Bill Text: HI SB318 | 2011 | Regular Session | Amended

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Bill Title: Tax Credits; Film Production; Media Infrastructure; Digital Media Subzones; Hawaii Film Office Special Fund

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Engrossed - Dead) 2011-04-28 - (S) Conference committee meeting to reconvene on 04-29-11 11:30AM in conference room 423. [SB318 Detail]

Download: Hawaii-2011-SB318-Amended.html

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THE SENATE	S.B. NO.	318
TWENTY-SIXTH LEGISLATURE, 2011		S.D. 2
STATE OF HAWAII		H.D. 2

A BILL FOR AN ACT

 

 

RELATING TO BUSINESS DEVELOPMENT IN HAWAII.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 

PART I

     SECTION 1.  The legislature finds that the film industry in Hawaii is an important component of a diversified economy and that its financial impact can be strengthened significantly if existing incentives for the industry are adjusted.

     The legislature also finds that there has been a dramatic increase in the number of state and local governments attempting to attract film productions.  These jurisdictions have experienced dramatic increases in in-state spending and significant growth in workforce and infrastructure development.  More productions in Hawaii would stimulate more direct and indirect tax revenue.

     The legislature further finds that it is desirable to provide tools to the film industry to encourage similar dramatic growth in Hawaii because the film industry:

     (1)  Infuses significant amounts of new money into the economy, which are dispersed across many communities and businesses and which benefit a wide array of residents;

     (2)  Creates skilled, high-paying jobs;

     (3)  Has a natural dynamic synergy with Hawaii's top industry, tourism, and is used as a destination marketing tool for the visitor industry; and

     (4)  Is a clean, nonpolluting industry that values the natural beauty of Hawaii and its diverse multicultural population and wide array of architecture.

     The legislature also finds that the film industry has a strong desire to hire locally and invests in the training and workforce development of island-based personnel.  It is the intent of this part to continue to encourage the film-industry practice of hiring a significant number of residents and to support job training and opportunities for those residents.

     The legislature further finds that it is necessary to enhance existing tax incentive programs that use front-end budgeting methods normally used by the film industry and lower production costs to allow Hawaii to compete with other film production centers in attracting a greater number of significant projects to the islands and to continue to build the State's local film-industry infrastructure.

     The purpose of this part is to encourage the growth of the film industry by providing enhanced incentives to attract more film and television productions to Hawaii, thereby generating increased tax revenues.

     SECTION 2.  Section 235-17, Hawaii Revised Statutes, is amended to read as follows:

     "§235-17  Motion picture, digital media, [and] film production, and media infrastructure project income tax credit[.]; qualified persons crew-training program rebate.  (a)  Any law to the contrary notwithstanding, there shall be allowed to each taxpayer subject to the taxes imposed by this chapter, an income tax credit [which] 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:

     (1)  Fifteen per cent of the qualified production costs incurred by a qualified production in any county of the State with a population of over seven hundred thousand; or

     (2)  Twenty per cent of the qualified production costs incurred by a qualified production in any county of the State with a population of seven hundred thousand or less.

     (b)  In addition to the credit in subsection (a), beginning on July 1, 2011, and ending prior to January 1, 2016, the following credit shall apply:

     (1)        per cent of the qualified costs incurred for a qualified media infrastructure project in any county of the State with a population of over seven hundred thousand; or

     (2)        per cent of the qualified costs incurred for a qualified media infrastructure project in any county of the State with a population of seven hundred thousand or less.

