Hawaii-2010-SB2355-Introduced

PART I

SECTION 1. Chapter 209E, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:

"pArt . Digital Media enterprise subzones

§209E-A Definitions. As used in this part:

"Base investment" means the cost, including fabrication and installation, paid or accrued in the taxable year of tangible assets of a type that are, or under the Internal Revenue Code will become, eligible for depreciation, amortization, or accelerated capital cost recovery for federal income tax purposes; provided that the assets are physically located in this State for use in a business activity in this State and are not mobile tangible assets expended by a person in the development of a qualified digital media infrastructure project. Base investment does not include a direct production expenditure or qualified personnel expenditure eligible for a tax credit under section 235-17.

"Department" means the department of business, economic development, and tourism.

"Digital media" shall have the same meaning as in section 235‑17.

"Digital media enterprise subzone" means the geographic area located within a mile radius of a University of Hawaii campus, on or off campus, which is within an enterprise zone established pursuant to part I of this chapter or other delineated geographic area designated by the legislature pursuant to this part; provided that effective July 1, 2010, and for the first two years thereafter, establishment of a subzone shall be limited to an area within a mile radius, on or off campus, of the University of Hawaii-West Oahu.

"Director" means the director of business, economic development, and tourism.

"Qualified digital media infrastructure project" means the development, construction, renovation, or operation of a digital media production facility, a postproduction facility, or both, that is located in this State within a digital media enterprise subzone; provided that the facility may include a movie theater or other commercial exhibition facility to assist in offsetting operating costs of the production or postproduction facility, but shall not include a facility used to produce pornographic matter or a pornographic performance.

§209E-B Digital media infrastructure tax credit. (a) There shall be allowed to a taxpayer qualifying for a tax credit under this part and subject to the taxes imposed under chapter 235, a tax credit that shall be deductible from the taxpayer's net state income tax liability for investment expenditures made by the taxpayer for all qualified digital media infrastructure projects within a digital media enterprise subzone. The tax credit shall be equal to twenty-five per cent of the taxpayer's base investment. The tax credit under this section shall be reduced by any credit claimed by the taxpayer under chapter 235 for the same base investment.

(b) No more than $20,000,000 in total tax credits under this section shall be authorized in any one taxable year.

(c) If all or a portion of a qualified digital media infrastructure project is a facility that may be used for purposes unrelated to production or postproduction activities, then the project shall be eligible for the tax credit provided under this section only if the department determines that the facility will support and be necessary to secure production or postproduction activity for the production and postproduction facility and the taxpayer agrees to both of the following:

(1) The facility will be used as a state of the art production or postproduction facility or as support and component of the facility for the useful life of the facility; and

(2) The tax credit will not be claimed under this section until the facility is complete.

(d) To claim a tax credit under this section, a taxpayer shall submit an investment expenditure certificate issued under section 209E-C to the department. If the tax credit allowed under this section exceeds the amount of taxes owed by the taxpayer under chapter 235 for a tax year, that portion of the tax credit that exceeds the tax liability of the taxpayer for the tax year shall not be refunded but may be carried forward to offset net income tax liability under chapter 235 in subsequent tax years for a period not to exceed ten tax years or until exhausted, whichever occurs first.

(e) The tax credit under this section shall be claimed after all other tax credits available to the taxpayer have been claimed. A taxpayer eligible to claim a tax credit under this section may assign all or a portion of a tax credit under this section to any assignee. An assignee may subsequently assign a tax credit or any portion of a tax credit assigned under this subsection to one or more assignees. A taxpayer may claim a portion of a tax credit and assign the remaining tax credit amount. A tax credit assignment under this subsection shall be irrevocable. The tax credit assignment under this subsection shall be made on a form prescribed by the department. A taxpayer claiming a tax credit under this section shall send a copy of the completed assignment form to the department in the tax year in which the assignment is made and shall attach a copy of the form to the tax return on which the tax credit is claimed.

