RELATING TO TAXATION.

SB2796

THE SENATE

S.B. NO.

2796

THIRTY-THIRD LEGISLATURE, 2026

STATE OF HAWAII

A BILL FOR AN ACT

relating
to taxation
.

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

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SECTION
1
.
�
Section 235-17, Hawaii Revised Statutes, is
amended by amending subsection (o) to read as follows:

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"(o)
�

For the purposes of this section:

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"Commercial":

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(1)
�
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)
�
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)
�
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)
�
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 (l), each of the aforementioned qualified production
categories shall constitute separate, individual qualified productions; and

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(2)
�
Does not include:

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(A)
�
News;

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(B)
�
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)
�
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.
�
Qualified production costs
include but are not limited to:

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

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(2)
�
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)
�
Wages or salaries of cast, crew, and
musicians;

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

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(5)
�
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".
�
"
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
2
.
�
Section 237-13, Hawaii Revised Statutes, is
amended to read as follows:

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"
�237-13
�

Imposition of tax.
�
There is hereby levied and shall be assessed
and collected annually privilege taxes against persons on account of their
business and other activities in the State measured by the application of rates
against values of products, gross proceeds of sales, or gross income, whichever
is specified, as follows:

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(1)
�
Tax on manufacturers.

���������
(A)
�
Upon every person engaging or
continuing within the State in the business of manufacturing, including
compounding, canning, preserving, packing, printing, publishing,
production
as defined in section 235-17,
milling, processing, refining, or preparing
for sale, profit, or commercial use, either directly or through the activity of
others, in whole or in part, any article or articles, substance or substances,
commodity or commodities, the amount of the tax to be equal to the value of the
articles, substances, or commodities, manufactured, compounded, canned,
preserved, packed, printed, milled, processed, refined, or prepared for sale,
as shown by the gross proceeds derived from the sale thereof by the
manufacturer or person compounding, preparing, or printing them, multiplied by
one-half of one per cent.

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(B)
�
The
measure of the tax on manufacturers is the value of the entire product for
sale.

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(2)
�
Tax on business of selling tangible
personal property; producing.

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(A)
�
Upon
every person engaging or continuing in the business of selling any tangible
personal property whatsoever, there is likewise hereby levied, and shall be
assessed and collected, a tax equivalent to four per cent of the gross proceeds
of sales of the business; provided that, in the case of a wholesaler, the tax
shall be equal to one-half of one per cent of the gross proceeds of sales of
the business; and provided further that insofar as the sale of tangible
personal property is a wholesale sale under section 237-4(a)(8), the tax shall
be one-half of one per cent of the gross proceeds.
�
Upon every person engaging or continuing
within this State in the business of a producer, the tax shall be equal to
one-half of one per cent of the gross proceeds of sales of the business, or the
value of the products, for sale.

���������
(B)
�
Gross proceeds of sales of tangible
property in interstate and foreign commerce shall constitute a part of the
measure of the tax imposed on persons in the business of selling tangible
personal property, to the extent, under the conditions, and in accordance with
the provisions of the Constitution of the United States and the Acts of the
Congress of the United States which may be now in force or may be hereafter
adopted, and whenever there occurs in the State an activity to which, under the
Constitution and Acts of Congress, there may be attributed gross proceeds of
sales, the gross proceeds shall be so attributed.

���������
(C)
�
No
manufacturer or producer, engaged in such business in the State and selling the
manufacturer's or producer's products for delivery outside of the State (for
example, consigned to a mainland purchaser via common carrier f.o.b. Honolulu),
shall be required to pay the tax imposed in this chapter for the privilege of
so selling the products, and the value or gross proceeds of sales of the
products shall be included only in determining the measure of the tax imposed
upon the manufacturer or producer.

���������
(D)
�
A
manufacturer or producer, engaged in such business in the State, shall pay the
tax imposed in this chapter for the privilege of selling its products in the
State, and the value or gross proceeds of sales of the products, thus subjected
to tax, may be deducted insofar as duplicated as to the same products by the
measure of the tax upon the manufacturer or producer for the privilege of
manufacturing or producing in the State; provided that no producer of
agricultural products who sells the products to a purchaser who will process
the products outside the State shall be required to pay the tax imposed in this
chapter for the privilege of producing or selling those products.