     (c)  The following shall apply to the qualified media infrastructure project tax credit in subsection (b):

     (1)  The base investment for a qualified media infrastructure project shall be in excess of $       ;

     (2)       per cent of the qualified media infrastructure project tax credit shall be funded by the transient accommodations tax allocation of the county in which the qualified media infrastructure project is to be located; provided that the qualified media infrastructure project shall be subject to prior approval by the mayor and council of the county;

     (3)  The qualified media infrastructure project tax credit shall be non-refundable.  The portion of the tax credit that exceeds the tax liability of the taxpayer for the tax year in which the credit was earned may be carried forward to offset net income tax liability in subsequent tax years for a period not to exceed ten taxable years or until exhausted, whichever occurs first.  The director may require the tax credit to be taken in the tax period in which the credit is earned or may structure the tax credit in the initial certification of the project to provide that only a portion of the tax credit shall be taken over the course of two or more years;

     (4)  The total amount of the qualified media infrastructure project tax credit allowed for any state-certified infrastructure project shall not exceed $          ;

     (5)  If all or a portion of an infrastructure project is a facility that may be used for other purposes unrelated to production or post-production activities, then the project shall be approved only if a determination is made that the multiple-use facility will support and will be necessary to secure production or post- production activity for the production and post- production facility and the applicant provides sufficient contractual assurances that the facility will be used as a state-of-the-art production or post- production facility, or as a support and component thereof, for the useful life of the facility.

No tax credits shall be earned on a multiple-use facility until the production or post-production facility is complete;

     (6)  Tax credits for qualified media infrastructure projects shall be earned only as follows:

         (A)  Construction of the infrastructure project shall begin within six months of the initial certification and shall be       per cent completed within a       year time frame;

         (B)  Expenditures shall be certified by the director, and credits shall not be earned until that certification;

         (C)  No tax credit shall be allowed for expenditures made for any infrastructure project after July 1, 2011, unless       per cent of the total base investment provided for in the initial certification of the project has been expended prior to that date; provided that the expenditures may receive a final certification at a later date; and

         (D)  For purposes of allowing tax credits against state income tax liability, the tax credits shall be deemed earned at the time the expenditures are made; provided that all requirements of this subsection have been met and the tax credits have been certified;

     (7)  For state-certified infrastructure projects, the application for a qualified media infrastructure project tax credit shall include:

         (A)  A detailed description of the infrastructure project;

         (B)  A preliminary budget;

         (C)  A complete detailed business plan and market analysis;

         (D)  Estimated start and completion dates;

         (E)  A letter issued by the mayor and council of the county in which the infrastructure project is to be located indicating that the project has been approved; and

         (F)  If the application is incomplete, additional information may be requested prior to further action by the director;

     (8)  An application fee shall be submitted with the application for a qualified media infrastructure project tax credit based on the following:

         (A)         per cent multiplied by the estimated total incentive tax credits; and

         (B)  The minimum application fee shall be $        and the maximum application fee shall be $        ;

     (9)  Prior to any final certification of a tax credit for a state-certified infrastructure project, the applicant for the qualified media infrastructure project tax credit shall submit to the director an audit of the expenditures audited and certified by an independent certified public accountant, as determined by rule.  Upon approval of the audit, the director shall issue a final tax credit certification letter indicating the amount of tax credits certified for the state-certified infrastructure project to the investors.  Bank loan finance fees applicable to the qualified media infrastructure project expenditures, as certified by the director, and any general excise taxes that have been paid on the bank loan finance fees and remitted to the State may be included as part of the tax credit; and

    (10)  A taxpayer who claims a qualified media infrastructure project tax credit for a state-certified infrastructure project shall transmit fifteen per cent of the gross revenues derived from the project or $1,000, whichever is greater, to the department for deposit into the general fund. 

     There shall be a qualified persons crew-training program rebate that shall be equal to       per cent of the hourly wages of each resident participant in a qualified persons crew-training program, and if incurred by a qualified production in any county of the State, shall be reimbursed up to the first       hours physically worked by the qualifying crew member in a specialized craft position.

A qualified production occurring in more than one county may prorate its expenditures based upon the amounts spent in each county, if the population bases differ enough to change the percentage of tax credit.

     In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for qualified production 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 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 of accelerated cost recovery system purposes for state income taxes shall be reduced by the amount of credit allowable and claimed.  Subsections (d) through (k) shall apply only to the production tax credit set forth in subsection (a).

