Haw. Code R. § 18-235-17-09

Current through September, 2024

Section 18-235-17-09 - Prorating qualified production costs between counties in Hawaii; airfare and shipping costs

(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.

Haw. Code R. § 18-235-17-09

[Eff 11/17/2019] (Auth: HRS § 231-3(9)) (Imp: HRS § 235-17)