(f) In addition to the $100 application fee established under section 209E-C(b), the department may establish, assess, and collect a tax credit application and redemption fee to cover the costs of administering the tax credit certification program established under this part. The fee shall not exceed one-half of one per cent of the tax credit claimed, and shall paid to the department by the taxpayer prior to filing for the tax credit. The department shall deposit any proceeds derived from the fee in the Hawaii film office special fund established under section 201-113.

(g) A taxpayer that wilfully submits information under this section that the taxpayer knows to be fraudulent or false shall be, in addition to any other penalties provided by law, liable for a civil penalty equal to the amount of the taxpayer's credit under this section. A penalty collected under this section shall be deposited in the Hawaii film office special fund established under section 201-113.

§209E-C Eligibility and procedures to claim a digital media infrastructure tax credit. (a) In addition to any tax credits or exemptions provided under this chapter, any taxpayer that develops, constructs, renovates, or operates a digital media infrastructure project in this State within a digital media enterprise subzone shall be eligible for certification by the department to qualify for a tax credit as provided in this part; provided that the taxpayer:

(1) Receives from the department a written certification that the taxpayer has undertaken, or will undertake within one hundred eighty days of the issuance of the certification, the development, construction, renovation, or operation of a qualified digital media infrastructure project within a digital media enterprise subzone; provided that, upon request submitted by the taxpayer based on good cause, the department may extend the period for commencement of work for up to an additional ninety days;

(2) Before July 1, 2011, shall expend not less than $100,000 on the base investment for a qualified digital media infrastructure project within a digital media enterprise subzone, and the taxpayer, after July 1, 2011, shall expend not less than $250,000 on the base investment for a qualified digital media infrastructure project in a digital media enterprise subzone;

(3) Enters into an agreement as provided in this section;

(4) Receives an investment expenditure certificate from the department under subsection (e);

(5) Submits the investment expenditure certificate issued by the department under subsection (e) to the department of taxation; and

(6) Shall not be delinquent in a tax or other obligation owed to the State or be owned or under common control of an entity that is delinquent in a tax or other obligation owed to the State.

(b) In order to qualify for the tax credit established under section 209E-B, the taxpayer shall submit an application to enter into an agreement under this section to the department. The application shall be submitted in a form prescribed by the department and shall be accompanied by a $100 application fee and all of the information and records requested by the department. The application fee received by the department under this subsection shall be deposited in the Hawaii film office special fund established pursuant to section 201-113. The department shall not process an application until it is complete. If the department enters into an agreement under this section, the agreement shall provide for all of the following:

(1) A unique number assigned to the qualified digital media infrastructure project;

(2) A detailed description of the qualified digital media infrastructure project;

(3) A detailed business plan and market analysis for the qualified digital media infrastructure project;

(4) A projected budget for the qualified digital media infrastructure project;

(5) An estimated start date and completion date for the qualified digital media infrastructure project;

(6) A requirement that the taxpayer not file a claim for the credit under section 209E-B until at least twenty-five per cent of the base investment in the qualified digital media infrastructure project identified in the agreement has been expended; and

(7) A requirement that the taxpayer provide the department with the information and independent certification the department deems necessary to verify investment expenditures and eligibility for the credit under section 209E-B.

(1) The digital media infrastructure project no longer qualifies for the tax credit established under this section;

(2) The digital media infrastructure project or an interest in the digital media infrastructure project has been sold by the taxpayer making a base investment in the qualified digital media infrastructure project; or

(3) The taxpayer has withdrawn the taxpayer's base investment wholly or partially from the qualified digital media infrastructure project;

the tax credit claimed under section 209E-B shall be recaptured. The recapture shall be equal to twenty-five per cent of the amount of the total tax credit claimed under this section in the preceding two taxable years. The amount of the tax credit recaptured shall apply only to the investment in the particular digital media infrastructure project that meets the requirements of paragraph (1), (2), or (3). The amount of the recaptured tax credit determined under this subsection shall be added to the taxpayer's tax liability for the taxable year in which the recapture occurs under this subsection.

