SUBJECT:  INCOME, Tax Credit to Promote Frequent Blood Donations

BILL NUMBER:  SB 2754

INTRODUCED BY: INOUYE, CHANG, GABBARD, Kidani, San Buenaventura, Wakai

EXECUTIVE SUMMARY:  Creates a blood donation income tax credit to promote frequent blood donations. Our view is that if the amounts being considered are modest, the tax system should not be used.  An appropriate agency such as the Department of Health can issue checks to the donors directly.

SYNOPSIS:  Adds a new section to chapter 235, HRS, to allow a tax credit for blood donations.  The tax credit shall be $___ if the taxpayer makes four or more donations through a blood bank in the State during the taxable year.  One whole blood donation, platelet donation, or plasma donation counts as one blood donation, and one double red cell donation counts as two blood donations.  The credit is refundable.

Claims for the tax credit, including any amended claims, shall be filed on or before the end of the twelfth month following the taxable year for which the credit may be claimed.  Failure to comply shall constitute a waiver of the right to claim the credit.

EFFECTIVE DATE:  Applies to taxable years beginning after December 31, 2021.

STAFF COMMENTS:  The tax system is there to raise revenue to keep the government moving.  Using the tax system to shape social policy merely throws the revenue raising system out of whack, making the system less than reliable as there is no way to determine how many taxpayers will avail themselves of the credit and in what amount.

Furthermore, tax credits are nothing more than the expenditure of public dollars, but out the back door.  If, in fact, these dollars were subject to the appropriation process, would taxpayers be as generous about the expenditure of these funds when our kids are roasting in the public school classrooms, there isn’t enough money for social service programs, or our state hospitals are on the verge of collapse, overtaxed by the pandemic?

It is not possible to tell from this measure, with the blank amounts in it, how much of a tax credit is being considered here.  If the amount per donation is relatively modest, perhaps less than $100, then there is no reason to get the tax system and all its complexities involved.

If lawmakers want to subsidize this activity, then a direct appropriation would be more accountable and transparent.  That way lawmakers will be very clear on (1) how much we taxpayers are paying, and (2) what we are getting in return.  An appropriate agency such as the Department of Health can issue checks to the donors directly.

Digested: 1/27/2022

SUBJECT:  INCOME, Tax Credit for Employee Blood Donations

BILL NUMBER:  SB 2753

INTRODUCED BY: INOUYE, CHANG, GABBARD, NISHIHARA, Kim, San Buenaventura, Wakai

EXECUTIVE SUMMARY:  Establishes a tax credit for verified employee blood donations made at an employer sponsored blood drive. Applies to taxable years 2022-2027.  Our view is that if the amounts being considered are modest, the tax system should not be used.  A check can go to the employer who then can distribute it to the donees; or an appropriate agency such as the Department of Health can issue checks to the employees directly.

SYNOPSIS:  Adds a new section to chapter 235, HRS, to allow a tax credit for employee blood donations made at employer-hosted blood donation drives.  Allows $___ for each verified donation, with an annual statewide cap of $_____.  The credit is nonrefundable but may be carried forward until exhausted.

Defines “blood donation” as the voluntary and uncompensated donation of whole blood, or specific components of blood, by the taxpayer’s employee, drawn for use by a nonprofit blood bank organization as part of a blood drive.

Defines “nonprofit blood bank organization” as an entity that is organized and operated in accordance with section 501(c)(3) of the Internal Revenue Code of 1986, as amended, and for the purpose of providing a safe and adequate blood supply, blood products, and blood related transfusion services to patients in the State.

EFFECTIVE DATE:  Applies to taxable years beginning after December 31, 2021, but before January 1, 2028.

STAFF COMMENTS:  The tax system is there to raise revenue to keep the government moving.  Using the tax system to shape social policy merely throws the revenue raising system out of whack, making the system less than reliable as there is no way to determine how many taxpayers will avail themselves of the credit and in what amount.

