GEORGIA FILM CREDITS
Georgia significantly modified its film credit statute in 2008. Georgia provides for a Film & TV credit ranging from 20-30% of qualified production expenditures if the qualified production expenditures exceed $500,000 in a single year.
The credit is available against all corporate and individual income taxes. The credit may be carried forward for 5 years.
The credit may be transferred/sold once only by the entity generating the credit.
Activities qualifying for the credit include movies, television movies or series, commercials, music videos and some interactive projects. With respect to commercials and videos, the $500,000 threshold may be met by combining the costs of more than one project incurred during the year by the production company.
PURCHASING GEORGIA FILM CREDITS
Purchasing Georgia film credits is relatively easy. A simple contract with the seller is all that is involved.
When buying film credits, the purchaser should make sure the seller’s calculation of the credit has been reviewed by a third party for reasonableness. Also, they should make sure the credits are guaranteed. While there is no recapture provision for film credits, the validity of the credit being transferred can be challenged if the original credit computation is incorrect.
Purchasing Georgia film credits through an experienced and reputable broker, such as the State Tax Credit Exchange, is highly recommended to make the process of buyer film credits as easy as possible. Once purchased, film credits may not be resold.
Any entity may purchase Georgia film credits. The film credits offset any taxpayer’s Georgia income tax liability. A partnership, LLC or S corporation may purchase the credits. The credits would then flow to the owners of the pass-through entity based on the current year profit and loss sharing ratios.
Georgia film credits in excess of a buyer’s liability may be carried forward for five years. For example, an individual purchases $1,000 of Georgia film credits and had a $600 Georgia income tax liability for the year and had $500 Georgia withholding from their wages. The credit would offset the Georgia liability of $600, while $400 of the credit would carry forward to the subsequent tax year. The $500 of withholding would be eligible to be refunded.
SELLING GEORGIA FILM CREDITS
Selling Georgia film credits is not difficult, though there are some traps for the unwary. Using an experienced broker, such as the State Tax Credit Exchange, can help a seller to avoid some of these issues.
A seller of credits must first apply with the Georgia Department of Economic Development for a code for the tax credits they intend to produce on the project they are working.
Production expenditures on this project must be properly accounted for and appropriate records retained to support these expenditures.
Once the eligible credit has been calculated the calculation itself should be reviewed by a third party accountant. A resulting review letter can be obtained fairly inexpensively.
The credits may then be sold to one or more buyers. Though the credits may be sold to multiple buyers, the sale to the various buyers must be part of one transaction. Thus, closing with the various buyers is structured to occur simultaneously. A seller may not have multiple sales of credits from the same project during the same year.
Typically, the sale of the credits will be guaranteed by the production company and/or its owners depending upon the financial strength and history of the selling production company.
TAXATION OF GEORGIA FILM CREDITS
The proceeds from the sale of film credits are treated as ordinary income.
The buyer of a credit is deemed to make a tax deductible state tax payment equal to the face value of the credit at the time the buyer of the credit files its income tax return claiming the credit against a tax obligation. The difference between the face value of the credits actually offsetting a Georgia income tax liability and the amount paid for those credits is treated as a capital gain.
STATES WITH FILM CREDITS
Over 28 states have film credits. Then number of states with film credits and the rules governing them are constantly changing.
The following states have film credits which are transferrable:
Alaska Louisiana
Arizona Massachusetts
Connecticut Missouri
California New Jersey
Florida Pennsylvania
Georgia Puerto Rico
Illinois Rhode Island
Iowa West Virginia
The State Tax Credit Exchange can help you buy film credits in any of these states.