State Film Tax Credit Incentives

John C. Genz CPA, MSTPartner-in-Charge, State & Local Tax Group

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

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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

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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

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Accountant Certification Requirements

Independent CPA Audit of a Specified Element

Independent CPA Agreed Upon Procedures

State run inspections

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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

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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

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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

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Non-Payroll Testing Procedures

Agree expenditure per bible to vendor invoice

Verify if expense is incurred in the state

Verify type of expenditure

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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

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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

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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

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Best Practices

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 state’s film department regarding local vendors that can be used

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Best Practices

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

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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 vendor’s 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.

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Questions?

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 penaltiesthat may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any matter addressed herein. The foregoinglegend has been affixed pursuant to U.S. Treasury Regulationsgoverning tax practice).

All information provided is of a general nature and is not intended to address thecircumstances of any particular individual or entity. Although we endeavor to provideaccurate 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 aftera thorough examination of the particular situation.

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