Allows for the transfer of high technology business investment tax credits for performing arts qualified high technology businesses (QHTBs). Establishes a program by which the state could buy back tax credits from these QHTBs at deeply discounted rate: 20% of the face value of the credits distributed over 5 years. Requires performing arts QHTBs using this program to contribute .5 percent of their aggregate qualified investments per year to the Hawaii television and film development special fund.

A BILL FOR AN ACT

SECTION 1. Hawaii's film, television, and digital media industry is fledgling, but holds much promise for the economic and cultural future of the State. It is a crucial point for the industry, as the industry is currently on the verge of growing immensely but could benefit from appropriate tax incentives to allow it to flourish. Without the State's support, the industry and its workforce will remain in limbo and continue to have an uncertain future. As many other states and foreign countries have already done in recent years, Hawaii should take the opportunity to stimulate the growth of this potential film and digital media industry to the next level--one that will make it a self-sustaining, dependable provider of steady, highly skilled, highly paid twenty-first-century jobs for Hawaii's residents, particularly its youth.

This creates a program that allows the State to purchase certain investment tax credits from performing arts qualified high technology businesses at a deep discount.

The purpose of such a program is to limit the exposure of state funds with respect to certain performing arts qualified high technology businesses, while at the same time enhancing the economic benefits the credits were designed to bring.

While performing arts qualified high technology businesses would still have the option of raising investment and maximizing credit claims, the option to transfer credits back to the State is an attractive alternative because it is direct, guaranteed, hassle-free, and, in most cases, a better deal for the qualified high technology businesses and the State.

Currently, only about 10-15 per cent of investment dollars are going back to the performing arts qualified high technology businesses in the form of investment tax credits, with the majority of the credits going to middleman investors. The state buy-back program ensures that credits go back to the performing arts qualified high technology businesses they were meant to stimulate, thereby directly benefiting them. By merely redirecting the way credits are issued, the State can reap better economic benefits (stimulating more productions) at likely lower costs.

The program would also help to redirect a higher percentage of local investment dollars toward smaller, independent performing arts qualified high technology businesses and other types of qualified high technology businesses whose ability to remain in business relies greatly on investment dollars stimulated by the credit.

Finally, this Act requires a production partaking of the buy-back program to contribute 0.5 per cent of its aggregate qualified investments to the Hawaii television and film development special fund, for the purpose of directly funding local projects that further the development of the local film and television industry.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Transferability of the high technology business investment tax credit. (a) Any taxpayer entitled to tax credits under section 235-110.9 based on an investment in a "performing arts qualified high technology business" may elect to treat the credits as earned by the performing arts qualified high technology business. The election must be made for all of the credits earned over the five-year period provided in section 235-110.9. The election must be filed with the tax return for the "performing arts qualified high technology business" and the taxpayer's tax return for the taxable year that the taxpayer made the investment.

(b) Any performing arts qualified high technology business for which an election under subsection (a) has been made may transfer the tax credits provided in section 235-110.9 to the department of taxation for twenty per cent of the face value of the credits earned, paid over five years pursuant to the pay-out schedule established in section 235-110.9. The maximum allowed credits per taxpayer set forth by section 235-110.9 shall not apply to credits transferred pursuant to this section.

(c) To qualify to transfer the tax credits to the department of taxation as provided in subsection (b):

(d) Any performing arts qualified high technology business or related entity that has transferred any credits to the department of taxation pursuant to subsection (b) in a given taxable year must also sell or waive the motion picture and film production income tax credit set forth in section 235-17 and the capital goods excise tax credit set forth in section 235-110.7 in that same taxable year in the manner provided in subsection (b).

(e) Prior to making an election under subsection (a), the performing arts qualified high technology business shall apply to the director of taxation for approval of such election. The director of taxation shall approve all qualifying elections to transfer credits under this section in the order that such requests for approval are received by the director of taxation; provided that the director of taxation shall only approve qualifying elections to transfer credits under this section for the first $25,000,000 in the aggregate paid to all performing arts qualified high technology businesses making elections under this section in any year. In any year, elections approved requiring the department of taxation to pay less than $25,000,000 in the aggregate to all performing arts qualified high technology businesses, the excess revenue may be carried over and applied to subsequent years.

(f) This section shall not apply to any investments which are part of a transaction, or series of transactions, structured to avoid the purposes of this section so that a production could utilize both this section, section 235-110.9, section 235-17, or section 235-110.7.

(g) To qualify to transfer tax credits to the department of taxation pursuant to subsection (b), a performing arts qualified high technology business shall contribute 0.5 per cent of its aggregate qualified investments to the Hawaii television and film development special fund set forth in Section 201-113.

(h) Every performing arts qualified high technology

(i) For purposes of this section:

"Aggregate qualified investments" means the amount invested by all the taxpayers who have made an election under subsection (a).

"Performing arts products" means the same as defined in section 235-7.3.

"Performing arts qualified high technology business" means a qualified high technology business whose "qualified research" consists solely of "performing arts products."

"Qualified high technology business" means the same as

"Qualified research" means the same as defined in section 235-7.3."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2006.