Understanding and Comparing Media Tax Incentives and Rebates
The purpose of this is to discuss and compare the Media Tax Incentive and Rebates within a few selected states. The states chosen are Michigan, Pennsylvania, Georgia and Connecticut since WAR Entertainment and WAR Enterprises has projects either currently financed and based within these states or has financing available that might be applicable for these states. The big question is, which state offers the best deal?
Outline of a Tax Incentive Program
Production incentives are offered as cash rebates, tax credits or front-end/back-end production funding. There are additional numerous incentives that may be offered along side, such as tax relief from Economic Development Commissions, hotel and tax exemptions and waivers. When putting together a major production, what is offered on the surface may not the best picture of the end result. They are offered because the media industry is labor intensive, self-perpetuating in terms of training for jobs, environmentally friendly and a cash influx into the state.
There are different types of incentives.
1. Cash Rebate or Grant – These do not require a tax return to be filed for the award.
2. Tax Credits
• Refundable – This is similar, but it is a refund from the local taxing authority and a tax return must be submitted.
• Non-Refundable – These are transferrable or assignable and may be sold or assigned as collateral.
• Non Refundable – Non Transferable Tax
Credits – This is a credit carried forward and used to reduce taxation in subsequent years eliminating the tax liability from the production company.
3. Front-End/Back-End Funding – These are credits that trade and qualify productions by using advantages of the local tax systems.
Every jurisdiction has its particulars and qualification mandates.
Key Issues That Change the Playing Field
• Fund Caps – Producers need to know the caps and the ceilings for jurisdictions.
• Employment Issues – Some states garnish the tax credit for out of state labor for production, both above the line, crew and cast. Some states do not allow payments to corporations or LLCs out of state and others require an “in house” loan out company.
• Residency Requirements – Every state has a test or requirement for residency deduction. There are also regulations regarding vendors from out of state and some states do not offer the credit to out of state vending services.
• Sunset Dates – Some states have “Sunset Dates” or limits on production length.
Understanding the Breakdown
QUALIFYING PRODUCTION EXPENDITURES
Out of State Vendors In State Vendors Fringes Paid for Qualified Payroll Taxes Paid for Qualified Payroll
Connecticut YES YES YES YES
Georgia NO YES YES YES
Michigan NO YES YES NO
Pennsylvania NO YES YES YES
QUALIFYING COMPENSATION EXPENDITURES
ABOVE THE LINE – BELOW THE LINE
RESIDENTS NON RESIDENTS RESIDENTS NON RESIDENTS
Connecticut YES YES YES YES*
Georgia YES YES YES YES
Michigan YES YES YES YES*
Pennsylvania YES YES YES YES
*Withholding payments must be made to qualify.
*In some instances “loan-out” companies must be used.
Whereas the Way2Go Bistro show may be considered a “Game Show” the state of Michigan would not qualify it or the show would have to petition for special exceptions. The other states would allow the show and allow the awards of prizes.
• Type of Incentive – Transferable Production Expense Credit, Transferable Infrastructure Credit (3 year carry forward)
• Benefit – 30% on instate production, 35% of the cost for qualified in state production companies
• Cap – $15,000,000 per person
• Loan- Out Company – Out of state productions companies must qualify with a loan-out corporation.
• Sales Tax Relief is Available
• Hotel Occupancy Tax Relief is Available
• Type of Incentive – Transferrable Tax Credit (5 year carry forward)
• Benefit – 20% on the base investment, 10% on certain other qualified Georgia Promotions
• Cap – $500,000 per person, no cap to corporations or loan-outs
• Refundable and Transferable Business Tax Credit or Non-Refundable Non-Transferable Tax Credit (10 year carry forward)
• Benefit – 39.5% (41.5% in low income areas) on direct production expenses in state, 29.5% on qualifying personal expenditures (non resident below the line crew), 50% for qualified job training for Michigan Residents below-the-line crew, 24.5% infrastructure investment on tax credit (for example buying a location or studio instead of renting)
• Cap – $2,000,000 per person, $20,000,000 cap on infrastructure investments
• Sunset Review – Must be filed annually
• Transferrable Tax Credit (3 year carry forward)
• Benefit – 25% of in state production spend
• Cap – $15,000,000 with an annual state cap of $75,000,000
• Sunset Review – A report is due September 1 of each year