Changes the motion picture and film production income tax credit to an unspecified amount against a taxpayer's income tax and transient accommodations tax liability.

A BILL FOR AN ACT

SECTION 1. The legislature finds that although Hawaii is experiencing a resurgence in the digital media, television, and film industry production, it still could be attracting many more projects and consequently, more revenue for the State. The department of business, economic development, and tourism reports that production expenditures for 2003 were $84,000,000. This was a decrease from 2002, when production companies spent $147,000,000, a record breaking year for digital media, television, and film production development in the State. The loss in expenditures can be attributed to very aggressive competition worldwide whereby a number of jurisdictions are offering very attractive financial incentives to lure production to their locations. Although the level of production expenditures in 2004 is estimated to be $146,000,000, this increase results from just three Hawaii-based network television series that were produced in Hawaii.

In spite of its reputation as the world's premiere tropical location, and strong reputation for its ability to double for remote, exotic (and in some cases, potentially unsafe) locales such as Africa, South America, the Philippines, and parts of Southeast Asia, Hawaii must still compete with other locations to secure this business. The legislature believes that if Hawaii can be more financially competitive with its competitors, it stands to capture a greater portion of this runaway production market.

Unfortunately, Hawaii is still viewed as an expensive place to film, mainly due to the cost of shipping necessary equipment to and from the mainland, cost of housing and per diem for mainland cast and crew, and an overall higher cost of living in the islands. The expense of filming in Hawaii affects the State's ability to compete with other locations.

Although Hawaii's competitors in attracting digital media, television, and film production business are predominantly foreign countries, a significant number of United States jurisdictions have passed aggressive legislation to provide highly competitive incentives. Countries such as Canada, Australia, and New Zealand have the benefit of favorable monetary exchange rates as well as the resources of an entire country to support their industry and as such, offer very attractive incentives to producers. States such as Louisiana, New Mexico, Nevada, and Mississippi are examples of states that have implemented new film and television production incentive programs.

The purpose of this Act is to augment incentives that attract digital media, television, and film production companies to the State.

SECTION 2. Section 235-17, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:

"(a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter, an income tax credit which 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 up to [four]       per cent of the costs incurred in the State in the production of motion picture or television films. The director of taxation shall specify by rule a schedule of allowable tax credits based on the principle that greater tax credits shall be allowed for greater benefits to the state economy.

In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for production costs incurred by the entity for the taxable year. The cost upon which the tax credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined by rule.

If a deduction is taken under section 179 (with respect to election to expense depreciable business assets) of the Internal Revenue Code of 1986, as amended, no tax credit shall be allowed for those costs for which the deduction is taken.

The basis for eligible property for depreciation of accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed.

(b) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter, an income tax credit which 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 up to [7.25]       per cent effective January 1, 1999, of the costs incurred in the State in the production of motion picture or television films for actual expenditures for transient accommodations. The director of taxation shall specify by rule a schedule of allowable tax credits based on the principle that greater tax credits shall be allowed for greater benefits to the state economy.

In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for 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."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval and shall apply to taxable years occurring after December 31, 2005.