Hawaii Administrative Rules › Title 18 - DEPARTMENT OF TAXATION › Chapter 235 - INCOME TAX LAW › Subchapter 1 - GENERAL PROVISIONS › Section 18-235-17-12 - Qualified production costs; imported goods, services, or contracting subject to the use tax; claim for products or services acquired outside of this State

Current through June, 2024
(a) In order to
				avoid constitutionally infringing upon out-of-state taxpayers, and to
				complement the general excise tax as an overall excise tax regime, there is
				imposed in the State a tax on the use in the State of tangible personal
				property, services, and contracting imported into the State under Hawaii use
				tax law, codified at chapter
				238,
				HRS.
(b) Importation of goods,
				services, or contracting into the State from a seller that is not engaged in
				business in the State, for use in the State, is subject to chapter
				238,
				HRS, capturing the general excise tax equivalent. Because chapter
				238,
				HRS, is a substitute for Hawaii general excise tax, production costs incurred
				by a qualified production in the State that would otherwise qualify as
				qualified production costs if subject to the general excise tax at the highest
				rate, are considered "qualified production costs" under section
				235-17(m),
				HRS, and section 18-235-17-10; provided that the production costs are subject
				to use tax at the highest rate.
Example:
Steve Screenwriter, a resident of
				  California with no physical presence in the State, is an author and screenplay
				  writer. EFG Productions, a Hawaii limited liability company, intends to shoot a
				  movie in the State. Steve Screenwriter sells his screenplay to EFG Productions
				  for $99,999. Assuming that Steve Screenwriter has no other Hawaii sourced
				  business income and is therefore not engaged in business in the State, the cost
				  of Steve Screenwriter's screenplay is subject to use tax. The amount paid to
				  Steve Screenwriter is a qualified production cost provided that it is subject
				  to use tax at the highest rate, the cost is incurred in the calendar year for
				  which EFG Productions is claiming the credit, and EFG Productions is able to
				  substantiate the payment of the use tax due as required by section
				  18-235-17-03(b)(6).
(c)
				This section shall not apply to any costs incurred by a qualified production
				and paid to a seller that is engaged in business in the State and therefore
				subject to general excise tax.
(d)
				Section
				235-17(d)(5),
				HRS, requires that a production provide to the department of business, economic
				development, and tourism evidence that reasonable efforts were unsuccessful to
				secure and use comparable products or services within the State when making any
				claim for products or services acquired outside of the State. To satisfy
				section
				235-17(d)(5),
				HRS, the department of business, economic development, and tourism may accept
				from a taxpayer a sworn statement, under the penalties set forth in section
				231-36,
				HRS, that reasonable efforts to secure and use products and services within the
				State were unsuccessful.