New Jersey’s Film Tax Credit Agreed Upon Procedures: Ready for Its Close Up
January 21, 2020
By Blair Robbins
As an inducement to film production companies to shoot in New Jersey, the state offers a Garden State Film Tax Credit. However, these companies must have an independent CPA prepare a report to help the New Jersey Economic Development Authority (“NJEDA”) determine their amount of qualified film production expenses.
Not Just an Audit
Commonly referred to as an audit, CPAs recognize it as something different: an “Independent Accountant’s Report on Applying Agreed-Upon Procedures.” While an audit and an agreed-upon procedure engagement share some similarities, there are also a number of significant differences. One of the most notable is that the scope of the required procedures rest with the report’s users, not the CPA. Essentially, a CPA does not exercise professional judgement with regard to what procedures are necessary. As such, the NJEDA has published the specific procedures that a CPA need perform.
The Fine Print
One benefit to an agreed-upon procedures engagement is that it creates a higher level of consistency among CPAs. There is a downside, though, to the NJEDA procedures. One of these is that they require the CPA to inspect all of the expenditures incurred by an applicant, including both qualified and non-qualified expenses. The only relief from this requirement comes from the NJEDA’s Film Tax Credit Program Frequently Asked Questions, which state that “if a project qualifies for the tax credit on the basis of having incurred more than $1 million in qualified film production expenses, then the CPA verification report need only verify the qualified film production expenses and not the total film production expenses.” Requiring the CPA to test every qualified expense can create a significant amount of work for both the CPA and the applicant who are investing time in maintaining production records that will allow sufficient CPA testing.
Turn to Tech
One way to increase process efficiencies is via electronic recordkeeping. This will allow the production company to provide the CPA with all of the required information—without the costs, time and risks of providing voluminous physical records to a third party. Another way to increase process efficiencies is to maintain the production’s supporting records in a manner that enables the CPA to sort the listing of expenditures in the same sequence as the supporting documents.
While an agreed-upon procedures report does require the production company to invest a certain amount of time, resources and planning, by working closely with their CPA, they will be in a much stronger position to receive the full measure of the New Jersey’s film tax credit.