Hawaii Administrative Rules › Title 18 - DEPARTMENT OF TAXATION › Chapter 235 - INCOME TAX LAW › Subchapter 1 - GENERAL PROVISIONS › Section 18-235-17-09 - Prorating qualified production costs between counties in Hawaii; airfare and shipping costs

Current through June, 2024
(a) Section
				235-17(a),
				HRS, provides that a taxpayer claiming the credit may prorate its qualified
				production costs based upon the amount spent in each county if the population
				bases differ enough to change the percentage of tax credit. Qualified
				production costs cannot be prorated between other states or countries and the
				State.
(b) Proration is not
				necessary if costs are incurred solely in counties with a population of seven
				hundred thousand or less. The county where the goods or services are consumed
				determines where the cost is incurred for the purposes of this tax
				credit.
(c) Qualified production
				costs may be prorated amongst the counties by any reasonable method, taking
				into account the specific facts and circumstances in any particular case.
Example 1:
J3T Productions rents a camera from
				  Oahu Camera Company located in Honolulu county, for use on its movie set
				  located in both Honolulu county and Kauai county. Oahu Camera Company is
				  headquartered in Honolulu county and has no business operations in Kauai
				  county. Use of the camera was divided among the counties accordingly:
				  one-fourth of the use occurred in Honolulu county; three-fourths of the use
				  occurred in Kauai county. The cost of the camera rental may be prorated between
				  the counties based upon the equipment's use in each county because the
				  respective county populations entitle J3T Productions to different tax credit
				  rates. One-fourth of the cost (the use in Honolulu county) qualifies for the
				  credit at the twenty per cent rate. Three-fourths of the cost (the use in Kauai
				  county) qualifies for the credit at the twenty-five per cent rate. Time spent
				  in transit while transporting or shipping the camera will not be taken into
				  account in calculating use for purposes of this example.
Example 2:
Assume the same facts in Example 1,
				  except that the cost of the camera rental, which includes the shipping cost, is
				  paid for in Honolulu county and all use of the camera occurs in Kauai county.
				  There is no prorating issue raised by this example because all use of the
				  camera occurred in Kauai county. Therefore, the entire cost of the camera
				  rental qualifies for the credit at the twenty-five per cent rate.
(d) The department will not
				challenge the prorating of a qualified production cost for airfare, shipping,
				or other costs of a similar nature where two counties equally impact said cost;
				provided that to qualify for this safe harbor, the taxpayer must:
(1) Divide the total cost in half;
(2) Apply the twenty per cent tax credit rate
				to one-half of the cost;
(3) Apply
				the twenty-five per cent tax credit rate to the other half of the cost;
				and
(4) Claim the credit for the
				prorated qualified production cost in the amount of the sum of the twenty per
				cent rate product and the twenty-five per cent rate product.
Example 1:
J3T Productions purchases airfare to
				  transport talent and crew from Honolulu to Kailua-Kona on the Island of Hawaii.
				  Production activities occurred on both islands. Honolulu and Hawaii counties
				  have disparate county populations with the former having a population of
				  greater than seven hundred thousand and the latter having a population of less
				  than seven hundred thousand. The cost of the total airfare is $1,000. To
				  qualify for the safe harbor provided by section 18-235-17-09(d), J3T
				  Productions must divide the total fare ($1,000) in half ($500 and $500). Then,
				  J3T Productions must take the tax credit at the twenty per cent rate for half
				  of the cost ($500 x 20% = $ 100), and take the credit at the twenty-five per
				  cent rate for the other half of the cost ($500 x 25% = $125). J3T Productions'
				  total credit properly allocable for the airfare is $225.
Example 2:
Assume the same facts in Example 1,
				  except that the cost is to transport talent and crew from Los Angeles to
				  Kailua-Kona for a production occurring only in Hawaii county. The prorating
				  safe harbor and this section do not apply to this example. The amount of credit
				  for airfare costs to the State will be determined solely by the destination
				  county. Based upon the facts in this example, the total cost of airfare to
				  transport talent and crew to Kailua-Kona will qualify for the credit at the
				  twenty-five per cent rate.