Furthermore, tax credits are nothing more than the expenditure of public dollars, but out the back door.  If, in fact, these dollars were subject to the appropriation process, would taxpayers be as generous about the expenditure of these funds when our kids are roasting in the public school classrooms, there isn’t enough money for social service programs, or our state hospitals are on the verge of collapse, overtaxed by the pandemic?

It is not possible to tell from this measure, with the blank amounts in it, how much of a tax credit is being considered here.  If the amount per donation is relatively modest, perhaps less than $100, then there is no reason to get the tax system and all its complexities involved.

If lawmakers want to subsidize this activity, then a direct appropriation would be more accountable and transparent.  That way lawmakers will be very clear on (1) how much we taxpayers are paying, and (2) what we are getting in return.  A check can go to the employer who then can distribute it to the donees; or an appropriate agency such as the Department of Health can issue checks to the employees directly.

Digested: 1/27/2022

SUBJECT:  INCOME, Prohibits Production from Compensating Relevant State Employee

BILL NUMBER:  SB 2568

INTRODUCED BY: WAKAI, MISALUCHA, RHOADS, Chang, Dela Cruz, Ihara, Riviere

EXECUTIVE SUMMARY:  This bill prohibits a production from qualifying for the motion picture, digital media, and film production tax credit if the production hires or compensates an employee of the State or county whose official capacity is related to motion picture, digital media, or film production for certain services. Requires a taxpayer claiming the tax credit to identify any such employee in the statement submitted to DBEDT.  The conflict of interest identified in this bill is already addressed in the State Ethics Code and it is unclear why this industry and its regulators are being targeted for special treatment.

SYNOPSIS:  Amends section 235-17(d), HRS, to require that a production not hire or compensate any employee of the State or county whose official capacity is related to motion picture, digital media, or film production for services for the production, including but not limited to services related to consulting, producing, or performing.

Amends section 235-17(h), HRS, to require a production to identify any such employee in its production cost report.

EFFECTIVE DATE:  Upon Approval

STAFF COMMENTS:  The thrust of the legislation appears to be to prevent a conflict of interest between a state employee having an official capacity related to motion picture, digital media, or film production and any such production.  Such conflicts of interest are already prohibited by the State Ethics Code, HRS § 84-14, which states, in part:

• 84-14 Conflicts of interests. (a)  No employee shall take any official action directly affecting:
• A business or other undertaking in which the employee has a substantial financial interest; or
• A private undertaking in which the employee is engaged as legal counsel, advisor, consultant, representative, or other agency capacity.

The State Ethics Code already has an attached enforcement mechanism, namely the State Ethics Commission, which has authority to punish violators.

It is unclear why motion pictures and digital media are being singled out in this bill for special unfavorable treatment.  The measure seems unfair for that reason.

Digested: 1/26/2022

SUBJECT:  INCOME, Motion Picture, Digital Media, and Film Infrastructure Tax Credit

BILL NUMBER:  SB 2167

INTRODUCED BY: WAKAI, KEITH-AGARAN, MISALUCHA, Ihara, Kim, Riviere, San Buenaventura

EXECUTIVE SUMMARY:   Creates a nonrefundable twenty percent motion picture, digital media, and film infrastructure tax credit. Requires that the film infrastructure project must spend at least $3,000,000 on buildings, facilities, or installations. Caps the credit at $10,000,000 per year.  Our view is that rather than enact a tax credit and the blank check that comes with it, the legislature should appropriate money to plan and construct the infrastructure and then execute on that plan.

SYNOPSIS:  Adds a new section to HRS chapter 235 to allow taxpayers to claim a nonrefundable credit of 20% of the qualified costs incurred for qualified media infrastructure projects in any county of the state; provided the credit shall not exceed $10 million.

Further delineates requirements to qualify for and certification of the credit.

Requires the taxpayer claiming the credit to first prequalify for the credit by registering the project with DBEDT during the development or preproduction stage, and file an application including:  (A)  a detailed description of the film infrastructure project; (B) a preliminary budget; (C) estimated completion date; and (D) other information as the department may require.

Upon completion of the project, DBEDT may issue an infrastructure credit voucher to the taxpayer.

