In a couple of columns a few weeks ago we reviewed how drafting errors were so obvious that someone should have caught the mistakes before they became law. However, sometimes the mistakes, whether intentional or not, can be very subtle so that unless there is a discerning eye, these bad proposals could become law.
For example, the state administration submitted a measure last year that would have increased the tax credit afforded to producers of films and motion pictures from the current 4 percent to 15 percent if the production takes place in Honolulu and extended it to commercials that advertise products and services. This credit would rise to 20 percent if the production takes place on a Neighbor Island. Even though the measure would have repealed the credit granted for purchases of transient accommodations of 7.25 percent, the fact that the amount of the proposed credits seemed to have no connection to any tax currently imposed made the proposed credit nothing more than a subsidy underwritten by Hawaii taxpayers.
The authors of the proposal tried to make the measure earn its keep by requiring qualifying claimants to: (1) spend a minimum of $200,000 in Hawaii; (2) hire Hawaii residents to be at least 25 percent of the below-the-line hires; (3) acknowledge the state for its support; (4) claim no more than $2 million in credits per production; and (5) not claim this credit if the high technology business tax credit is also being claimed for these same expenditures.
The proposal then went on to amend the high technology business investment tax credit to add definitions of below-the-line hires and production that would also include a business producing performing arts products with requirements to require in-state production and employment.
It all sounds like the tax credit would attract film productions from out of state, creating new jobs for Hawaii’s citizens. However, when one reads the proposal carefully, there is no requirement that the production be done by someone who is from outside the state. Thus, production companies which currently produce commercials about a local Portuguese sausage or locally produced eggs could claim the proposed credit.
Under the proposal, any business producing performing arts products which meets the criteria of acknowledging the support of the state and creates two full-time Hawaii based jobs for a period of one year could claim the credit. Thus, as drafted, businesses which may already be established in Hawaii producing local musical CD’s could claim the credits. So as drafted, it is questionable whether or not any new jobs will be created. What we do know is that the taxpayers of Hawaii would be subsidizing some business’ bottom line.
Then there is the proposal by the Maui group that wants to limit the increases in valuation of real property to not more than 4 percent per year. While proponents claim that the cap would apply to all property, as drafted, it appears that the special provisions of being able to transfer the limited increased value apply only to “persons over the age of 55 who reside in property that is eligible for the homeowner’s exemption.” That hardly seems applicable to property used for commercial, agricultural, or industrial activities, unless of course the owner is sleeping in the loft over the store or warehouse.
Even the paragraph which provides an exception for “newly constructed” [sic] infers that such activity applies to “any portion or structural component of a single or multiple family dwelling that is eligible for the homeowner’s exemption” even though parts of the same paragraph refer solely to things like solar water heaters and sprinkler systems and renovations for disabled accessibility.
Though the intent may have been to have the limitation apply to all properties, the drafting appears to infer that the concern of the proposal is residential properties. Even in provisions that intend to take care of “purchases” and “change in ownership,” exempt transfers between spouses but make no exception if the parties are partners or co-owners who do not happen to be spouses. In another paragraph, the terms “purchased” and “change in ownership” specifically do not include the “purchase or transfer of the principle [sic] residence of the transferor in the case of a purchase or transfer between parents and their children.”
Thus, though the advocates proclaim that their proposal applies to all property on Maui, as drafted, the proposal seems to be focused largely on residential property. Once again, it must be reiterated that when drafting new law, care must be exercised to insure what is intended is indeed what is written into law.
”’Lowell L. Kalapa is the president of the Tax Foundation of Hawaii, a private, non-profit educational organization. For more information, please call 536-4587 or log on to”’ http://www.tfhawaii.org
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