     [(b)] (d)  The [credit] credits allowed under [this section] subsection (a) shall be claimed against the net income tax liability for the taxable year[.] in which the credit is claimed.  For the purposes of this section, "net income tax liability" means net income tax liability reduced by all other credits allowed under this chapter.

     [(c)] (e)  If the production tax credit under [this section] subsection (a) 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] subsection (a) 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)] (f)  To qualify for [this] a tax [credit,] credit under subsection (a), a production shall:

     (1)  Meet the definition of a qualified production [specified in subsection (l)];

     (2)  Have qualified production costs totaling at least [$200,000;] $       ;

     (3)  Provide the State, at a minimum, a shared-card, end-title screen credit, where applicable;

     (4)  Provide evidence of reasonable efforts to hire local talent and crew; and

     (5)  Provide evidence of financial or in-kind contributions or educational or workforce development efforts, in partnership with related local industry labor organizations, educational institutions, or both, toward the furtherance of the local film and television and digital media industries.

     [(e)] (g)  On or after July 1, 2006, no qualified production cost that has been financed by investments for which a credit was claimed by any taxpayer pursuant to section 235‑110.9 is eligible for credits under this section.

     [(f)] (h)  To receive [the] a tax [credit,] credit under subsection (a), the taxpayer shall first prequalify the production for the credit by registering with the department of business, economic development, and tourism during the development or preproduction stage.  Failure to comply with this provision may constitute a waiver of the right to claim the credit.

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

     [(h)] (j)  Every taxpayer claiming a tax credit under [this section] subsection (a) for a qualified production shall, no later than ninety days following the end of each taxable year in which qualified production costs were expended, submit a written, sworn statement to the department of business, economic development, and tourism, identifying:

     (1)  All qualified production 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,] subsection (a), if any, in the previous taxable year; and

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

     [(i)] (k)  The department of business, economic development, and tourism shall:

     (1)  Maintain records of the names of the taxpayers and qualified productions thereof claiming the tax credits under subsection (a);

     (2)  Obtain and total the aggregate amounts of all qualified production costs per qualified production and per qualified production per taxable year; and

     (3)  Provide a letter to the director [of taxation] specifying the amount of the tax credit per qualified production for each taxable year that a tax credit is claimed under subsection (a) 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 production, specifying the qualified production costs and the tax credit amount qualified for in each taxable year a tax credit is claimed.  The taxpayer for each qualified production shall file the letter with the taxpayer's tax return for the qualified production 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.

     [(j)  Total tax credits claimed per qualified production shall not exceed $8,000,000.]

     (l)  Any taxpayer eligible to claim a qualified media infrastructure project tax credit under subsection (b) shall:

     (1)  File an annual progress report with the department of business, economic development, and tourism on a calendar basis, which shall include the following information:

         (A)  Percentage of completion of each qualified media infrastructure project;

         (B)  Amount of moneys expended on, and amount remaining to complete, each qualified media infrastructure project; and

         (C)  Tax and labor clearances;

     (2)  Deliver to the department of business, economic development, and tourism a performance bond in a form prescribed by the department of business, economic development, and tourism by rule, executed by a surety company authorized to do business in this State or otherwise secured in a manner satisfactory to the department of business, economic development, and tourism, in an amount equal to one hundred per cent of total projected expenditures determined upon initial certification;

          and

     (3)  Provide:

         (A)  Pledge of a lien on the qualified media infrastructure project in favor of the State in the amount of $          ; provided that the lien shall expire ten years after completion of the project; or

         (B)  Collateral security in the amount of $          ; provided that the collateral security shall be released five years after completion of the qualified media infrastructure project.

     (m)  Any taxpayer eligible to claim a qualified media infrastructure project tax credit under subsection (b) shall file with the department of business, economic development, and tourism an annual report no later than March 1 following each taxable year for which the credit is claimed.  The report shall include the following information:

     (1)  The amount of general excise tax paid under chapter 237;

     (2)  The amount of transient accommodations tax paid under chapter 237D;

     (3)  The amount of tax credits claimed under this section, as amended by Act 88, Session Laws of Hawaii 2006;

     (4)  Gross proceeds of each project;

     (5)  Number of full-time employees employed on each qualified media infrastructure project;

     (6)  Number of part-time employees employed on each qualified media infrastructure project;

     (7)  Number of independent contractors contracted to work on each qualified media infrastructure project;

     (8)  Amount disbursed as payroll in the State on each qualified media infrastructure project; and

     (9)  List of job classifications with average wage level.