(d) In determining whether to enter into an agreement under this section, the department shall consider all of the following:

(1) The potential that in the absence of the tax credit allowed under section 209E-B, the qualified digital media infrastructure project will be constructed in a location other than this State;

(2) The extent to which the qualified digital media infrastructure project may have the effect of promoting economic development or job creation in this State;

(3) The extent to which the tax credit will attract private investment for the production of motion pictures, videos, television programs, and digital media in this State; and

(4) The extent to which the tax credit will encourage the development of film, video, television, and digital media production and postproduction facilities in this State.

(e) The taxpayer shall submit a request to the department for an investment expenditure certificate on a form prescribed by the office, along with any information or independent certification the office or the department deems necessary. The department shall process each request within sixty days after the request is complete. However, the department may request additional information or independent certification before issuing an investment expenditure certificate and need not issue the investment expenditure certificate until satisfied that investment expenditures and eligibility are adequately established. The additional information requested may include a report of expenditures audited and certified by an independent certified public accountant. If the department determines that a taxpayer has complied with the terms of an agreement entered into under this section, the department shall issue an investment expenditure certificate to the taxpayer. Each investment expenditure certificate shall be signed by the director and shall include the following information:

(1) The name of the taxpayer;

(2) A description of the qualified digital media infrastructure project;

(3) The taxpayer's eligible base investment for the qualified digital media infrastructure project;

(4) The unique number assigned to the qualified digital media infrastructure project by the department under subsection (b);

(5) The taxpayer's federal employer identification number or state taxpayer identification number; and

(6) Any independent certification required by the department.

(f) Information, records, or other data received, prepared, used, or retained by the department under this section that are submitted by an eligible taxpayer and considered by the taxpayer and acknowledged by the department as confidential shall not be subject to public disclosure. Information, records, or other data shall only be considered confidential to the extent that the information or records describe the commercial and financial operations or intellectual property of the taxpayer, the information or records have not been publicly disseminated at any time, and disclosure of the information or records may put the taxpayer at a competitive disadvantage."

SECTION 2. Chapter 209E, Hawaii Revised Statutes, is amended by designating sections 209E-1 through 209E-14 as follows:

"Part I. Enterprise Zones"

SECTION 3. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235‑ Digital media enterprise subzone workforce development tax credit. (a) Any law to the contrary notwithstanding, there shall be allowed to each taxpayer that operates a business that is deemed a qualified animation or visual effects business and located within a digital media enterprise subzone as defined in section 209E-A and 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 tax credit is properly claimed. The amount of the tax credit shall be per cent of the wages paid to animation or visual effects hires who are Hawaii residents.

In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for qualified labor 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 under section 235-110.

(b) The tax credit allowed under this section shall be claimed against the net income tax liability for the taxable year. For the purposes of this section, "net income tax liability" means net income tax liability reduced by all other credits allowed under this chapter and chapter 209E.

(c) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of credits over liability shall be refunded to the taxpayer; provided that no refunds or payment on account of the tax credits allowed by this section shall be made for amounts less than $1. 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) To qualify for this tax credit, a business shall:

(1) Meet the definition of a qualified animation or visual effects business specified in subsection (j);

(2) Have qualified animation or visual effects labor costs totaling at least $200,000;

(3) Provide evidence of reasonable efforts to hire Hawaii residents as animation or visual effects personnel;

(4) Keep accurate records of all animation or visual effects hires who are Hawaii residents whose wages may qualify for the tax credit; and

(5) Require any wages attributable to minimum cost thresholds for which the wage reimbursement tax credit does not apply to have Hawaii income tax withheld; provided that the wage and tax information is subject to verification by the department of taxation.

(e) The director of taxation shall prepare forms as may be necessary to claim a tax 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.

(f) Every taxpayer claiming a tax credit under this section for a qualified animation or visual effects business shall submit, no later than ninety days following the end of each taxable year in which qualified labor costs were expended, a written, sworn statement to the department of business, economic development, and tourism, identifying:

(1) All qualified labor costs as provided by subsection (a), 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 hires working in Hawaii by category (i.e., department) and by county.

