SB2167 HD1

SECTION 1. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Motion picture, digital media, and film infrastructure tax credit. (a) Notwithstanding any law to the contrary, 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 per cent of the eligible infrastructure costs made by the taxpayer in the State.

In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for eligible infrastructure 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 certain 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 or accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed.

(b) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year.

(c) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of the credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. All claims, including any amended claims, for tax credits under this section shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(d) The total amount of tax credits allowed under this section in any particular year shall be $ ; provided that, if the total amount of credits applied for in any year exceeds the aggregate amount of credits allowed for that year under this section, the excess shall be treated as having been applied for and claimed in the three immediately succeeding taxable years and may be claimed in those years.

(e) To qualify for a tax credit under this section, a film infrastructure project shall:

(1) Satisfy the requirements of a film infrastructure project; and

(2) Have eligible infrastructure costs totaling at least $ .

(f) Each taxpayer claiming a tax credit under this section shall first prequalify for the credit by registering the film infrastructure project with the department of business, economic development, and tourism during the development or preproduction stage. The taxpayer undertaking a film infrastructure project shall apply to the department of business, economic development, and tourism for a film infrastructure tax credit certificate no later than ninety days after the first expenses or costs are incurred, and shall provide with the application any information the department of business, economic development, and tourism may require to determine the project's eligibility as a film infrastructure project.

Each application for a film infrastructure tax credit certificate shall include:

(1) A detailed description of the film infrastructure project;

(2) A preliminary budget;

(3) Estimated completion date; and

(4) Other information that the department of business, economic development, and tourism may require.

The department of business, economic development, and tourism may require an independent audit of all project costs and expenditures before issuing a film infrastructure tax credit certificate. If the department of business, economic development, and tourism determines that the project has eligible infrastructure costs, the department of business, economic development, and tourism shall indicate the amount of costs or expenditures that has been established to the satisfaction of the department of business, economic development, and tourism, and issue to the taxpayer a film infrastructure tax credit certificate for investors indicating the amount of tax credits available under this section. The issuance of a film infrastructure tax credit certificate shall serve as a reservation of tax credits applicable to the aggregate cap amount under subsection (d). The department of business, economic development, and tourism shall provide a copy of the film infrastructure tax credit certificate to the director of taxation, upon request.

Before the issuance of a film infrastructure project tax credit voucher to a taxpayer, pursuant to subsection (h), the taxpayer undertaking the film infrastructure project shall provide the department of business, economic development, and tourism with a description of the progress on the project and an estimated completion date. The department of business, economic development, and tourism may require an independent audit of all project costs and expenditures before the issuance of the film infrastructure tax credit voucher to a taxpayer. Upon issuance, a film infrastructure tax credit voucher shall represent the actual amount of tax credits that a taxpayer may claim under this section.

(g) No later than March 31 following the end of each calendar year in which eligible infrastructure costs were incurred, every taxpayer claiming a tax credit under this section for a film infrastructure project shall submit a written, sworn statement to the department of business, economic development, and tourism, together with a verification review by a qualified certified public accountant using procedures prescribed by the department of business, economic development, and tourism, identifying:

(1) All eligible infrastructure costs, if any, incurred in the previous taxable year;

(2) The amount of tax credits claimed pursuant to this section, if any, in the previous taxable year; and

(3) The number of total hires versus the number of local hires by category and by county.

This information may be reported from the department of business, economic development, and tourism to the legislature in a redacted format, pursuant to subsection (j).

(h) The department of business, economic development, and tourism shall:

(1) Maintain records of the names of the taxpayers and film infrastructure projects thereof claiming the tax credits under this section;

(2) Obtain and total the aggregate amounts of all eligible infrastructure costs per film infrastructure project per taxable year; and

(3) Provide a letter to the director of taxation specifying the amount of the tax credit per film infrastructure project for each taxable year that a tax credit is claimed and the cumulative amount of the tax credit for all years claimed.

Upon each determination required under this subsection, the department of business, economic development, and tourism shall issue a film infrastructure tax credit voucher to the taxpayer, regarding the film infrastructure project, specifying the eligible infrastructure costs and the tax credit amount qualified for in each taxable year a tax credit is claimed. The department of business, economic development, and tourism may charge a reasonable administrative fee sufficient to cover the department of business, economic development, and tourism's costs to analyze applications submitted under this section. The taxpayer for each film infrastructure project shall file the film infrastructure tax credit voucher with the taxpayer's tax return for the film infrastructure project to the department of taxation. Notwithstanding the authority of the department of business, economic development, and tourism under this section, the director of taxation may audit and adjust the tax credit amount to conform to the information filed by the taxpayer.

(i) The director of taxation shall prepare forms as may be necessary to claim a credit under this section. The director may also require the taxpayer to furnish information to ascertain the validity of the claim for credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.

(j) The department of business, economic development, and tourism shall submit a report to the legislature no later than twenty days prior to the convening of each regular session detailing the non-aggregated eligible infrastructure costs that form the basis of the tax credit claims and expenditures, itemized by taxpayer, in a redacted format to preserve the confidentiality of the taxpayers claiming the credit.

(k) For the purposes of this section:

"Eligible infrastructure costs" means costs incurred by a film infrastructure project within the State that are subject to the general excise tax under chapter 237 or income tax under this chapter and that have not been financed by any investments for which a credit was or will be claimed under this chapter. "Eligible infrastructure costs" includes:

(1) All expenditures to provide buildings, facilities, or installations, whether a capital lease or purchase, together with necessary equipment for a film, video, television, digital production facility, or digital animation production facility;

(2) Project development costs, including design, professional consulting fees and transaction costs;

(3) Costs for development, preproduction, production, post-production and distribution equipment, and system access; and

(4) Costs for fixtures and other equipment.

"Film infrastructure project" means an infrastructure project undertaken in the State by an entity that:

(1) Meets the definition of a "qualified production" under section 235-17;

(2) Is authorized to conduct business in the State;

(3) Is not in default on a loan made by the State or a loan guaranteed by the State, nor has ever declared bankruptcy under which an obligation of the entity to pay or repay public funds was discharged as a part of the bankruptcy; and

(4) Has been approved by the department of business, economic development, and tourism as qualifying for a film infrastructure tax credit under this section.

"Infrastructure project" means a capital project to provide one or more buildings, facilities, or installations needed for the digital media and motion picture industry to function in the State.

"Net income tax liability" means income tax liability reduced by all other credits allowed under this chapter."

SECTION 2. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2022-2023 to establish two full-time equivalent (2.0 FTE) staff positions, exempt from chapter 76, Hawaii Revised Statutes, for the operation and management of the motion picture, digital media, and film infrastructure tax credit provided under section 1 of this Act. These two staff positions shall be filled by persons with expertise in infrastructure and public-private partnership procurement.

The sum appropriated shall be expended by the creative industries division of the department of business, economic development, and tourism for the purposes of this Act.

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on October 18, 2050; provided that:

(1) Section 1 shall apply to taxable years beginning after December 31, 2021; and

(2) Section 2 shall take effect on July 1, 2022.

THE SENATE	S.B. NO.	2167
THIRTY-FIRST LEGISLATURE, 2022		S.D. 2
STATE OF HAWAII		H.D. 1