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.