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(E)
�
A
taxpayer selling to a federal cost-plus contractor may make the election
provided for by paragraph (3)(C), and in that case the tax shall be computed
pursuant to the election, notwithstanding this paragraph or paragraph (1) to
the contrary.

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(F)
�
The
department, by rule, may require that a seller take from the purchaser of
tangible personal property a certificate, in a form prescribed by the
department, certifying that the sale is a sale at wholesale; provided that:

��������������
(i)
�
Any purchaser who furnishes a
certificate shall be obligated to pay to the seller, upon demand, the amount of
the additional tax that is imposed upon the seller whenever the sale in fact is
not at wholesale; and

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(ii)
�
The absence of a certificate in itself shall give rise to the
presumption that the sale is not at wholesale unless the sales of the business
are exclusively at wholesale.

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(3)
�
Tax upon contractors.

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(A)
�
Upon every person engaging or
continuing within the State in the business of contracting, the tax shall be
equal to four per cent of the gross income of the business.

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(B)
�
In
computing the tax levied under this paragraph, there shall be deducted from the
gross income of the taxpayer so much thereof as has been included in the
measure of the tax levied under subparagraph (A), on
another taxpayer
who is a contractor, as defined in section 237-6; provided that any person
claiming a deduction under this paragraph shall be required to show in the
person's return the name and general excise number of the person paying the tax
on the amount deducted by the person.

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(C)
�
In
computing the tax levied under this paragraph against any federal cost-plus
contractor, there shall be excluded from the gross income of the contractor so
much thereof as fulfills the following requirements:

��������������
(i)
�
The gross income exempted shall constitute reimbursement of costs
incurred for materials, plant, or equipment purchased from a taxpayer licensed
under this chapter, not exceeding the gross proceeds of sale of the taxpayer on
account of the transaction; and

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(ii)
�
The taxpayer making the sale shall have certified to the department
that the taxpayer is taxable with respect to the gross proceeds of the sale,
and that the taxpayer elects to have the tax on gross income computed the same
as upon a sale to the state government.

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(D)
�
A
person who, as a business or as a part of a business in which the person is
engaged, erects, constructs, or improves any building or structure, of any kind
or description, or makes, constructs, or improves any road, street, sidewalk,
sewer, or water system, or other improvements on land held by the person
(whether held as a leasehold, fee simple, or otherwise), upon the sale or other
disposition of the land or improvements, even if the work was not done pursuant
to a contract, shall be liable to the same tax as if engaged in the business of
contracting, unless the person shows that at the time the person was engaged in
making the improvements the person intended, and for the period of at least one
year after completion of the building, structure, or other improvements the
person continued to intend to hold and not sell or otherwise dispose of the
land or improvements.
�
The tax in respect
of the improvements shall be measured by the amount of the proceeds of the sale
or other disposition that is attributable to the erection, construction, or
improvement of such building or structure, or the making, constructing, or
improving of the road, street, sidewalk, sewer, or water system, or other
improvements.
�
The measure of tax in
respect of the improvements shall not exceed the amount which would have been
taxable had the work been performed by another, subject as in other cases to
the deductions allowed by subparagraph (B).
�

Upon the election of the taxpayer, this paragraph may be applied
notwithstanding that the improvements were not made by the taxpayer, or were
not made as a business or as a part of a business, or were made with the
intention of holding the same.
�
However,
this paragraph shall not apply in respect of any proceeds that constitute or
are in the nature of rent, which shall be taxable under paragraph (9); provided
that insofar as the business of renting or leasing real property under a lease
is taxed under section 237-16.5, the tax shall be levied by section 237-16.5.

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(4)
�
Tax upon theaters, amusements, radio
broadcasting stations, etc.

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(A)
�
Upon every person engaging or
continuing within the State in the business of operating a theater, opera
house, moving picture show, vaudeville, amusement park, dance hall, skating
rink, radio broadcasting station, or any other place at which amusements are
offered to the public, the tax shall be equal to four per cent of the gross
income of the business, and in the case of a sale of an amusement at wholesale
under section 237‑4(a)(13), the tax shall be one-half of one per cent of
the gross income.