Requires any taxpayer eligible to claim a qualified media infrastructure project tax credit to file with DBEDT an annual report no later than 90 days following each taxable year for which the credit is claimed delineating: (A) all eligible infrastructure costs, if any, incurred in the previous taxable year; (B) the amount of tax credits claimed pursuant to this section, if any, in the previous taxable year; and (C) the number of total hires versus the number of local hires by category and by county.

Provides for sale, assignment, or transfer of credit to a transferee upon proper notification to DBEDT.  Credits once transferred are not subject to reduction, so that the government’s sole remedy would be to recoup any fraudulently obtained credits from the transferor.

Defines “film infrastructure project” as an infrastructure project undertaken in this State by an entity that:  (1) meets the definition of a “qualified production” under section 235-17; (2) is authorized to conduct business in this 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 as qualifying for a film infrastructure tax credit.

Defines “eligible infrastructure costs” as costs incurred by a film infrastructure project within the State that are subject to general excise tax or net income tax and that have not been financed by any investments for which an income tax credit was or will be claimed.  Such costs include but are not limited to:  (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, including design, professional consulting fees and transaction costs; (3) development, preproduction, production, post-production and distribution equipment, and system access; and (4) fixtures and other equipment.

EFFECTIVE DATE:  Upon Approval

STAFF COMMENTS:  The legislature by Act 107, SLH 1997, enacted an income tax credit of 4% for costs incurred as a result of producing a motion picture or television film in the state and 7.25% for transient accommodations rented in connection with such activity. The credit was adopted largely to address the impost of the state’s general excise tax on goods and services used by film producers.

The legislature by Act 88, SLH 2006, increased the 4% credit to 15% in a county with a population over 700,000 and to 20% in a county with a population of 700,000 or less. Act 88 also repealed the income tax credit for transient accommodations and expanded the credit to include commercials and digital media productions, and limited the credit to $8 million per qualified production. Act 89, SLH 2013, increased the motion picture, digital media, and film production tax credit from 15% to 20% for the costs incurred in a county with a population over 700,000 and from 20% to 25% for costs incurred in a county with a population of 700,000 or less. Act 89 also increased the total tax credits that may be claimed per qualified production from $8 million to $15 million.  Act 143, SLH 2017, imposed a statewide cap on such credits of $35 million; Act 275, SLH 2019, increased the statewide cap to $50 million.

In addition to the existing credits, the proposed measure would allow taxpayers to claim a media infrastructure project tax credit in any county of the state.

Instead of handing out a tax credit to build the film infrastructure, be it a studio or a sound stage, lawmakers should appropriate a specific sum of money and issue a request for proposals to build such a project and see which bidder would come forward with the best proposal and offer to match the state’s share. This way each bidder could be evaluated as to what they have to offer and what benefit the state would get. Inasmuch as the state would probably be able to offer the land for such a facility, it could also offer a streamlined permitting process which would also be an in-kind contribution. Based on the responses to the request, a careful review done by experts in the field could be made and the best proposal selected. The persons responsible for making the final selection would then be held accountable for their selection and provide the justification for the selection. Another alternative would be the use of special purpose revenue bonds. These alternatives would be far more efficient and transparent than the tax credit proposed by this measure.

Merely handing out a tax credit to entice an economic activity is the “easy way” out for lawmakers. To really ensure the success of this venture, it will take creative thinking and hard work. An appropriation of funds, perhaps the issuance of special purpose revenue bonds, a joint venture, contributions of land or acceleration of the permitting process are but a few ways government could incentivize such a project without spending one cent of cold hard cash. If, in fact, lawmakers believe this infrastructure to be critical to the development of this industry, then lawmakers need to take a more active role as opposed to sitting back and letting the tax credit drive the activity.

