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US Production Incentives Special Alert: Hawaii

Hawaii amends Motion Picture, Digital Media, and Film Production Income Tax Credit
November 1, 2022
 EP WIDE-Production Incentives Special Alert-Hawaii

On June 29, 2022, Hawaii Governor David Ige signed HB 1982 into law (Act 217, SLH 2022) HB1982 CD1 (hawaii.gov) amending the motion picture, digital media and film production income tax credit.

Significantly, Section 237(a) of HB 1982 now requires every person making a payment to a loan-out company and claiming a tax credit to deduct and withhold an amount equal to the highest rate of tax plus any applicable county surcharge for all payments made to the loan-out company for services performed in the state. The amounts withheld under this section are deemed to be a general excise tax withholding for the benefit of the loan-out company performing the service. Every company subject to section (a) shall file a return with the Hawaii Department of Taxation and remit the withheld tax with the return. The Department of Tax is required to prescribe the forms and procedures to administer this withholding but has not done so to date.

EP payroll entities in Hawaii make payments to loan out entities under EP’s own FEIN and therefore act as the payor; however, our production company clients instructing EP to make the payment to the loan-out entity claim the tax credit. Hence, under the language of HB 1982, neither the production company claiming the credit nor the payroll services company making the loan-out payment is required to withhold. Because EP expects its production company clients to request it to withhold the excise tax from these loan out payments, EP is seeking clarification from the Department of Tax regarding the process by which EP can withhold the excise tax on loan out payments (even though EP is not the tax credit claimant) and allow our clients to receive the tax credit related to the loan out payment. We will update you after we have discussed this matter with the Department of Tax.

As noted in previous announcements, the following changes will also be implemented as of January 1, 2023:

  • The base credit will increase from 20% to 22% (and 27% on qualified expenditures made on the outer islands)
  • The minimum spend is lowered from $200K to $100K
  • The per project cap increases from $15M to $17M
  • The sunset date is extended to December 31, 2032
  • A 0.2% fee on the value of the tax credit

Section 235-17(d), sub-sections 7-8 also amend the motion picture tax credit law by adding new and significant tax credit filing requirements that production companies should be mindful of:

“Failure to comply with any of the foregoing provision shall constitute a waiver of the right to claim the credit.

(d) To qualify for this tax credit, a production shall: (7) Be compliant with all applicable requirements under title 14, including tax return filing and payments; and (8) Provide complete responses to the department of taxation’s inquiries and document requests, in the form prescribed by the department, no later than ninety days from the inquiry or request.”

If you have any questions, please reach out to us as Incentives@ep.com.

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