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

(1) Maintain records of the names of the taxpayers and qualified animation or visual effects businesses thereof claiming the tax credits under subsection (a);

(2) Obtain and total the aggregate amounts of all qualified labor costs per qualified animation or visual effects business per taxable year; and

(3) Provide a letter to the director of taxation specifying the amount of the tax credit per qualified animation or visual effects business 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 letter to the taxpayer, regarding the qualified animation or visual effects business, specifying the qualified labor costs and the tax credit amount qualified for in each taxable year a tax credit is claimed. The taxpayer for each qualified animation or visual effects business shall file the letter with the taxpayer's tax return for the qualified animation or visual effects business 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.

(h) Total tax credits claimed per qualified production shall not exceed $ in any given tax year.

(i) Qualified animation or visual effects businesses shall comply with subsections (d), (e), (f), and (g).

(j) For the purposes of this section:

"Animation or visual effects" means animation and visual effects created primarily with digital technologies for designing, modeling, rendering, lighting, painting, animating, and composing for qualified productions as that term is defined under section 235-17, but does not include:

(1) Audio effects;

(2) In-camera effects;

(3) Credit rolls;

(4) Subtitles;

(5) Animation or visual effects all or substantially all of which are created by editing activities;

(6) Animation or visual effects for use in promotional material for a production eligible for the tax credit established under section 235-17; or

(7) Activities that are of a scientific or experimental nature.

"Digital media" means production methods and platforms directly related to the creation of cinematic imagery and content, specifically using digital means, including but not limited to digital cameras, digital sound equipment, and computers, to be delivered via film, videotape, interactive game platform, or other digital distribution media (excluding Internet-only distribution).

"Qualified animation or visual effects business" means a business, with expenditures in the State, for the total or partial production of animation or visual effects that are to be used in a feature-length motion picture, short film, made-for-television movie, commercial, music video, interactive game, television series pilot, single season of a television series regularly filmed in the State, television special, single television episode that is not part of a television series regularly filmed or based in the State, national magazine show, or national talk show.

"Qualified labor costs" means the costs incurred by a qualified animation or visual effects business within the State that attributable to wages or salaries paid by the qualified animation or visual effects business to animation or visual effects personnel who are residents of the State of Hawaii, subject to taxation under this chapter, and for whom the qualified animation or visual effects business otherwise incurs tax liability under chapter 383."

SECTION 4. Chapter 431:6, part III, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§431:6- Qualified digital media infrastructure project. If an insurer utilizes the in lieu provisions of section 431:7‑204, an insurer may invest any of its funds that would have been used to pay its tax liability as required under section 431:7-201 to section 431:7-204 in an amount equal to all or any portion of that tax liability in a qualified digital media infrastructure project as defined in section 209E-A."

SECTION 5. Section 431:7-204, Hawaii Revised Statutes, is amended to read as follows:

"§431:7-204 In lieu provision. (a) As to insurers, the taxes and fees imposed by section 431:7-201 to section 431:7-204, and the fees imposed by this code, when paid shall be in settlement of and in lieu of all demands for taxes, licenses, or fees of every character imposed by the laws of this State, the ordinances or other laws, rules, or regulations of any county of this State, except:

(1) As expressly otherwise provided;

(2) Taxes on real property;

(3) Taxes on the purchase, use, or ownership of tangible personal property; and

(4) Taxes on gross income, gross proceeds, gross rental, or gross rental proceeds under chapter 237 or 237D.

Nothing in this section shall be deemed to exempt insurers from liability for withholding taxes payable by their employees and paying the same to the proper collection officers, or from keeping such records, and making such returns and reports, as may be required in the case of other persons enjoying tax exemption.

