RELATING TO INCOME TAX CREDITS.

HB882

HOUSE OF REPRESENTATIVES

H.B. NO.

882

THIRTY-THIRD LEGISLATURE, 2025

STATE OF HAWAII

A BILL FOR AN ACT

Relating
to income tax credits
.

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

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SECTION 1.
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The legislature finds that the film industry
in Hawaii is an important component of a diversified economy.
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The legislature also finds that the existing
income tax credit is not reflective of the current volume of business of the
State's film industry.
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Additionally,
other jurisdictions are becoming more friendly and fiscally enticing for motion
picture, digital media, and film production decision makers.

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Hawaii can look to the recent
success in Georgia, where its exemplar film tax credit provided $8.55 billion
in economic impact in 2022.
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Georgia's
film tax credit currently has a return on investment of $6.30 per every $1
issued as a tax credit.
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Georgia's tax
incentive was the most important factor in attracting production companies into
the state and influencing their decision to film in the state.
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Further, Georgia's tax credit created almost
sixty thousand jobs within the state in 2022.

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The purpose of this Act is to
stimulate the motion picture, digital media, and film production industry in
Hawaii and incentivize hiring Hawaii residents by amending the amount of total
income tax credits available and providing the State with alternative marketing
opportunities in lieu of a shared-card, end-title screen credit.

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

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"
�235-17
�
Motion picture, digital
media, and film production income tax credit.
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[
Repeal
and reenactment on January 1, 2033.
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L
2022, c 217,
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4.
]
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(a)
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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.
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The amount of the credit shall be:

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(1)
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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
]

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(2)
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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[
.
]
;
or

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(3)
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Thirty per cent
of the qualified production costs incurred by a qualified production in any
county of the State if twenty-five per cent of talent and crew paid for
services performed relating to the qualified production are individuals
residing in Hawaii.

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.

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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.
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The cost upon which the tax credit is
computed shall be determined at the entity level.
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Distribution and share of credit shall be
determined by rule.

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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.

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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.

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

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(c)
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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.
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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.
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Failure to comply with any
of the foregoing provision shall constitute a waiver of the right to claim the
credit.

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(d)
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To qualify for this tax credit, a production shall:

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(1)
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Meet the
definition of a qualified production specified in subsection (o);

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(2)
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Have qualified
production costs totaling at least $100,000;

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(3)
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Provide the State
a qualified Hawaii promotion, which shall be [
at
]
:

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(A)
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At

minimum, a shared-card, end-title screen credit, where applicable;
or

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(B)
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Alternative
marketing opportunities, approves by the department of business, economic
development, and tourism, that offer equal or greater promotional value to the
State than the shared-card, end-title screen credit;

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

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(5)
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Provide evidence
when making any claim for products or services acquired or rendered outside of
this State that reasonable efforts were unsuccessful to secure and use
comparable products or services within this State;

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(6)
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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;

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(7)
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Be compliant with
all applicable requirements under title 14, including tax return filing and
payments; and

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(8)
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Provide complete
responses to the department of taxation's inquiries and document requests, in
the form prescribed by the department, no later than ninety days from the
inquiry or request.

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(e)
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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.

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(f)
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To receive the tax credit, 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.

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(g)
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The director of taxation shall prepare forms as may be necessary to
claim a credit under this section.
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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.

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(h)
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Every taxpayer claiming a tax credit under this section 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 that
identifies:

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(1)
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All qualified
production costs as provided by subsection (a), if any, incurred in the
previous taxable year;

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(2)
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The amount of tax
credits claimed pursuant to this section, if any, in the previous taxable year;
and

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

This information may be reported from the department
of business, economic development, and tourism to the legislature pursuant to
subsection (i)(4).