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(B)
�
The
department may require that the person rendering an amusement at wholesale take
from the licensed seller a certificate, in a form prescribed by the department,
certifying that the sale is a sale at wholesale; provided that:

��������������
(i)
�
Any licensed seller who furnishes a
certificate shall be obligated to pay to the person rendering the amusement,
upon demand, the amount of additional tax that is imposed upon the seller
whenever the sale is not at wholesale; and

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(ii)
�
The absence of a certificate in itself shall give rise to the
presumption that the sale is not at wholesale unless the person rendering the
sale is exclusively rendering the amusement at wholesale.

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(5)
�
Tax
upon sales representatives, etc.
�
Upon
every person classified as a representative or purchasing agent under section
237-1, engaging or continuing within the State in the business of performing
services for another, other than as an employee, there is likewise hereby
levied and shall be assessed and collected a tax equal to four per cent of the
commissions and other compensation attributable to the services so rendered by
the person.

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(6)
�
Tax
on service business.

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(A)
�
Upon every person engaging or
continuing within the State in any service business or calling including
professional services not otherwise specifically taxed under this chapter,
there is likewise hereby levied and shall be assessed and collected a tax equal
to four per cent of the gross income of the business, and in the case of a
wholesaler under section 237-4(a)(10), the tax shall be equal to one-half of
one per cent of the gross income of the business.

���������
(B)
�
The
department may require that the person rendering a service at wholesale take
from the licensed seller a certificate, in a form prescribed by the department,
certifying that the sale is a sale at wholesale; provided that:

��������������
(i)
�
Any licensed seller who furnishes a
certificate shall be obligated to pay to the person rendering the service, upon
demand, the amount of additional tax that is imposed upon the seller whenever
the sale is not at wholesale; and

�������������
(ii)
�
The absence of a certificate in itself shall give rise to the
presumption that the sale is not at wholesale unless the person rendering the
sale is exclusively rendering services at wholesale.

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(C)
�
Where
any person is engaged in the business of selling interstate or foreign common
carrier telecommunication services within and without the State, other than as
a home service provider, the tax shall be imposed on that portion of gross
income received by a person from service which is originated or terminated in
this State and is charged to a telephone number, customer, or account in this
State notwithstanding any other state law (except for the exemption under
section 237-23(a)(1)) to the contrary.
�
If,
under the Constitution and laws of the United States, the entire gross income
as determined under this paragraph of a business selling interstate or foreign
common carrier telecommunication services cannot be included in the measure of
the tax, the gross income shall be apportioned as provided in section 237-21;
provided that the apportionment factor and formula shall be the same for all
persons providing those services in the State.

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(D)
�
Where
any person is engaged in the business of a home service provider, the tax shall
be imposed on the gross income received or derived from providing interstate or
foreign mobile telecommunications services to a customer with a place of
primary use in this State when the services originate in one state and
terminate in another state, territory, or foreign country; provided that all
charges for mobile telecommunications services which are billed by or for the
home service provider are deemed to be provided by the home service provider at
the customer's place of primary use, regardless of where the mobile
telecommunications originate, terminate, or pass through; provided further that
the income from charges specifically derived from interstate or foreign mobile
telecommunications services, as determined by books and records that are kept
in the regular course of business by the home service provider in accordance
with section 239-24, shall be apportioned under any apportionment factor or
formula adopted under subparagraph (C).
�

Gross income shall not include:

��������������
(i)
�
Gross receipts from mobile
telecommunications services provided to a customer with a place of primary use
outside this State;

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(ii)
�
Gross receipts from mobile telecommunications services that are
subject to the tax imposed by chapter 239;

������������
(iii)
�
Gross receipts from mobile telecommunications services taxed under
section 237-13.8; and

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(iv)
�
Gross receipts of a home service provider acting as a serving
carrier providing mobile telecommunications services to another home service
provider's customer.

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For
the purposes of this paragraph, "charges for mobile telecommunications
services", "customer", "home service provider", "mobile
telecommunications services", "place of primary use", and "serving
carrier" have the same meaning as in section 239-22.

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(7)
�
Tax on insurance producers.
�
Upon every person engaged as a licensed
producer pursuant to chapter 431, there is hereby levied and shall be assessed
and collected a tax equal to 0.15 per cent of the commissions due to that
activity.

