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New Jersey Film Production Tax Credit Preserved for 2009 Tax Return Filers – EisnerAmper Instrumental

The New Jersey film and digital media content production tax credits were established in 2005 and 2007 to encourage the undertaking of film and digital media content production activities in this State. The credits permit eligible taxpayers to receive a corporation business or gross income tax credit equal to 20 percent of the qualified film or digital media production expenses incurred in New Jersey. Both credits are transferrable and any excess gross income tax credit is refundable.

Because of New Jersey budget constraints, the Fiscal Year 2011 budget (July 1, 2010 to June 30, 2011) enacted a temporary suspension of the credit program by effectively reducing the existing annual tax credit caps from $10 million per year for film and $5 million per year for digital media content to $0 for film and digital media content in State Fiscal Year 2011. The bill provides that the temporary suspension of tax credits applies to the authorization of new credits and the application of previously authorized credits in the upcoming fiscal year.

This set the stage for potential retroactive application that would damage the State’s ability to attract film and digital media production, and would harm production companies that had already expended funds in New Jersey in reliance on the tax credit program. EisnerAmper and a tax credit placement specialist jointly identified a client who had produced a film in New Jersey in 2008, and who was unable to transfer its Tax Credit Certificate because the buyer that had tentatively agreed to purchase it was unsure – given the potential reading of the budget enactment – that the Credit could be utilized on a tax return whose due date fell during the suspension period through June 30, 2011.

EisnerAmper worked in a collaborative effort together with production industry representatives, the tax credit placement specialists and the State’s various representatives, including the Division of Taxation and Economic Development Authority, to address the issue of interpretation of the newly enacted credit suspension and to navigate a resolution that would foster, and not inhibit, film and digital media production activity in the State. As a direct result of these efforts, the unintended retroactive application of the film production incentive program was avoided. On September 1, 2010, the Division announced in an official Notice that any Film Tax or Digital Media Tax Credit Certificates, whether held by the original applicant or purchased by a third party, may not be utilized to reduce a tax liability on any tax return with an original due date which falls after June 30, 2010 and before July 1, 2011. This applies to all previously issued tax credits or purchased tax credits.

Example: A film is produced in New Jersey in 2009 by a film production company. The production company obtained the independent CPA report required for the tax credit application process. In 2009, the Division issued the Tax Credit Certificate to the film production company. The New Jersey income tax return is due on or before April 15, 2010. The production company filed an automatic six-month federal and State extension. Since the original due date of the 2009 tax return falls before July 1, 2010, the production company can utilize the tax credit on their New Jersey income tax return for 2009, or a corporate calendar year buyer can use the purchased (transferred) credit on their return, since the original due date is April 15, 2010 even though the extended due date of the tax returns fall on October 15, 2010 which is during the suspension period.

For further details, please review the official Film Tax Credit Notice posted on the Division of Taxation’s website.

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