Digested: 1/26/2022

SUBJECT:  INCOME, Withholding of Tax by Persons Claiming Film Credit

BILL NUMBER:  SB 2079

INTRODUCED BY: WAKAI, KEITH-AGARAN, MISALUCHA, Dela Cruz, Inouye, Taniguchi

EXECUTIVE SUMMARY:   Establishes a tax withholding requirement for all payments to loan-out companies for services performed in Hawaii for persons claiming the motion picture, digital media, and film production income tax credit. Prohibits the defense of erroneous claim for refund or credit if the claim for refund was generated by a tax credit. Sets the penalty for the erroneous claim for refund or credit generated by a tax credit at ten per cent. Requires taxpayers claiming the motion picture, digital media, and film production income tax credit to submit a sworn statement and verification review to the Department of Business, Economic Development, and Tourism only if qualified production costs exceed $1,000,000. Requires reports by the Department of Business, Economic Development, and Tourism to the Legislature on the motion picture, digital media, and film production income tax credit to identify the dollar amount claimed, name of company, and name of program claiming the credit. Extends the period during which excess credits may be claimed to December 31, 2032. Requires qualified taxpayers claiming the motion picture, digital media, and film production income tax credit to withhold a certain amount and remit that amount within thirty calendar days to the Department of Taxation to the credit of the general excise tax account of the loan-out company. Amends the uses of the Tax Administration Special Fund.

SYNOPSIS:  Adds a new section to chapter 235, HRS, requiring every person claiming a credit under section 235-17, HRS, to withhold all payments to loan-out companies for services performed in Hawaii.

Amends section 231-36.8, HRS, to impose a penalty at a reduced rate of 10% for erroneous claims for refund or credit that are generated by a tax credit, and to provide that the penalty is applied whether or not the taxpayer had a reasonable basis in law for making the claim.

Amends section 235-17, HRS, to add a provision requiring each qualified production to withhold an amount equal to the general excise tax rate on manufacturing or producing, plus the applicable rate of county surcharge on general excise tax, from qualified production costs; provided that the amount withheld shall be remitted to the department of taxation to the credit of the general excise tax account of the loan-out company to whom the qualified production costs were paid or will be paid.  The amount withheld shall be remitted no later than thirty calendar days after the qualified production costs are paid or incurred.  Taxpayers who fail to comply with this subsection shall be subject to the applicable interest and penalties pursuant to chapter 231 and section 235-104.

Makes additional technical and conforming amendments.

EFFECTIVE DATE:  July 1, 2022

STAFF COMMENTS:

Withholding Income Tax for Payments to Loan-Out Companies: Apparently, this provision is meant to collect tax at the source because employees of loan-out companies have not been following the requirement to file an income tax return.

Elimination of Reasonable Basis Defense to Penalty for Erroneous Credit Claim:  Because the tax laws are complex and often subject to interpretation, we do not believe a “strict liability” penalty of this type is appropriate.  Such a penalty would penalize “innocent mistakes where the excessive amount is the result of inadvertence, mathematical error, or where otherwise defined as innocent.”

General Excise Tax Withholding:  We do not recommend that withholding of general excise tax be contained in an income tax section; we recommend amendment of section 237-44, HRS, which now requires withholding of general excise tax in the “entertainment business.”  We also note that the withholding proposed would be at the 0.5% rate, while the Department of Taxation recently has taken the position, in Tax Information Release 2021-01, that the applicable tax rate would be the retail rate.  We recommend that the conflicting positions be harmonized, either by legislation reversing the Department’s position in TIR 2021-01 or by increasing the proposed withholding rate.

Digested: 1/26/2022

SUBJECT:  INCOME, Low-Income Housing Credit, Allocations

BILL NUMBER:  HB 80, HD1

INTRODUCED BY:  House Committee on Housing

EXECUTIVE SUMMARY:  Clarifies when and how members or partners of a taxpayer may claim the low-income housing tax credit. Requires a Form 8609 for purposes of claiming the tax credit. Specifies the application of tax provisions with respect to buildings or projects placed in service after 12/31/2020. Extends the sunset date of Act 129, Session Laws of Hawaii 2016, to 12/31/2027. Effective 7/1/2050.

Continue reading HB 80, HD1 (ver. 2) →