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(8)
�
Tax
on receipts of sugar benefit payments.
�

Upon the amounts received from the United States government by any
producer of sugar (or the producer's legal representative or heirs), as defined
under and by virtue of the Sugar Act of 1948, as amended, or other Acts of the
Congress of the United States relating thereto, there is hereby levied a tax of
one-half of one per cent of the gross amount received; provided that the tax
levied hereunder on any amount so received and actually disbursed to another by
a producer in the form of a benefit payment shall be paid by the person or
persons to whom the amount is actually disbursed, and the producer actually
making a benefit payment to another shall be entitled to claim on the producer's
return a deduction from the gross amount taxable hereunder in the sum of the
amount so disbursed.
�
The amounts taxed
under this paragraph shall not be taxable under any other paragraph,
subsection, or section of this chapter.

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(9)
�
Tax
on other business.
�
Upon every person
engaging or continuing within the State in any business, trade, activity,
occupation, or calling not included in the preceding paragraphs or any other
provisions of this chapter, there is likewise hereby levied and shall be
assessed and collected, a tax equal to four per cent of the gross income
thereof.
�
In addition, the rate
prescribed by this paragraph shall apply to a business taxable under one or
more of the preceding paragraphs or other provisions of this chapter, as to any
gross income thereof not taxed thereunder as gross income or gross proceeds of
sales or by taxing an equivalent value of products, unless specifically
exempted.
"

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SECTION
3
.
�
Section 237-24.75, Hawaii Revised Statutes,
is amended to read as follows:

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"
�237-24.75
�
Additional exemptions.
�
In addition to the amounts exempt under
section 237-24, this chapter shall not apply to:

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(1)
�
Amounts
received as a beverage container deposit collected under chapter 342G, part
VIII;

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(2)
�
Amounts
received by the operator of the Hawaii convention center for reimbursement of
costs or advances made pursuant to a contract with the Hawaii tourism authority
under section 201B-7; [
and
]

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(3)
�
Amounts
received by a professional employer organization that is registered with the
department of labor and industrial relations pursuant to chapter 373L,
from a client company equal to amounts that are disbursed by the professional
employer organization for employee wages, salaries, payroll taxes, insurance
premiums, and benefits, including retirement, vacation, sick leave, health
benefits, and similar employment benefits with respect to covered employees at
a client company; provided that this exemption shall not apply to amounts
received by a professional employer organization after:

���������
(A)
�
Notification
from the department of labor and industrial relations that the professional
employer organization has not fulfilled or maintained the registration
requirements under this chapter; or

���������
(B)
�
A
determination by the department that the professional employer organization has
failed to pay any tax withholding for covered employees or any federal or state
taxes for which the professional employer organization is responsible.

���������
As used in this paragraph,
"professional employer organization", "client company", and
"covered employee" shall have the meanings provided in section 373L-1[
.
]
;
and

����
(4)
�
Amounts received by a motion picture project employer
from a client company equal to amounts that are disbursed by the motion picture
project employer for
employee wages, salaries, payroll taxes,
insurance premiums, and benefits, including retirement, vacation, sick leave,
health benefits, and similar employment benefits with respect to motion picture
project workers at a client company and for payments to loan-out companies.

��������������
As used in this paragraph,
"motion picture project employer" and "motion picture project
worker" have the same meanings as in section 3512 of the Internal Revenue
Code of 1986, as amended.
"

����
SECTION 4.
�

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

����
SECTION 5.
�

This Act shall take effect upon its approval; provided that:

����
(1)
�
Section
1 shall apply to taxable years beginning after December 31, 2026; and

����
(2) Sections 2 and 3 shall take effect on
January 1, 2027.

INTRODUCED BY:

_____________________________

Report Title:

Income
Tax; Motion Picture, Digital Media, and Film Production Income Tax Credit;
General Excise Tax; Partial Exemption for Motion Picture Project Employers

Description:

Imposes
the manufacturing general excise tax rate on motion picture, digital media, and
film productions and repeals the provision in the definition of "qualified
production costs" that applied the term to mean costs incurred that are
subject to the highest general excise tax rate.
�

Exempts from the general excise tax amounts received by a motion picture
project employer from a client company equal to amounts that are disbursed by
the motion picture project employer for employee wages, salaries, payroll
taxes, insurance premiums, and employment benefits and payments to loan-out
companies.

The summary description
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not legislation or evidence of legislative intent.