Section 2 shall apply to taxable years beginning after December 31, 2024; and (2) Section 4 shall take effect on July 1, 2025. INTRODUCED BY: _____________________________ |
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