State Film Tax Credit 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
- 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
- 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
- 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.
- In New Jersey?
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