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Pennsylvania Film Incentive Amended

Jul 20, 2012

In May 2012 the Pennsylvania Department of Community and Economic Development issued new program guidelines for the Pennsylvania film tax incentive.  The new guidelines have a significant impact on productions approved after their issuance date of May 29, 2012. 

The most significant change in the updated guidelines is the addition of a new audit requirement for productions with tax credit awards of $100,000 or greater.  Going forward, these applicants are required to be audited under Government Auditing Standards and the audit must include a project-specific compliance report containing the applicant’s response and corrective action plan for any internal control deficiencies or instances of non-compliance with program requirements.

Other notable revisions include clarification that the $15 million aggregate salary cap is only applicable to above-the-line services provided by “principal actors” and the exclusion of certain costs paid to “Pass Throughs,” which the guidelines now formally define.  Companies established to exist as Pass Through companies will be required to provide documentation that all vendors utilized are Pennsylvania companies unless documentation is provided that there is no Pennsylvania company available.

The revised guidelines now include expanded reporting and marketing requirements such as the placement of the PA Film Office logo on all packaging material and hard media, unless such placement is prohibited by licensing or other contractual obligations, and the placement of a 30-second “Visit PA” promotional video on all optical disc formats of a film, unless expressly prohibited. 

An application fee equal to 0.2% of 25% of the estimated expenditures in Pennsylvania, not to exceed $5,000, will be imposed on all films with total production costs in excess of $1 million.  This fee is non-refundable unless an application is rejected due to lack of funds.

The state has published, as an appendix to the guidelines, a detailed chart of accounts with helpful criteria for determining the eligibility of expenses contained in each budget line item.  As a result, there is now published written guidance allowing the costs of story rights and music clearances to be excluded from the calculation of the 60% eligibility test if such costs are not qualifying Pennsylvania production expenses.  Another change resulting from the chart of account guidance is that box rental payments to non-Pennsylvania residents will be considered qualified production expenses only if the individual or entity renting the property has properly charged and collect Pennsylvania sales tax.

Subsequent to the issuance of the May 2012 guidelines Act 85 of 2012 amended Act 55 of July 2007 making several significant changes to the film tax credit law.  As a result, the guidelines were again updated in July 2012. 

The amended law now allows for an additional 5% supplemental credit for certain feature films, television films, or television series, which are intended as programming for a national audience, and filmed in a qualified production facility meeting the minimum stage filming requirements, as defined.  Unfortunately, projects already completed or approved by the state are not eligible for the additional credit and may not resubmit applications.  In addition, the department was granted the authority to waive the 60% minimum Pennsylvania spend requirement if it determines that the financial benefit to the Commonwealth outweighs the benefit of maintaining the 60% requirement.  This change will allow many larger films the opportunity to tap into the Pennsylvania film tax credit program for productions that require international or location specific requirements that cannot be duplicated in Pennsylvania or have 3-D and post-production costs making it difficult to maintain the 60% in-state spending requirement.  In order to qualify for the application of this waiver a feature film, television film, or television series must have Pennsylvania production expenses of at least $30,000,000 and meet the minimum stage filming requirement.  One negative change brought into the program was the reduction of the annual program cap from $75 million to $60 million.  However, the state can partially tap into future years’ funding based on a defined formula.  The department also still maintains the ability to limit any single applicant to 20% of the aggregate amount of credits available in any fiscal year. 

For full details on the changes to the film tax credit law, please visit:  PA Film Tax Credit Law . 

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Blair Robbins

Blair Robbins is an Audit Partner with more than 20 years of public accounting experience.

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