Hawaii’s tax credits for film productions produce results, according to calculations by the state’s Department of Business, Economic Development and Tourism (DBEDT). But healthy debate exists over whether the tax breaks pull their weight, bringing in more business than would come in regardless of incentives.
Given that film productions receiving tax credits spend multiples of that amount in the islands, an overall benefit comes to the state when productions participate. Nonetheless, it’s also important that the state resist the impulse to give potential tax revenue away unnecessarily.
New law that took effect this year requires for the first time that credits granted to individual productions be made public. That’s a real benefit to the public, allowing for better informed discussions.
Take, for example, the latest TV production to set its stories in Hawaii: the Fox channel’s “Rescue: HI-Surf,” dramatizing fictional stories about beach lifeguards on Oahu, which premiered just last week. As it set up production last year, it earned an estimated $215,162 in tax credits, the Hawaii Film Office reports.
Coming up is a live-action movie remake of Disney’s 2002 animated “Lilo &Stitch,” set to be released next year. “Lilo &Stitch” earned $5.7 million in tax credits against production spending in Hawaii in 2023 — the year’s biggest estimated credit.
Productions must spend a minimum of $100,000 in certain categories to qualify for a tax credit of 22% on Oahu, or 27% on neighbor islands. To earn its $215,162 in 2023 tax credits, “Rescue: HI-Surf” would have spent nearly $1 million on qualified costs, including wages in Hawaii.
The state has a $50 million cap on payouts in any one year, but if the total tax credits qualified for by multiple productions in one year exceed the cap, credit payouts can “roll over” to following years.
In 2022, film productions spent about $260 million, and claimed $68 million in tax credits, DBEDT reports. The excess $18 million rolled over, to be paid out in 2023.
If a production’s tax liability is less than its credit, the state refunds (cuts a check for) the excess. Of the $68 million in 2022 tax credits, $35 million went toward taxes — that is, came back to the state; the rest went toward refunds. That’s generally in line with DBEDT’s analysis, showing that for each dollar offered as a film tax credit, about 52 cents goes toward taxes owed, while the other 48 cents goes out.
Just last year, legislation took effect that lowered the minimum spending required to achieve a tax credit, from $200,000 to $100,000 — allowing smaller productions to qualify for a credit. The maximum credit per production was also increased, to $17 million from $15 million, providing a bigger payout to high-rolling projects.
The 2022 legislation didn’t raise the $50 million annual cap, but it did extend the window for tax credit rollovers to 2032, from 2025.
Last year, bills proposing an increased cap of $60 million or $75 million failed — but Hawaii’s Film Office continues to advocate for an increase.
In counterbalance, a 2021 University of Hawaii Economic Research Organization (UHERO) analysis concluded that film projects primarily come to Hawaii because its backgrounds and cultural settings are one of a kind. UHERO recommended phasing Hawaii’s tax credit program out completely by 2030. That seems the proper lean, instead of being overly generous.
Given the shifting patterns of film spending in the state, 2022’s recent sweetening of the pot for productions seeking tax credits, and this year’s first-time opening of credits granted to public view, the prudent course is for the Legislature to hold steady on the credits program for now, while analysis continues. After all, it must be recognized that Hawaii locations provide considerable value on their own.
