Hawaii Administrative Rules
Title 18 - DEPARTMENT OF TAXATION
Chapter 235 - INCOME TAX LAW
Subchapter 1 - GENERAL PROVISIONS
Section 18-235-17-12 - Qualified production costs; imported goods, services, or contracting subject to the use tax; claim for products or services acquired outside of this State

(a) In order to avoid constitutionally infringing upon out-of-state taxpayers, and to complement the general excise tax as an overall excise tax regime, there is imposed in the State a tax on the use in the State of tangible personal property, services, and contracting imported into the State under Hawaii use tax law, codified at chapter 238, HRS.

(b) Importation of goods, services, or contracting into the State from a seller that is not engaged in business in the State, for use in the State, is subject to chapter 238, HRS, capturing the general excise tax equivalent. Because chapter 238, HRS, is a substitute for Hawaii general excise tax, production costs incurred by a qualified production in the State that would otherwise qualify as qualified production costs if subject to the general excise tax at the highest rate, are considered "qualified production costs" under section 235-17(m), HRS, and section 18-235-17-10; provided that the production costs are subject to use tax at the highest rate.

Example: Steve Screenwriter, a resident of California with no physical presence in the State, is an author and screenplay writer. EFG Productions, a Hawaii limited liability company, intends to shoot a movie in the State. Steve Screenwriter sells his screenplay to EFG Productions for $99,999. Assuming that Steve Screenwriter has no other Hawaii sourced business income and is therefore not engaged in business in the State, the cost of Steve Screenwriter's screenplay is subject to use tax. The amount paid to Steve Screenwriter is a qualified production cost provided that it is subject to use tax at the highest rate, the cost is incurred in the calendar year for which EFG Productions is claiming the credit, and EFG Productions is able to substantiate the payment of the use tax due as required by section 18-235-17-03(b)(6).

(c) This section shall not apply to any costs incurred by a qualified production and paid to a seller that is engaged in business in the State and therefore subject to general excise tax.

(d) Section 235-17(d)(5), HRS, requires that a production provide to the department of business, economic development, and tourism evidence that reasonable efforts were unsuccessful to secure and use comparable products or services within the State when making any claim for products or services acquired outside of the State. To satisfy section 235-17(d)(5), HRS, the department of business, economic development, and tourism may accept from a taxpayer a sworn statement, under the penalties set forth in section 231-36, HRS, that reasonable efforts to secure and use products and services within the State were unsuccessful.