Report Title:

Taxes; investment tax credits

Description:

Establishes a program which allows the state to buy back tax credits from qualified high technology businesses (QHTB) at a deeply discounted rate of 20 percent of the face value of the credits distributed over 5 years. Requires performing arts QHTB that transfer tax credits back to the State to contribute 0.5 percent of their aggregate qualified investments per year to the Hawaii television and film development special fund. (HB2421 HD1)

HOUSE OF REPRESENTATIVES

H.B. NO.

2421

TWENTY-THIRD LEGISLATURE, 2006

H.D. 1

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO performing arts businesses.

 

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

SECTION 1. The legislature finds that Hawaii's film, television, and digital media industry is fledgling, but holds much promise for the economic and cultural future of the State. It is a crucial point for the industry, as the industry is currently on the verge of growing immensely and further investments would allow it to flourish. Without the State's support, the industry and its workforce will remain in limbo and continue to have an uncertain future. As many other states and foreign countries have already done in recent years, the legislature finds that the State can play a vital role in stimulating the growth of this potential film and digital media industry, allowing it to become a self-sustaining and dependable provider of steady, highly skilled, highly paid, and twenty-first-century jobs for Hawaii's residents.

The purpose of this Act is to grow the performing arts businesses in our state by creating a program which allows the State to purchase high technology business investment tax credits from performing arts qualified high technology businesses at a discount. Such a program would limit the exposure of state funds with respect to certain performing arts qualified high technology businesses, while at the same time enhancing the economic benefits the credits were designed to bring.

While performing arts qualified high technology businesses would still have the option of raising investment and maximizing credit claims, the option to transfer credits back to the State is an attractive alternative because it is direct, guaranteed, hassle-free, and a better deal for the qualified high technology businesses and the State.

Currently, only about ten to fifteen per cent of investment dollars are going back to the performing arts qualified high technology businesses in the form of investment tax credits, with the majority of the credits going to investors. A state buy-back program ensures that credits go back to the performing arts qualified high technology businesses they were meant to stimulate, thereby directly benefiting them. By redirecting the way credits are issued, the State can reap higher economic benefits (stimulating more productions) at likely lower costs.

The program would also help to redirect a higher percentage of local investment dollars toward smaller, independent performing arts qualified high technology businesses and other types of qualified high technology businesses whose ability to remain in business relies greatly on investment dollars stimulated by the credit.

This Act also requires a production partaking of the buy-back program to contribute one half of one per cent of its aggregate qualified investments to the Hawaii television and film development special fund, for the purpose of directly funding local projects which further the development of the local film and television industry.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Transferability of the high technology business investment tax credit. (a) Any taxpayer entitled to a tax credit under section 235-110.9 based on an investment in a performing arts qualified high technology business may elect to treat the credit as earned by the performing arts qualified high technology business. The election shall be made for all of the credit earned over the five-year period provided in section 235-110.9. The election shall be filed with the tax return for the performing arts qualified high technology business and the taxpayer's tax return for the taxable year that the taxpayer made the investment.

(b) Any performing arts qualified high technology business for which an election under subsection (a) has been made may transfer the tax credit provided in section 235-110.9 to the department of taxation for twenty per cent of the face value of the credit earned and paid over five years pursuant to the pay-out schedule established in section 235-110.9; provided that the maximum allowed credits per taxpayer set forth by section 235-110.9 shall not apply to credits transferred pursuant to this section.

(c) To qualify to transfer the tax credit to the department of taxation as provided in subsection (b):

(1) All taxpayers who have made an investment in the performing arts qualified high technology business during the taxable year of the qualified high technology business shall elect to treat the credit as earned by the performing arts qualified high technology business; and

(2) The performing arts qualified high technology business shall transfer all of the credit that it is treated as earning to the department of taxation.

(d) Any performing arts qualified high technology business or related entity that has transferred any credit to the department of taxation pursuant to subsection (b) in a given taxable year shall also sell or waive the motion picture and film production income tax credit set forth in section 235-17 and the capital goods excise tax credit set forth in section 235-110.7 in that same taxable year in the manner provided in subsection (b).

(e) Prior to making an election under subsection (a), the performing arts qualified high technology business shall apply to the director of taxation for approval of the election. The director of taxation shall approve all qualifying elections to transfer credits under this section in the order that the requests for approval are received by the director of taxation; provided that the director of taxation shall only approve qualifying elections to transfer credits under this section for the first $25,000,000 in the aggregate paid to all performing arts qualified high technology businesses making elections under this section in any year. In any year in which the department of taxation approves the transfer of less than $25,000,000 in the aggregate to all performing arts qualified high technology businesses, the excess revenue may be carried over and applied to subsequent years.

(f) This section shall not apply to any investments that are part of a transaction, or series of transactions, structured to avoid the purposes of this section so that a production could use both this section, and section 235-110.7, 235-110.9, or 235-17.

(g) To qualify to transfer tax credits to the department of taxation pursuant to subsection (b), a performing arts qualified high technology business shall contribute one half of one per cent of its aggregate qualified investments to the Hawaii television and film development special fund set forth in section 201-113.

(h) Every performing arts qualified high technology

business, on or before March 31 of each year in which credits are to be transferred for the previous taxable year, shall submit the following to the department of business, economic development, and tourism:

(1) A check for the contribution to the Hawaii television and film development special fund, equal to one half of one per cent of its aggregate qualified investments in the previous taxable year, pursuant to subsection (g);

(2) The total amount of qualified research costs per project per taxable year; and

(3) The number of total hires versus the number of local hires by category, such as department, and by county, per project, per taxable year.

(i) For purposes of this section:

"Aggregate qualified investments" means qualified investments earned over the five-year period in section 235-110.9.

"Performing arts products" means the same as defined in section 235-7.3.

"Performing arts qualified high technology business" means a qualified high technology business whose "qualified research" consists solely of "performing arts products."

"Qualified high technology business" means the same as

defined in section 235-110.9.

"Qualified investment" means investments that qualify for tax credits under section 235-110.9.

"Qualified research" means the same as defined in section 235-7.3."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2006.