STAND

STAND. COM. REP. NO. 1190

Honolulu, Hawaii

, 2005

RE: S.B. No. 541

S.D. 2

H.D. 1

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committees on Tourism & Culture and Economic Development & Business Concerns, to which was referred S.B. No. 541, S.D. 2, entitled:

"A BILL FOR AN ACT RELATING TO DIGITAL MEDIA,"

beg leave to report as follows:

The purpose of this bill is to expand the State's tax incentives relating to performing arts and the motion picture, television, and digital media industry in Hawaii by temporarily replacing the existing Motion Picture and Film Production Income Tax Credit (Existing Tax Credit) with the Motion Picture, Television, and Digital Media Production Expenditure Income Tax Credit (Revised Tax Credit). Specifically, this bill, among other things:

(1) Specifies that the Revised Tax Credit amounts to 15 percent of the qualified production costs incurred in any county of the state with a population over 700,000, and 20 percent of the qualified production costs incurred in any county of the state with a population of 700,000 or less;

(2) Establishes certain requirements to qualify for the Revised Tax Credit;

(3) Establishes certification and reporting requirements to claim the Revised Tax Credit;

(4) Defines "qualified production costs" to include sound recordings;

(5) Establishes a Wage Reimbursement Tax Credit for wages paid by qualified productions to below-the-line hires who are Hawaii residents;

(6) Prohibits taxpayers, in a given tax year, from receiving financing for the production for which the Revised Tax Credit is being claimed by virtue of investments provided under the High Technology Business Investment Tax Credit (High Tech Tax Credit);

(7) Establishes a definition for "performing arts products" under the High Tech Tax Credit that includes digital media, commercial television and film products for sale or license, commercials, and sound recordings;

(8) Requires businesses that produce performing arts products, in the definition for "qualified high technology business" under the High Tech Tax Credit, to provide educational or in-kind support of Hawaii school performing arts programs, employment of Hawaii residents, and use of the businesses' facilities in the state used for the production of the performing arts products; and

(9) Contains an effective date of July 1, 2050.

The Department of Business, Economic Development, and Tourism, Department of Taxation, Honolulu Film Office, Maui Film Office, Big Island Film Office, Musicians' Association of Hawaii, Local 677 AFM, IATSE Local 665, Oahu Visitors Bureau, and Campbell Estate supported the intent of this bill but preferred H.B. No. 1590. Three concerned individuals supported the intent of this measure. The Tax Foundation of Hawaii offered comments.

Upon careful consideration, your Committees have amended this measure by deleting its contents and inserting the substantive contents of H.B. No. 1590, H.D. 2, with amendments. As amended, this bill temporarily replaces the Existing Tax Credit with the Motion Picture, Digital Media, and Film Production Income Tax Credit (New Tax Credit). Specifically, this bill, among other things:

(1) Specifies that the New Tax Credit amounts to 15 percent of the qualified production costs incurred in any county of the state with a population over 700,000, and 20 percent of the qualified production costs incurred in any county of the state with a population of 700,000 or less;

(2) Clarifies that in a given tax year, no qualified production cost that has been financed by investments for which a credit was claimed by any taxpayer under the High Tech Tax Credit is eligible for the New Tax credit;

(3) Does not include sound recordings in the definition of "qualified production";

(4) Does not include the Wage Reimbursement Tax Credit;

(5) Establishes requirements to qualify for the New Tax Credit;

(6) Establishes certification and reporting requirements to claim the New Tax Credit;

(7) Limits total New Tax Credits claimed per qualified production to $8,000,000; and

(8) Contains an effective date of July 1, 2005.

In addition, this bill, as amended, deletes the provisions

relating to the definition of "performing arts products" and "qualified high technology business" under the High Tech Tax Credit that are contained in the bill as referred to your Committees.

As affirmed by the records of votes of the members of your Committees on Tourism & Culture and Economic Development & Business Concerns that are attached to this report, your Committees are in accord with the intent and purpose of S.B. No. 541, S.D. 2, as amended herein, and recommend that it pass Second Reading in the form attached hereto as S.B. No. 541, S.D. 2, H.D. 1, and be referred to the Committee on Finance.

Respectfully submitted on behalf of the members of the Committees on Tourism & Culture and Economic Development & Business Concerns,

____________________________ ROBERT N. HERKES, Chair		____________________________ JERRY L. CHANG, Chair