Hawaii Film Blog

Tuesday, August 23, 2005

Act 221 = $108M So Far

The Honolulu Advertiser's Sean Hao reported today that since the inception of Act 221 three years ago, a total of $108.8 million in 100% high-tech investment tax credits have been claimed. The amount claimed per year has grown from $24M in 2002, to $35M in 2003, to $49M in 2004. This is due in part to the nature of Act 221 (sometimes referred to as Act 215) credit disbursement--credits are doled out to taxpayer-investors over a five-year period, starting with the initial year of investment--and simply to more people finding out about Act 221.

Hao says that because the identities of Act 221 companies are kept confidential and the state has no job creation statistics, it is difficult to determine whether the tax credit is indeed generating significant economic activity. On the one hand, reports Hao, there is evidence of high-tech growth in Hawaii, with companies like Hawaii Biotech, Hoku Scientific, and Hoana Medical. On the other hand, some have griped that Act 221 is too generous, too secretive, and in some cases, creates only temporary movie industry jobs.

Though Act 221 is called the "High Technology Business Investment Tax Credit," film and television productions also qualify for the credits, much to the chagrin of truly "high-tech" companies and fiscally conservative pundits who think this opens up Act 221 to potential abuse.

The 15-20% refundable tax credit bill that didn't make it out of the Legislature earlier this year would have significantly mitigated this problem by forcing film and TV producers to choose either the former or the latter credit, but not both. Producers would almost certainly have always opted for the 15-20% credit given the cumbersome and uncertain claims process for Act 221 credits (having to hire lawyers, accountants, brokers, and in many cases, form LLCs and pound out equity/credit sharing agreements, plus hunt and peck for local investors), not to mention the credit dilution that is virtually inherent in LLC agreements between non-Hawaii producers and Hawaii investors. That is, the local investors--many of whom have nothing to do with film, like insurance companies, banks, wealthy individuals, and other such entities with large state tax liabilities--often ask for a 2:1 credit share, meaning if they invest $1M, they expect to get $2M back, thereby diluting the credit amount that goes back to the production company. Some have estimated this diluted amount to be...15-20% of production expenditures.

Well, duh, the production co's could've gotten that amount from a straight 15-20% refundable tax credit direct from the state without having to go through a maze of lawyers, accountants, investors, and LLC agreements, and without requiring the state give out the remainder of the Act 221 credits (the other 80-85%) to wealthy Hawaii taxpayer-investors that have nothing to do with film and simply want to use some way, any way, to reduce their tax burdens.

>> Technology credits total more than $108 million [Hnl Advertiser, 8/23/05]
>> What's the payoff for all those tax credits? [Hnl Advertiser Editorial, 8/24/05]

>> From Your Mouth to the Legislature's Ears
>> Numerology: 221, 215, 235-110.9
>> "Widespread Support"
>> Elegy for Film Bills and Mahalo
>> R.I.P. 2005 Film Bills
>> What's the Difference?: Film Bills Demystified

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