(b) Notwithstanding subsection (a), for any tax liability owing under section 431:7-201 to section 431:7-204, an insurer may opt to invest an amount equal to all or any portion of that tax liability in a qualified digital media infrastructure project as defined in section 209E-A. Any investment made pursuant to this subsection shall be in lieu of and not in addition to the tax liability owing under section 431:7-201 to section 431:7-204 for the tax year in which the investment is made."

PART II

SECTION 6. Section 201-113, Hawaii Revised Statutes, is amended to read as follows:

"[[]§201-113[]] Hawaii [~~television and film development~~] film office special fund. (a) There is established in the state treasury the Hawaii [~~television and film development~~] film office special fund, into which shall be deposited:

(1) Appropriations by the legislature;

(2) Donations and contributions made by private individuals or organizations for deposit into the fund;

(3) Grants provided by governmental agencies or any other source; and

[~~(4)~~ ~~Any profits or other amounts received from venture capital investments.~~]

(4) Application fees for digital media infrastructure tax credits received under section 209E-C.

[(b) The fund shall be used by the board to assist in, and provide incentives for, the production of eligible Hawaii projects that are in compliance with criteria and standards established by the board in accordance with rules adopted by the board pursuant to chapter 91. In particular, the board shall adopt rules to provide for the implementation of the following programs:

~~(1)~~ A grant program. The board shall adopt rules pursuant to chapter 91 to provide conditions and qualifications for grants. Applications for grants shall be made to the board and shall contain such information as the board shall require by rules adopted pursuant to chapter 91. At a minimum, the applicant shall agree to the following conditions:

~~(A)~~ ~~The grant shall be used exclusively for eligible Hawaii projects;~~

~~(B)~~ ~~The applicant shall have applied for or received all applicable licenses and permits;~~

~~(C)~~ The applicant shall comply with applicable federal and state laws prohibiting discrimination against any person on the basis of race, color, national origin, religion, creed, sex, age, or physical handicap;

~~(D)~~ ~~The applicant shall comply with other requirements as the board may prescribe;~~

~~(E)~~ ~~All activities undertaken with funds received shall comply with all applicable federal, state, and county statutes and ordinances;~~

~~(F)~~ The applicant shall indemnify and save harmless the State of Hawaii and its officers, agents, and employees from and against any and all claims arising out of or resulting from activities carried out or projects undertaken with funds provided hereunder, and procure sufficient insurance to provide this indemnification if requested to do so by the department;

~~(G)~~ The applicant shall make available to the board all records the applicant may have relating to the project, to allow the board to monitor the applicant's compliance with the purpose of this chapter; and

~~(H)~~ ~~The applicant, to the satisfaction of the board, shall establish that sufficient funds are available for the completion of the project for the purpose for which the grant is awarded; and~~

~~(2)~~ A venture capital program. The board shall adopt rules pursuant to chapter 91 to provide conditions and qualifications for venture capital investments in eligible Hawaii projects. The program may include a written agreement between the borrower and the board, as the representative of the State, that as consideration for the venture capital investment made under this part, the borrower shall share any royalties, licenses, titles, rights, or any other monetary benefits that may accrue to the borrower pursuant to terms and conditions established by the board by rule pursuant to chapter 91. Venture capital investments may be made on such terms and conditions as the board shall determine to be reasonable, appropriate, and consistent with the purposes and objectives of this part.

~~(3)~~ ~~Operations of the department's film industry branch.~~]

(b) Moneys in the fund shall be used for the operations of the Hawaii film office, including personnel costs of staff positions existing on November 1, 2009; provided that the use of moneys from the fund for current and future personnel costs shall be limited to those employees performing specialized duties and assigned solely to the Hawaii film office operations."

PART III

SECTION 7. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 8. In codifying the new part added by this Act, the revisor shall designate appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 9. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 10. This Act shall take effect on July 1, 2010; provided that sections 1 through 5 shall be repealed on June 30, 2020, and section 431:7-204, Hawaii Revised Statutes, shall be reenacted in the form in which it read on the day before the effective date of this Act.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2355
TWENTY-FIFTH LEGISLATURE, 2010
STATE OF HAWAII