     (n)  Failure to complete a qualified media infrastructure project for which a tax credit is claimed under subsection (b) within five years of initial certification shall result in ineligibility to claim the tax credit.

     [(k)] (o)  Qualified productions shall comply with subsections [(d), (e), (f), and (h).] (f), (g), (h), and (j).

     [(l)] (p)  For the purposes of this section:

     "Base investment" means the costs incurred and financial investment made to operate and sustain a qualified media infrastructure project.

     "Commercial":

     (1)  Means an advertising message that is filmed using film, videotape, or digital media, for dissemination via television broadcast or theatrical distribution;

     (2)  Includes a series of advertising messages if all parts are produced at the same time over the course of six consecutive weeks; and

     (3)  Does not include an advertising message with Internet-only distribution.

     "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).

     "Director" means the director of taxation.

     ["Post production"] "Post-production" means production activities and services conducted after principal photography is completed, including but not limited to editing, film and video transfers, duplication, transcoding, dubbing, subtitling, credits, closed captioning, audio production, special effects (visual and sound), graphics, and animation.

     "Production" means a series of activities that are directly related to the creation of visual and cinematic imagery to be delivered via film, videotape, or digital media and to be sold, distributed, or displayed as entertainment or the advertisement of products for mass public consumption, including but not limited to scripting, casting, set design and construction, transportation, videography, photography, sound recording, interactive game design, and post production.

     "Qualified media infrastructure project" means the development, construction, renovation, or operation of a film, video, television, or media production or post-production facility and the immovable property and equipment related thereto, or any other facility that supports and is a necessary component of the proposed infrastructure project, that is located in the State; provided that the facility may include a movie theater or other commercial exhibition facility to assist in offsetting operating costs of the production or post-production facility, but shall not include a facility used to produce pornographic matter or a pornographic performance.

     "Qualified person" means a person who has been domiciled and filed a resident income tax return in the State for at least the preceding two years.

     "Qualified persons crew-training program" means the development and operation of a training program for job creation in the state with a focus on film, video, television, and digital media production or post-production, with a budget of $           or greater.  Commercials or other short-form formats, with a shooting schedule of less than eighteen days, shall be excluded from participation.

     "Qualified production":

     (1)  Means a production, with expenditures in the State, for the total or partial production of a feature-length motion picture, short film, made-for-television movie, commercial, music video, interactive game, television series pilot, single season (up to twenty-two episodes) of a television series regularly filmed in the State (if the number of episodes per single season exceeds twenty-two, additional episodes for the same season shall constitute a separate qualified production), 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.  For the purposes of [subsections (d) and (j),] subsection (f), each of the aforementioned qualified production categories shall constitute separate, individual qualified productions; and

     (2)  Does not include: [daily]

         (A)  Daily news; [public]

         (B)  Public affairs programs; [non-national]

         (C)  Non-national magazine or talk shows; [televised]

         (D)  Televised sporting events or activities; [productions]

         (E)  Productions that solicit funds; [productions]

         (F)  Productions produced primarily for industrial, corporate, institutional, or other private purposes; and [productions]

         (G)  Productions that include any material or performance prohibited by chapter 712.

