HB1373 HD2

SECTION 1. The legislature finds that the Hawaii film and television industry has continued to grow over the past twenty years due to state tax incentives and the resulting increase in the number of feature film, television series, and commercial productions filming in Hawaii, which has directly contributed to the increase in the number of trained local crew members as well as service and equipment vendors.

The legislature further finds that the existing motion picture, digital media, and film production income tax credit, which currently provides a twenty-two or twenty-seven per cent refundable tax credit for Hawaii-based film and television projects, has attracted a number of blockbuster feature films and long-running television series to the State. This tax incentive is ideally suited for large, studio-funded projects that search locations across the globe to find ones that meet both their artistic and financial requirements.

The legislature also finds that the tax credit claiming process is both expensive and time-consuming. Voluminous reports are required, department of taxation rules relating to the tax credit are confusing and cumbersome, and it can take more than two years to receive the tax credit. While these issues do not deter large-budget projects, the burden on smaller-budget projects is substantial.

The legislature additionally finds that smaller projects, with total budgets around $5,000,000 and wages around $2,000,000, generally rely more heavily on local crew members since the cost of hiring a nonresident crew member can exceed $2,000 per week in additional costs. Some smaller projects may also attempt to pay crew members as independent contractors in order to save money. That practice does not meet federal and state labor laws, subjects local crew members to potentially uninsured injury claims, and results in a reduction in state tax and unemployment insurance collections.

Accordingly, the purpose of this Act is to address these issues and encourage the growth of local independent film and television productions by requiring the department of business, economic development, and tourism to administer a workforce development incentive rebate program that incentivizes local independent film and television productions.

SECTION 2. Chapter 201, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§201- Workforce development incentive; rebate program. (a) The department shall administer a workforce development incentive rebate program that incentivizes local independent film and television productions.

(b) Beginning January 1, 2024, each eligible employer shall receive a rebate equal to per cent of all Hawaii W-2 wages paid for the filming of film, television, commercial, and print projects, which shall be capped at $ per employee, per project; provided that no eligible employer shall receive more than $ in total rebates.

(c) To receive a rebate under this section, an eligible employer shall submit project information, a cost report, a payroll report, and the department of taxation statement of Hawaii income tax withheld and wages paid (form HW‑2), or an equivalent document showing all Hawaii W-2 wages paid, to the department quarterly or after completion of the project.

(d) An eligible employer shall receive the rebate within thirty days of submitting the documentation required under subsection (c).

(e) An eligible employer who claims a rebate under this section shall not be eligible for the motion picture, digital media, and film production income tax credit under section 235‑17 for the same project.

(f) Rebates issued pursuant to this section shall not be subject to income tax or general excise tax.

(g) For the purposes of this section, "eligible employer" means a common law employer that:

(1) Hires one or more employees;

(2) Is registered to do business in the State;

(3) Obtains a general excise license number; and

(4) Has production insurance."

SECTION 3. Section 235-17, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(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 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) Twenty-two 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-seven 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.

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.

Any taxpayer who claims a tax credit under this section shall not be eligible for a workforce development incentive rebate under section 201- for the same project.

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."

SECTION 4. This Act shall take effect on June 30, 3000; provided that:

(1) Section 3 shall apply to taxable years beginning after December 31, 2022; and

(2) The amendments made to section 235-17, Hawaii Revised Statutes, by section 3 of this Act shall not be repealed when that section is reenacted on January 1, 2033, pursuant to section 4 of Act 88, Session Laws of Hawaii 2006, as amended by Act 89, Session Laws of Hawaii 2013, as amended by Act 143, Session Laws of Hawaii 2017, as amended by Act 217, Session Laws of Hawaii 2022.

HOUSE OF REPRESENTATIVES	H.B. NO.	1373
THIRTY-SECOND LEGISLATURE, 2023		H.D. 2
STATE OF HAWAII