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State Film Tax Credit Incentives

State Incentives 

  • Select states offering credits as incentives
  • Credit = % of qualified spend in state/locality
  • Qualified Spend:
    • For payroll incurred in the state/locality
    • For goods and services purchased and incurred/rented in the state/locality
      • Incurred as defined by the state/locality
       
     

Procuring the Film Tax Credit 

  • State or Local Film Commission
    • Assist production companies with compliance and obtaining local vendors
     
  • Economic Development office
    • Initial applications are generally submitted and approved by the Economic Development department
    • Transfer applications are generally submitted to the Economic Development department
     
  • Department of Revenue
    • Monitors credit issuance and compliance
     

Timing of Application 

  • Initial Application
    • Often due prior to filming
     
  • Ongoing Reporting
    • Some states require monthly reporting
     
  • Final/Credit Transfer Application
    • Be aware of filing deadlines
    • In some states extensions can be granted
    • Formal procedures may not exist for extension request
     

Accountant Certification Requirements 

  • Independent CPA Audit of a Specified Element
  • Independent CPA Agreed Upon Procedures
  • State run inspections

Audits of a Specified Element 

  • Performed by Certified Independent Public Accountants
  • Audit testing procedures are limited to the expense accounts for the film
  • Require review of internal controls
  • CPA must perform a risk assessment based on review of controls
  • Testing of both payroll and non-payroll expenditures

Agreed Upon Procedures 

  • Less in scope and typically less costly than an audit
  • CPA performs specific procedures requested by the production company and/or state
    • Some states have published required procedures
     
  • CPA is not responsible for establishing procedures
  • CPA does not issue an opinion or provide any assurance
  • CPA takes no responsibility for adequacy of the procedures
  • CPA reports ALL findings

Payroll Testing Procedures 

  • Agree wages recorded in the bible to paycheck stubs or payroll register
  • Review production reports to determine location of filming
  • Review time cards to determine location worked

Non-Payroll Testing Procedures  

  • Agree expenditure per bible to vendor invoice
  • Verify if expense is incurred in the state
  • Verify type of expenditure

Qualifying Expenses  

  • Compensation paid for services within the state
    • Paid to individual employees
    • Paid to loan-out companies
    • Employer payroll taxes/fringes
     
  • Payments for goods and services incurred in the state
  • Payments for rental of property and equipment incurred in the state

Common Pitfalls 

  • Applying for too little credit
  • Not obtaining proof of loan-out
    • May be required prior to initial payment to loan-out
     
  • Poor recordkeeping for petty cash

Best Practices 

  • When recording payroll transactions include employee name as the vendor name
  • Make sure employees indicate work state/locality on timecard for everyday worked
    • Locality may be required in certain states
     
  • Get loan-out companies to register up front
    • Consult with legal council
    • Incorporate registration requirement in the contract
     
  • Take care when recording petty cash receipts
  • Educate production staff on state guidelines before they spend petty cash in order to maximize the credit
  • Hire qualified film tax credit advisors
  • Emphasize to the production staff the importance of following procedures
  • Consult with the states film department regarding local vendors that can be used
  • Educate those involved in the process early
  • Keep an open dialogue with the state department issuing the credit
  • When in doubt consult with a qualified CPA with industry experience

Film Credit Trivia 

  • Q: I need to purchase an item not sold in the state issuing the credit. Is there any way to get the expense to qualify?
    • In New Jersey?
      • Have the item shipped by the vendor via common carrier or by the vendors own vehicle.
       
    • In Massachusetts?
      • As long as the item is used in Massachusetts the expense will qualify. Make sure there is adequate documentation of the item’s use to hold up during audit.
       
    • In Pennsylvania?
      • Consider using a qualified intermediary in the state/locality.
       
     

Disclaimer: 

Any tax advice in communication is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any matter addressed herein. The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice).

All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.

No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

All Rights Reserved 

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