     "Qualified production costs" means the costs incurred by a qualified production 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 pursuant to section 235‑110.9.  Qualified production costs include but are not limited to:

     (1)  Costs incurred during preproduction such as location scouting and related services;

     (2)  Costs of set construction and operations, purchases or rentals of wardrobe, props, accessories, food, office supplies, transportation, equipment, and related services;

     (3)  Wages or salaries of cast, crew, and musicians;

     (4)  Costs of photography, sound synchronization, lighting, and related services;

     (5)  Costs of editing, visual effects, music, other post-production, and related services;

     (6)  Rentals and fees for use of local facilities and locations;

     (7)  Rentals of vehicles and lodging for cast and crew;

     (8)  Airfare for flights to or from Hawaii, and interisland flights;

     (9)  Insurance and bonding;

    (10)  Shipping of equipment and supplies to or from Hawaii, and interisland shipments; [and]

    (11)  Costs for equipment or items not readily obtainable in the State that are passed through a qualified resident vendor and upon which a mark-up and general excise tax are paid; and

   [(11)] (12)  Other direct production costs specified by the department in consultation with the department of business, economic development, and tourism."

PART II

     SECTION 3.  The purpose of this part is to leverage the unique opportunities for digital media industry development in Hawaii resulting from the groundbreaking of the long-awaited University of Hawaii-West Oahu campus in Kapolei and recent high-profile film projects in Hawaii, including the Pirates of the Caribbean in 2010.

     The University of Hawaii-West Oahu campus will house the academy for creative media's student digital media production facility that will provide world-caliber student facilities to anchor the premier media school of the Pacific Rim.  The facility will also include a state-of-the-art motion picture and digital media studio complex to serve film and video production (with four sound stages, two production support buildings, a mill/shop extension and extra stage, commissary/kitchen, festival pavilion and screening room to host events and conferences, back-lot retail/shopping/dining area, and office buildings that may provide incubator space for new media companies).  The University of Hawaii-West Oahu campus will also house the Henry Ku‘ualoha Giugni Digital Archives, which is designed to preserve, digitize, and provide the moving image history of Hawaii on the Internet.

     The digital media tax incentive in this part is designed to align the strengths of the University of Hawaii system and its multiple campuses with the creativity of the University of Hawaii academy for creative media graduates and the talented media workforce from leeward Oahu emerging from the Waianae Seariders' program since 1998, and from the schools and businesses that the Seariders have helped to incubate.  By requiring beneficiaries of the digital media production infrastructure tax credit to locate in enterprise zones in which some of the University of Hawaii campuses are located, the tax credit targets new media industry development, educational public-private facility and infrastructure development, and job creation with a focus on measurable economic benefits over time.

     The current and proposed University of Hawaii-West Oahu campuses are located in an existing enterprise zone covering most of the Kapolei region.  Leeward community college and Honolulu community college are also located within existing enterprise zones.  Neighbor island community college campuses on Maui, Kauai, and Hawaii are in enterprise zones, as is the University of Hawaii at Hilo.

     SECTION 4.  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" has 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, that is within an existing 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 from July 1, 2011, to June 30, 2013, 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 post-production 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 post-production facility, but shall not include a facility used to produce pornographic matter or a pornographic performance.

     §209E-B  Digital media production infrastructure tax credit; certification program.  (a)  There shall be allowed to each taxpayer qualifying for a tax credit under this part and subject to the taxes imposed under chapter 235, a digital media production infrastructure 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       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.  A taxpayer who claims a tax credit for a qualified digital media infrastructure project shall transmit fifteen per cent of the gross revenues derived from the project or $1,000, whichever is greater, to the department of taxation for deposit into the general fund.

     (b)  No more than $           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 post-production activities, the project shall be eligible for the tax credit only if the department determines that the facility will support and be necessary to secure production or post-production activity; provided that the taxpayer agrees to both of the following:

     (1)  The facility will be used as a state-of-the-art production or post-production facility or as support and as a 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)  A taxpayer shall be eligible for certification by the department to qualify for a tax credit if 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, 2012, expends 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, 2012, expends 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 (i);

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

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

     (e)  If the tax credit allowed under this section exceeds the amount of taxes owed by the taxpayer, that portion of the tax credit that exceeds the tax liability of the taxpayer for the taxable year shall not be refunded but may be carried forward to offset net income tax liability under chapter 235 in subsequent taxable years for a period not to exceed ten taxable years or until exhausted, whichever occurs first.

