Hawaii Administrative Rules › Title 18 - DEPARTMENT OF TAXATION › Chapter 235 - INCOME TAX LAW › Subchapter 1 - GENERAL PROVISIONS › Section 18-235-17-10 - Qualified production costs; generally

Current through June, 2024
(a) Qualified
				production costs are production costs that are directly attributable to and
				incurred by a qualified production in the State that are subject to the:
(1) General excise tax at the highest rate
				under chapter
				237, HRS, if the payee is engaged in
				business in the State; or
(2)
				Income tax under chapter 235, HRS, if the costs are not subject to tax under
				chapters
				237 and chapter 238, HRS.
Example 1:
ABC Airlines is a commercial airline
				  that flies from Los Angeles, California to Honolulu, Hawaii. ABC Airlines has
				  business operations in the State; however, it also has business operations in
				  other jurisdictions. ABC Airlines is subject to Hawaii income tax on an
				  apportioned basis. J3T Productions contracts with ABC Airlines to transport its
				  cast and crew from Los Angeles, California to Honolulu, Hawaii to shoot a
				  motion picture. Although the cost of roundtrip airfare on ABC Airlines is not
				  subject to general excise tax, it is a qualified production cost for purposes
				  of the credit under section
				  235-17,
				  HRS, because ABC Airlines is subject to Hawaii income tax.
Example 2:
123 Catering, a Hawaii limited
				  liability company, is a vendor to local productions for catering services. 123
				  Catering is engaged in business in the State and is therefore subject to
				  general excise tax. J3T Productions contracts with 123 Catering to provide
				  plate lunches to its cast and crew for a production taking place in the State.
				  The cost of catering services provided by 123 Catering to J3T Productions is a
				  qualified production cost for purposes of the credit under section
				  235-17,
				  HRS, because the amount paid to 123 Catering is subject to general excise tax
				  at the highest rate. J3T Productions must submit 123 Catering's general excise
				  tax license number as part of the production report required under section
				  18-235-17-03(b).
Example 3:
J3T Productions, a California-based
				  production company doing business in the State, ships filming equipment from
				  California to the State to produce a commercial. J3T Productions contracts with
				  two shipping companies: SlugShip, a same-day air travel parcel shipping
				  company, to ship copies of the scripts, contracts, and costumes; and BugShip, a
				  freight forwarder, to ship cameras, set materials, rigging, and other large
				  objects. Both shipping companies have a presence in the State, as well as on
				  the mainland, and are subject to Hawaii income tax on an apportioned basis and
				  general excise tax. The shipping costs incurred from both SlugShip and BugShip
				  are qualified production costs on an apportioned basis to the extent that those
				  amounts are subject to Hawaii income or general excise taxes.
Example 4:
Gus Grip, a resident of California,
				  is hired as an employee by J3T Productions to help film a movie in the State.
				  Under state law, the wages of Gus Grip earned in the State are subject to
				  Hawaii income tax under section
				  235-4(b),
				  HRS, and section 18-235-4-03. Gus Grip's wages, to the extent earned in the
				  State, are a qualified production cost.
Example 5:
Sam Staff, a resident of California,
				  is a full-time employee of J3T Productions working out of J3T's California
				  headquarters. J3T sends Sam Staff to work in the State temporarily. Sam Staffs
				  wages that are earned while working in the State are a qualified production
				  cost because the wages are subject to Hawaii income tax.
Example 6:
Molly Makeup is hired as an employee
				  by J3T Productions to perform for the filming of a movie in the State. J3T
				  Productions also agrees to rent Molly Makeup's kit box from her for $1,000 per
				  month. Molly Makeup's wages are qualified production costs because they are
				  subject to Hawaii income tax to the extent they are earned in the State. The
				  $1,000 per month paid to Molly Makeup for the rental of her kit box is a
				  qualified production cost because it is subject to general excise tax at the
				  highest rate. J3T Productions must submit Molly Makeup's general excise tax
				  license number as part of the production report required under section
				  18-235-17-03(b).
Example 7:
Assume the same facts as Example 6,
				  except that J3T Productions treats the $1,000 per month to rent Molly Makeup's
				  kit box as additional wages to Molly Makeup and the amount is reported on Molly
				  Makeup's Form W-2. The $1,000 per month paid to Molly Makeup for the rental of
				  her kit box is a qualified production cost because it is subject to Hawaii
				  income tax to the extent it is earned in the State.
Example 8:
Lenny Loaner, a resident of
				  California, agrees to film a movie in the State for J3T Productions through the
				  contracting of Lenny Loaner's loan-out company. J3T Productions pays fees to
				  Lenny Loaner's loan-out company for services provided in the State that
				  represent wages or salary for Lenny Loaner. The amounts paid to Lenny Loaner's
				  loan-out company are qualified production costs to the extent that they are
				  subject to general excise tax at the highest rate. J3T Productions must submit
				  Lenny Loaner's general excise tax license number as part of the production
				  report required under section 18-235-17-03(b).
Example 9:
J3T Productions is filming on
				  location at a church, owned by an Internal Revenue Code section 501(c)(3)
				  tax-exempt religious organization the exempt purpose of which is to advance
				  religious practices of its congregation. J3T Productions pays the church $1,000
				  in rent for the use of the church facility for one day of shooting. The rent's
				  primary purpose is the production of income, even if the rental income is later
				  used for the church's exempt purposes. The $1,000 rent payment is subject to
				  general excise tax at the highest rate and therefore qualifies as a qualified
				  production cost. J3T Productions must submit the church's general excise tax
				  license number as part of the production report required under section
				  18-235-17-03(b).