Haw. Code R. § 18-235-17-10
Example 1: ABC Airlines is a commercial airline that flies from Los Angeles, California to Honolulu, Hawaii. ABC Airlines has business operations in the State; however, it also has business operations in other jurisdictions. ABC Airlines is subject to Hawaii income tax on an apportioned basis. J3T Productions contracts with ABC Airlines to transport its cast and crew from Los Angeles, California to Honolulu, Hawaii to shoot a motion picture. Although the cost of roundtrip airfare on ABC Airlines is not subject to general excise tax, it is a qualified production cost for purposes of the credit under section 235-17, HRS, because ABC Airlines is subject to Hawaii income tax.
Example 2: 123 Catering, a Hawaii limited liability company, is a vendor to local productions for catering services. 123 Catering is engaged in business in the State and is therefore subject to general excise tax. J3T Productions contracts with 123 Catering to provide plate lunches to its cast and crew for a production taking place in the State. The cost of catering services provided by 123 Catering to J3T Productions is a qualified production cost for purposes of the credit under section 235-17, HRS, because the amount paid to 123 Catering is subject to general excise tax at the highest rate. J3T Productions must submit 123 Catering's general excise tax license number as part of the production report required under section 18-235-17-03(b).
Example 3: J3T Productions, a California-based production company doing business in the State, ships filming equipment from California to the State to produce a commercial. J3T Productions contracts with two shipping companies: SlugShip, a same-day air travel parcel shipping company, to ship copies of the scripts, contracts, and costumes; and BugShip, a freight forwarder, to ship cameras, set materials, rigging, and other large objects. Both shipping companies have a presence in the State, as well as on the mainland, and are subject to Hawaii income tax on an apportioned basis and general excise tax. The shipping costs incurred from both SlugShip and BugShip are qualified production costs on an apportioned basis to the extent that those amounts are subject to Hawaii income or general excise taxes.
Example 4: Gus Grip, a resident of California, is hired as an employee by J3T Productions to help film a movie in the State. Under state law, the wages of Gus Grip earned in the State are subject to Hawaii income tax under section 235-4(b), HRS, and section 18-235-4-03. Gus Grip's wages, to the extent earned in the State, are a qualified production cost.
Example 5: Sam Staff, a resident of California, is a full-time employee of J3T Productions working out of J3T's California headquarters. J3T sends Sam Staff to work in the State temporarily. Sam Staffs wages that are earned while working in the State are a qualified production cost because the wages are subject to Hawaii income tax.
Example 6: Molly Makeup is hired as an employee by J3T Productions to perform for the filming of a movie in the State. J3T Productions also agrees to rent Molly Makeup's kit box from her for $1,000 per month. Molly Makeup's wages are qualified production costs because they are subject to Hawaii income tax to the extent they are earned in the State. The $1,000 per month paid to Molly Makeup for the rental of her kit box is a qualified production cost because it is subject to general excise tax at the highest rate. J3T Productions must submit Molly Makeup's general excise tax license number as part of the production report required under section 18-235-17-03(b).
Example 7: Assume the same facts as Example 6, except that J3T Productions treats the $1,000 per month to rent Molly Makeup's kit box as additional wages to Molly Makeup and the amount is reported on Molly Makeup's Form W-2. The $1,000 per month paid to Molly Makeup for the rental of her kit box is a qualified production cost because it is subject to Hawaii income tax to the extent it is earned in the State.
Example 8: Lenny Loaner, a resident of California, agrees to film a movie in the State for J3T Productions through the contracting of Lenny Loaner's loan-out company. J3T Productions pays fees to Lenny Loaner's loan-out company for services provided in the State that represent wages or salary for Lenny Loaner. The amounts paid to Lenny Loaner's loan-out company are qualified production costs to the extent that they are subject to general excise tax at the highest rate. J3T Productions must submit Lenny Loaner's general excise tax license number as part of the production report required under section 18-235-17-03(b).
Example 9: J3T Productions is filming on location at a church, owned by an Internal Revenue Code section 501(c)(3) tax-exempt religious organization the exempt purpose of which is to advance religious practices of its congregation. J3T Productions pays the church $1,000 in rent for the use of the church facility for one day of shooting. The rent's primary purpose is the production of income, even if the rental income is later used for the church's exempt purposes. The $1,000 rent payment is subject to general excise tax at the highest rate and therefore qualifies as a qualified production cost. J3T Productions must submit the church's general excise tax license number as part of the production report required under section 18-235-17-03(b).
Example 1: Gus Grip, a resident of California, is hired by EFG Productions as an employee to film a movie in the State. EFG Productions pays Gus Grip wages and gives Gus Grip a per diem allowance that is subject to Hawaii income tax while working in the State. The amounts paid as per diem are qualified production costs to the extent that Gus Grip is subject to Hawaii income tax on the amounts received.
Example 2: Assume the same facts as Example 1, except EFG Productions gives Gus Grip a per diem allowance that is not subject to Hawaii income tax. The per diem that Gus Grip receives is not a qualified production cost because it is not subject to Hawaii income tax.
Example 3: George Grip, a resident of California, is hired by EFG Productions as an independent contractor to film a movie in the State for a month. EFG Productions pays George Grip $100,000 to perform services and $30,000 per diem. George Grip's income and per diem are qualified production costs because the $130,000 is subject to general excise tax at the highest rate. EFG Productions must submit George Grip's general excise tax license number as part of the production report required under section 18-235-17-03(b).
Example: XYZ Productions produced the feature film Papaya Dancing I in 2015 and filmed its sequel Papaya Dancing II in 2019. The main actor in both films is Richie Royal. During 2019, when Papaya Dancing II was being filmed, XYZ Productions pays Richie Royal residual income from Papaya Dancing I. The residual income paid to Richie Royal shall not be claimed as a qualified production cost of Papaya Dancing II because the residual income paid arises from Papaya Dancing I and is not incurred specifically for the production of Papaya Dancing II.
Haw. Code R. § 18-235-17-10