June 16, 2004
In this newsletter:
HAWAII EXTENDS ACT 221
Hawaii has some very impressive and generous tax incentives. Considering all the public criticism of the Act, it was somewhat of a surprise to see state lawmakers pass a bill to extend the program through 2010. While the legislation has not yet been signed by Governor Linda Lingle, her signature is expected soon. The provision that the law be “liberally” construed was deleted, and the granting of credits was limited in some ways. Investors will no longer be allowed to recoup large multiples of their investments in the form of state tax credits. As of July 1, 2004, “multiples” of 2.0 and above will be required to submit evidence substantiating economic substance and business purpose of the transaction. Deals where an investor receives up to one-and-a-half times the amount of the initial investment in the form of tax credits over the life of the credit would be presumed acceptable. The Department of Taxation will have the right to investigate deals where an investor receives between 1.5 and two times the amount of the initial investment in tax credits. This means a Hawaiian investor that invests $100,000 in a film can be assured to receive a return of $150,000 in tax credits over five years. What will need to shown to earn a higher multiple is not entirely clear until the Department of Tax issue guidelines regarding the manner in which economic substance and business purpose may be substantiated. More info is available at www.nasvf.org/web/allpress.nsf/pages/7171
