Tax credits help draw productions to paradise

Hawaii styles itself as Hollywood’s tropical backlot. And over the years the island state, with its lush settings and unique features, has been a favorite location for films ranging from “South Pacific” to “Tropic Thunder” and television series such as “Hawaii Five-0″ and “Lost,” which will soon begin lensing its sixth and final season.

But in order to stay competitive, Hawaii has had to join the parade of states offering tax incentives. “We can’t just sit on our good looks. Where to film has become a cost consideration,” says Walea Constantinau, the Honolulu film commissioner. “The first thing producers ask these days is what tax breaks are available.”

Hawaii has two separate incentive programs. But because of financial constraints due to the decline in the economy, both were recently scrutinized by the state Legislature. Act 221, in effect for nearly a decade, had its 100% investment tax credit spread over five years cut back to 80%, with other benefits significantly diminished.

But Act 88, on the books since July 2006, emerged unscathed. It provides for a 15% percent credit against expenditures for shoots on Oahu, and 20% for those taking place on the other, less populous islands.

“Given we’re suffering from the worst budget crisis in the state’s history, we’re fortunate that 88 remained whole and intact while 221 has not gone away completely,” notes Donne Dawson, who heads the Hawaii Film Office. “The bottom line is, we’re going to have to readjust.” The upshot may be that more productions wind up using Act 88.

“Without the 88 credit, I don’t think we could have brought in the $330 million in production we have had since it first started,” she adds. The production boom peaked in 2007 when, for the first time in memory, theatrical features were shooting on all major islands: “Forgetting Sarah Marshall” on Oahu; “Pirates of the Caribbean: At World’s End” on Maui and Molokai; “Tropic Thunder” on Kauai; and “Indiana Jones and the Kingdom of the Crystal Skull” on the Big Island.

Hawaii’s tax credits may seem paltry compared with those of other states (Michigan’s is 42%; Louisiana’s is 25% and has made the state the third biggest U.S. production center after L.A. and NYC).

However, the attraction of Act 88 lies in its simplicity and comprehensiveness, according to Dawson. The refundable credit becomes available just after a shoot is completed. Productions with budgets as low as $200,000 make the cut. Commercials also are included. But the maximum rebate available is $8 million.

Qualifying expenditures include both above-the-line and below-the-line spending. (Few state plans cover thesps.) Crew, locally sourced equipment, accommodations and transportation costs to Hawaii are included.

“We started out with Act 221 but switched when the direct credits became available in 2006,” says Jean Higgins, co-executive producer of Lost. “They make it so much easier to deal with from an accounting standpoint, and on a show as expensive as ‘Lost,’ it really helps to make it in Hawaii.”

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