Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2006

State of Hawaii

Sir:

Your Committee on Media, Arts, Science, and Technology, to which was referred H.B. No. 2421, H.D. 2, entitled:

begs leave to report as follows:

The purpose of this measure is to provide an alternative mechanism for funding performing arts qualified high technology businesses that qualify for an investment tax credit under section 235-110.9, Hawaii Revised Statutes.

Your Committee received testimony in support of this measure from the Department of Taxation and the Department of Business, Economic Development, and Tourism. Goodsill Anderson Quinn & Stifel, LLP, and the Tax Foundation of Hawaii submitted comments.

The film and television industry in Hawaii is at a critical stage and holds much promise for the economic future of the State. Hawaii is in competition with other states and foreign countries that provide better subsidies and tax incentives to the industry to lure production to their state or country. Under section 235-110.9, for a business to obtain funding for its operations, a business must attract investors who have Hawaii tax liability and can therefore use this type of tax credit. The search for investors can be time-consuming, expensive, high-risk, and speculative, and the business structure necessary to allocate these credits to the investors can be expensive and cumbersome. Therefore, some performing arts qualified high technology businesses, particularly the large movie and television studios, prefer the option of receiving less money in exchange for not having to search for investors.

Your Committee finds that allowing performing arts qualified high technology businesses to sell their investment tax credits back to the Department of Taxation will enable the State to gain a competitive edge in luring film and television productions to Hawaii. Businesses that choose to exercise this option will receive in cash from the State twenty percent of the face value of the tax credit to be paid out over five years. In addition, the business must either waive or transfer to the State all motion picture and film production credits and capital goods excise tax credits under sections 235-17 and 235-110.7, Hawaii Revised Statutes, respectively. Furthermore, the business would also have to contribute 0.5 percent of its aggregate qualified investments to the Hawaii Television and Film Development Special Fund and report certain information to the Department of Business, Economic Development, and Tourism.

Your Committee has amended this measure by:

As affirmed by the record of votes of the members of your Committee on Media, Arts, Science, and Technology that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 2421, H.D. 2, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 2421, H.D. 2, S.D. 1, and be referred to the Committee on Ways and Means.