“Generally, preventative controls are more efficient than detective controls.” – Susan Ragland, Director, Financial Management and Assurance, United States Government Accountability Office

1. “CRITICISM IS ALWAYS EASIER THAN CONSTRUCTIVE SOLUTIONS”
- Jaron Lanier
“CRITICISM IS PART OF THE CREATIVE MAN'S JOURNEY”
- Marcus Samuelsson
THE CRITICISM
Audit of Hawai‘i’s Motion Picture, Digital Media, and Film Production Income Tax Credit
Hawai`i Free Press. Tuesday, November 22, 2016.
Web Accessed: November 28, 2016
http://www.hawaiifreepress.com/ArticlesMain/tabid/56/ID/18638/Hawaii-Motion-Picture-Tax-Credits-DoTax-Making-it-up-as-they-go-
Along.aspx?utm_source=November+27%2C+2016+News+from+Hawaii+Free+Press&utm_campaign=November+27%2C+2016+Email+&utm_medium=email
Auditor’s Summary, Report No. 16-08
What problems did the audit work identify?
IN REPORT NO. 16-08, Audit of Hawai‘i’s Motion Picture, Digital Media, and Film
Production Income Tax Credit, we found that insufficient administration of the film tax credit
by the Department of Taxation (DoTAX) and the Hawai`i Film Office has likely increased the
cost of the credit while overstating the possible economic benefits that it provides to the State.
Why did these problems occur?
DOTAX HAS BROADENED THE SCOPE of the film tax credit by including out-of-state
expenses as “qualified production costs.” That action is inconsistent with the plain language of
the statute and the Legislature’s intent that the incentive would stimulate economic growth in
Hawai`i. For example, expenditures paid to out-of-state businesses and service providers do not
infuse money into Hawai`i’s economy or provide income for local residents; they do not create
local jobs.
We also found that DoTAX has not adopted administrative rules needed to provide assurance
that the film tax credits are sufficiently administered. Without such rules, tax credit
qualifications are unclear, the film office does not have the administrative tools to enforce
deadlines and other filing requirements, and there is no requirement that production costs be
independently verified as qualifying for the tax credit. We have serious concerns about
DoTAX’s extended delay in promulgating rules. It has been more than ten years since the
current form of the film tax credit was enacted.

2. Although the film tax credit law has existed in its current form since 2006, DoTAX has yet to
promulgate rules.
While we strongly recommend that DoTAX promulgate rules without further delay, we found a
number of provisions in the most recent public version of the proposed rules that should be
revised to provide greater assurance that the film tax credits are being managed in accordance
and consistent with the statute’s intent.
We also found that the film office’s analysis of film tax credit data does not measure the
incentive’s true costs and reports economic impacts that are based on incomplete and overstated
data. For instance, it includes an unknown amount of out-of-state expenditures and wages paid
to nonresidents, as well as inaccurate production expenditure data. For example, highly paid
producers, directors, actors, and crew are often residents of other states. While they may spend
some of their salary or wages in Hawai‘i, it is very unlikely that a significant percentage of their
Hawai`i earned income flows into the local economy. Including these salaries and other out-of-
state expenditures in the calculation of benefits to the State significantly over-inflates the film
tax credit’s economic impacts. Instead, the film office should report to the Legislature on the
quality of the jobs generated by film productions. Currently, the film office collects this type of
information from production companies applying for the tax credit, but it does not track or
report on it.
Why do these problems matter?
THE FILM TAX CREDIT is set to sunset at the end of 2018, at which time the Legislature will
need to decide whether the benefits of the program justify its continuing costs. Unfortunately,
the film office cannot provide the Legislature with the relevant, accurate, and timely data
necessary to make this determination.
[Emphasis Supplied]
____________________
HAWAI`I and NEW MEXICO
New Mexico Film Production Tax Incentive Study – July 2016
http://www.nmfilm.com/uploads/files/MNP%20Film%20Study%20Phase%20III%202016(1).pdf
Web Accessed: November 28, 2016
Hawaii has a film and television industry that is currently roughly the same size in terms of
. In 2015, Hawaii reported production spending of $244 million.26
production spending as New Mexico
Hawaii film productions have included iconic productions such as Hawaii Five – O and Jurassic Park.
The Kaua`i Visitor Bureau conducts an annual survey of visitors to the island of Kaua`i to help identify
travel behaviors and decision making factors, as well as measure improvements or declines in visitor
satisfaction. As part of the 2011 survey of visitors, visitors were asked whether movies recently filmed on
Kaua`i caused them to be more interested in visiting the island. Sixteen percent of respondents indicated
that movies filmed on Kaua`i played a role in increasing their interest in visiting the island.27

3. Adjusting for the demographics of visitors to Hawaii as a whole, it was estimated that roughly 12 percent
of visitors to Hawaii may be influenced in whole or in part by film and television productions.28
The
survey findings were consistent with interviews conducted with tourism industry representatives, who
collectively believed that film and television influenced between 6 and 15 percent of visitors to the
.29
state
26
Hawaii State Department of Business, Economic Development and Tourism.
27
Kaua`i Visitor Bureau Survey 2011, Qmark Research. The survey consisted of 2,080 online surveys,
together with 357 in-person interviews conducted at Kauai Airport.
28
MNP estimate based on Kauai Visitor Bureau survey and the percentage of leisure visitors to Hawaii.
29
MNP interviews with tourism industry representatives.
___________________
THE NEW MEXICO APPROACH
International Productions
Identifying Significant Economic Benefits
…..
MEMORANDUM OF UNDERSTANDING
relating to the making of
THE NEW AVATAR FILMS
Her Majesty the Queen in right of New Zealand
Lightstorm Entertainment Inc.
Twentieth Century Fox Film Corporation
•••
NEW ZEALAND SCREEN PRODUCTION GRANT
International Productions - Assessment of Significant Economic Benefits Guideline
1 August 2015
The New Zealand Screen Production Grant (NZSPG) was introduced by the New Zealand
Government on 1 April 2014.
All international productions that meet the relevant specific eligibility criteria and the
general eligibility criteria for the NZSPG are able to access a grant equivalent to 20% of
QNZPE. [Qualifying New Zealand Production Expenditure]
Certain productions may be entitled to an additional 5% (5% Uplift) if they can
demonstrate significant economic benefits to New Zealand.

4. These guidelines have been developed to provide information for producers on how
assessment of a production’s significant economic benefits will be made.
The guidelines reflect that screen productions can raise New Zealand’s profile
internationally, attract high value tourists, and profile our innovative and creative people
and technologies. It is expected that productions with significant economic benefits will be
well placed to market, promote and showcase New Zealand. In general, the scale of the
benefit to New Zealand should meet or exceed the amount of the 5% Uplift.
[Clarification and Emphasis Supplied]
____________________