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

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

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

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(3)
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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 and the
cumulative amount of the tax credit for all years claimed; and

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(4)
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Submit a report to
the legislature no later than twenty days prior to the convening of each
regular session detailing [
the
]
:

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(A)
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The

non-aggregated qualified production costs that form the basis of the tax credit
claims and expenditures, itemized by taxpayer, in a redacted format to preserve
the confidentiality and that shall include the dollar amount claimed, name of
company, and name of the qualified production of the taxpayers claiming the
credit[
.
]
; and

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(B)
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The
marketing opportunities the department of business, economic development, and
tourism has approved under subsection (d)(3)(B), including:

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(i)
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The
goals and strategy justifying each of those approved marketing opportunities;
and

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(ii)
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The
names of all production companies who opted to include a shared-cared,
end-title screen credit in their final production instead of offering the State
an alternative marketing proposal.

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(j)
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Upon each determination required under subsection (i), 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; provided that the department of business, economic
development, and tourism shall issue the letter to the taxpayer no later than
seven months after receipt of the taxpayer's statement under subsection
(h).
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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.
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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.

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(k)
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Each taxpayer claiming a tax credit under this section shall s
ubmit
to the department of business, economic development, and tourism a fee for the
motion picture, digital media, and film production income tax credit in an
amount equal to 0.2 per cent of the tax credit claimed by the qualified
production no later than the deadline stated in subsection (c).
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The department of business, economic
development, and tourism may prescribe the form and method by which this fee is
remitted, including through electronic means.
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The fees collected under this subsection shall be deposited into the
Hawaii film and creative industries development special fund under section
201-113.

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(l)
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Total tax credits claimed per qualified production shall not exceed [
$17,000,000
]

$25,000,000
.

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(m)
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Qualified productions shall comply with subsections (d), (e), (f), (h),
and (k).

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(n)
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The total amount of tax credits allowed under this section in any
particular year shall be [
$50,000,000
]
$100,000,000
; however, if
the total amount of credits applied for in any particular year exceeds the
aggregate amount of credits allowed for that year under this section, the
excess shall be treated as having been applied for in the subsequent year and
shall be claimed in the subsequent year; provided that no excess shall be
allowed to be claimed after December 31, 2032.

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(o)
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For the purposes of this section:

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"Commercial":

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

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

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

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"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.

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"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.

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"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.

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"Qualified production":

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(1)
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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.
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For the
purposes of subsections (d) and (l), each of the aforementioned qualified
production categories shall constitute separate, individual qualified
productions; and

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(2)
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Does not include:

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(A)
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News;

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(B)
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Public affairs
programs;

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(C)
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Non-national
magazine or talk shows;

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(D)
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Televised sporting
events or activities;

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(E)
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Productions that
solicit funds;

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

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

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"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 at the highest
rate of tax or income tax under this chapter if the costs are not subject to
general excise tax and that have not been financed by any investments for which
a credit was or will be claimed pursuant to section 235-110.9.
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Qualified production costs include but are
not limited to:

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

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

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

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

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

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(6)
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Rentals and fees
for use of local facilities and locations, including rentals and fees for use
of state and county facilities and locations that are not subject to general
excise tax under chapter 237 or income tax under this chapter;

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

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

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(9)
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Insurance and
bonding;

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

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(11)
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Other direct
production costs specified by the department in consultation with the
department of business, economic development, and tourism;

provided that any government-imposed fines,
penalties, or interest that are incurred by a qualified production within the
State shall not be "qualified production costs".
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"
Qualified
production costs
"
does not include any
costs funded by any grant, forgivable loan, or other amounts not included in
gross income for purposes of this chapter.
"

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SECTION 3.
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Statutory material to be repealed is
bracketed and stricken.
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New statutory
material is underscored.

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SECTION 4.
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This Act
, upon its approval, shall apply to taxable years beginning
after December 31, 2025.

INTRODUCED BY:

_____________________________

Report Title:

Film Industry
Tax Credit
; Economic Diversification; Media

Description:

Amends

the amount of total income tax credits available.
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Increases the annual per production and
aggregate caps.
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Provides the State with
alternative marketing opportunities in lieu of a shared-card, end-title screen
credit.

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