     (f)  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 of taxation.  A taxpayer claiming a tax credit under this section shall submit 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.

     (g)  To qualify for the tax credit established under this section, the taxpayer shall submit an application to enter into an agreement with 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.  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 this section 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 this section.

     (h)  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 this section, 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 post-production facilities in this State.

     (i)  The taxpayer shall submit a request to the department for an investment expenditure certificate on a form prescribed by the department, along with any information or independent certification 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 (g)(1);

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

     (6)  Any independent certification required by the department.

     (j)  In addition to the $100 application fee established under subsection (g), 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 be 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.

     (k)  If at the close of any taxable year:

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

     (2)  The qualified digital media infrastructure project or an interest in the qualified 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 this section shall be recaptured.  The recapture shall be equal to ninety per cent of the amount of the total tax credit claimed under this section in the preceding five taxable years.  The amount of the tax credit recaptured shall apply only to the investment in the particular qualified digital media infrastructure project that meets the conditions 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.

     (l)  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.

     (m)  A taxpayer who wilfully submits information under this section that the taxpayer knows to be fraudulent or false, in addition to any other penalties provided by law, shall be 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."

     SECTION 5.  Chapter 209E, Hawaii Revised Statutes, is amended by designating sections 209E-1 through 209E-14 as follows:

"PART I.  ENTERPRISE ZONES"

     SECTION 6.  Chapter 431, Hawaii Revised Statutes, is amended by adding a new section to part II of article 7 to be appropriately designated and to read as follows:

     "§431:7‑    Digital media production infrastructure tax credit.  The digital media production infrastructure tax credit provided under section 209E-B shall apply to this article on July 1, 2011."

PART III

     SECTION 7.  Section 201-111, Hawaii Revised Statutes, is amended by amending the definitions of "board" and "fund" to read as follows:

     ""Board" means the Hawaii [television and film development] film office board.

     "Fund" means the Hawaii [television and film development] film office special fund."

     SECTION 8.  Section 201-112, Hawaii Revised Statutes, is amended by amending the title and subsection (a) to read as follows:

     "[[]§201-112[]]  Hawaii [television and film development] film office board.  (a)  There is established the Hawaii [television and film development] film office board.  The board shall be attached to the department of business, economic development, and tourism for administrative purposes only.  The board shall administer [the grant and venture capital investment programs and] the Hawaii [television and film development] film office special fund established under this part.  The board shall also assess and consider the overall viability and development of the television and film industries and make recommendations to appropriate state or county agencies."

PART IV

     SECTION 9.  Chapter 201, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§201-    Hawaii film office special fund.  (a)  There is established in the state treasury the Hawaii 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.

     (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 hold 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 pursuant to this section, 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."

     SECTION 10.  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)  Rent from usage of the Hawaii film studio operated by the Hawaii film office;

     (3)  Fees collected by the department of business, economic development, and tourism for processing taxpayer letters pursuant to section 235-17 and the tax credit certification program pursuant to section 209E-B;

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

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

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

     (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].

     (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 the fund for personnel costs shall be limited to those employees performing specialized duties who are assigned solely to the Hawaii film office."

PART V

     SECTION 11.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

     SECTION 12.  In codifying the new sections added by section 4 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

     SECTION 13.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 14.  This Act shall take effect on July 1, 2050; provided that:

     (1)  Sections 4, 5, 6, and 10 shall be repealed on June 30, 2021; and

     (2)  Section 9 shall take effect on July 1, 2021.

 

Report Title:

Tax Credits; Film Production; Media Infrastructure; Digital Media Subzones; Hawaii Film Office Special Fund

 

Description:

Provides a tax credit for qualified media infrastructure projects.  Establishes a qualified persons crew-training program rebate.  Establishes digital media enterprise subzones as unspecified geographic areas surrounding University of Hawaii campuses that are also designated as enterprise zones. Establishes tax benefits for digital media infrastructure development and operation.  Effective July 1, 2050.  (SB318 HD2)

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.