In this space, I often have unflattering things to say about tax credits. Every year, legislators propose tax credits for some little-noticed niche in an industry. Sometimes the credit is well thought through, and sometimes it isn’t. Sometimes the desired effect can be accomplished more cheaply and simply, and sometimes the justification for the credit is sketchy at best.
For example, I never knew what “preceptors” in the health care industry were (they’re working professionals that provide on-site clinical education and nurture students’ professional development) until bills were introduced in the 2018 session proposing to give them tax credits. “This is all well and good,” I said, “but the amounts are pretty small so why doesn’t the State just write them a check instead of burdening the tax system, which is already complicated enough?” (The credits became law anyway.)
One example of a credit that has some meat in its justification claims is the Motion Picture, Digital Media and Film production tax credit. The Hawaii Film Office in DBEDT reported earlier this year that in calendar year 2016, 35 productions spent almost $200 million in qualified expenditures and received about $44 million in Hawaii tax credits in exchange. DBEDT’s Research and Economic Analysis Division translated those figures as indicating $344 million in generated economic activity and almost $80 million in Hawaii household income.
The following year, 48 productions registered for the credit, with estimated qualified expenditures north of $268 million in exchange for $55 million in tax credits. According to the Film Office, the estimated total 2017 spending for those productions, qualified expenses or not, was expected to be $320 million, the largest production year in our history since 2010.
In addition, productions that get tax credits in Hawaii are required to make an “education or workforce development contribution” to the community. This could include cash contributions or in-kind resources such as internships, professional training workshops, or donations of equipment.
This year, “Hawaii Five-O” will begin its ninth season here, “Magnum, P.I.” is back, and we’ve wrapped production on “Jurassic World: Fallen Kingdom,” Marvel’s “Inhumans,” and “Jumanji: Welcome to the Jungle.” Many of these productions are in themselves advertisements for visiting the islands that have provided the lush tropical backdrop for the movie scenes.
In short, this program is on a roll.
Effective January 1, 2019, Act 143 of 2018 changes the credit program in several respects. A per-production credit cap will be replaced with a statewide $35 million cap, which worries some folks in the industry and in government. Lawmakers have been continuing to tinker with the credit program by floating mandates such as a cultural sensitivity requirement; a requirement to be compliant with ALL federal, state, and county rules and regulations; and adding hiring criteria. Efforts to make the credit fiscally responsible have included a per-production cap and an overall statewide cap on the credit.
Lawmakers certainly have their hands full trying to strike a delicate balance between what the industry needs, what the community wants, and what we can afford in lost revenue. Stakeholders should continue to be engaged in the continued evolution of this credit.
Tom Yamachika is the President of the Tax Foundation of Hawaii, a private, nonprofit educational organization dedicated to informing the taxpaying public about the finances of our state and local governments in Hawaii. Tom is also a tax attorney in solo practice and has been since early 2013. Prior to 2013, he was with the accounting firm Accuity LLP, which was formed in 2006 from the Honolulu office of Coopers & Lybrand (which later became PricewaterhouseCoopers). Before that, he served as an Administrative Rules Specialist in the State of Hawaii Department of Taxation from 1994 to 1996, where he drafted rules, interpretive releases, and legislation on several different state taxes. Prior to that, he practiced litigation and tax law with Cades Schutte Fleming & Wright in Honolulu.
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