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Connecticut = 6.0%
Hawaii = 4.5%
New Mexico = 6.625%
Pennsylvania = 7.0%

 

New Mexico = 5.0%
 

California = 7.0%. The tax is waived if registered with the Secretary of State.
Massachusetts = 5.3%. The Loan-Out can apply for a waiver. Note that MA waiver dates are adhered to strictly.
Michigan = 4.35%. There is no waiver. Tax must be withheld to qualify for film credit.
North Carolina = 4.0%. The tax is waived if registered with the Secretary of State.
South Carolina = 2.0%. The tax is waived if registered with the Secretary of State.

 

Pennsylvania and Michigan. Wages in these two states do not qualify for film credit.
 

Pennsylvania does not allow a film credit if state income tax is paid to a non-resident's state rather than to Pennsylvania.
 

Production incentives are offered as cash rebates, tax credits, or up-front/back-end production funding. In addition, numerous jurisdictions offer sales, use, excise, and gross receipts tax relief in the forms of deductions, credits, exemptions, and waivers.
 

The federal government and most U.S. states offer production incentives for motion picture and television productions. A number of jurisdictions also offer incentives for commercial advertisement, digital programming, post-production, video game production, animation, and other production types. More than a dozen international jurisdictions offer production incentives for foreign producers.
 

Governments have long used incentives to foster economic growth, build infrastructure, and create jobs. Incentives are used to attract industries that are viewed as important to the local community. Production of filmed entertainment is especially amenable to incentives because it is highly mobile, environmentally "clean," capital and labor-intensive, and effective in promoting tourism.
 

A cash rebate or grant is a sum of money paid to a qualifying production company based on the amount of qualifying expenditures or jobs created in the jurisdiction on a qualifying project. These funds do not require a tax return to be filed. They are often administered by the Departments of Trade and Industry, Commerce, or Economic Development.
 

Tax credits can be refundable or non-refundable, and transferable or non-transferable. Refundable Tax Credits: A refundable tax credit functions in the same way as a production rebate, but it is administered by the local taxing authority, and claimed by filing a tax return. The production company must file a tax return regardless of whether it has any income or owes any tax in the jurisdiction. If the production company does owe tax, a refund will be granted for the excess of the credit over the amount of tax owed. In some cases, banks or other lenders can monetize refundable tax credits so that the production company can get the money earlier. Generally speaking, a cost is associated with an advance of the funds. Transferable Tax Credits: A non-refundable tax credit may be transferable or non-transferable. A transferable tax credit is one that may be sold or assigned to a local taxpayer. This transfer can be handled directly by the production company or indirectly through the use of brokers. Brokers will generally charge a commission. In addition, the production company will need to discount the credit from its face value to entice local taxpayers to purchase them. Lastly, tax credits may be recaptured by states after audit. Some states have recapture provisions with recourse to the buyer of a credit. Jurisdictions vary in how they regulate these transfers. Some jurisdictions permit a single credit to be divided among multiple transferees. Others permit multiple transfers, allowing transferees to sell all or a part of the credit they purchased to another taxpayer. Non-Refundable, Non-Transferable Tax Credits: A non-refundable, non-transferable tax credit can generally be carried forward and used to reduce taxes in subsequent years if the production company has no current tax liability. Each jurisdiction sets forth the period of time within which the tax credit can be carried forward.
 

A refundable tax credit functions in the same way as a production rebate, but it is administered by the local taxing authority, and claimed by filing a tax return. The production company must file a tax return regardless of whether it has any income or owes any tax in the jurisdiction. If the production company does owe tax, a refund will be granted for the excess of the credit over the amount of tax owed. In some cases, banks or other lenders can monetize refundable tax credits so that the production company can get the money earlier. Generally speaking, a cost is associated with an advance of the funds.
 

A non-refundable tax credit may be transferable or non-transferable. A transferable tax credit is one that may be sold or assigned to a local taxpayer. This transfer can be handled directly by the production company or indirectly through the use of brokers. Brokers will generally charge a commission. In addition, the production company will need to discount the credit from its face value to entice local taxpayers to purchase them. Lastly, tax credits may be recaptured by states after audit. Some states have recapture provisions with recourse to the buyer of a credit. Jurisdictions vary in how they regulate these transfers. Some jurisdictions permit a single credit to be divided among multiple transferees. Others permit multiple transfers, allowing transferees to sell all or a part of the credit they purchased to another taxpayer.
 

A non-refundable, non-transferable tax credit can generally be carried forward and used to reduce taxes in subsequent years if the production company has no current tax liability. Each jurisdiction sets forth the period of time within which the tax credit can be carried forward.
 

These funds are made available to qualifying productions from local taxpayers in exchange for advantageous tax treatment from the local jurisdiction.
 

Each jurisdiction defines which type of business entity is eligible to apply for and claim its production incentives. Many jurisdictions require that the company be exclusively engaged in the business of film production. Some jurisdictions specify the legal structure and/or residence required for eligible production companies.
 

Each jurisdiction defines the types of projects eligible for the incentive benefits. In some jurisdictions, television projects are excluded. In other jurisdictions, the scope of eligible projects is very broad, including film, TV, video, digital programming, interactive games, commercial advertisements, animation, etc. Some pilots and treatments qualify. There are frequently exclusions for "adult programming," news, weather, sports events, infomercials, reality shows, etc. In addition, many jurisdictions require that the project be intended for commercial exhibition and/or that a distribution deal be in place.
 

Most jurisdictions have a minimum spend test; some have a minimum number of local shooting days/stage days, resident employee requirement, or some other test so that the project will satisfy the jurisdiction’s goals in building its local industry, revenue base, employment, etc.
 

Each jurisdiction defines the goods and services that constitute qualifying expenditures for purposes of calculating the incentive benefit. In most jurisdictions, local goods and services directly used in the production are included in the benefit-calculation base. Some jurisdictions allow expenditures incurred in other jurisdictions, but used for local production, to qualify. In some cases, both pre-production and post-production will be included. In most cases, marketing and distribution expenses will be excluded. Entertainment Partners’ handling fees and Workers’ Compensation insurance fees are qualified expenditures in many jurisdictions. Please contact Joseph Chianese or Marco Cordova for more information.
 

Many jurisdictions have an annual cap on the amount to be awarded under the incentive program. Others have a cap on the amount that can be awarded to a specific project. For TV, there may be episode caps and series caps. Many jurisdictions also have qualifying expenditure caps on salaries. For some jurisdictions, salaries paid to highly compensated individuals, usually $1,000,000 or more, are excluded from the benefit calculation.
 

Local film offices are set up to enhance local production. Contact with the local film office will enable you to find locations, coordinate crews, and access local goods and services. Find out which local auditing and legal services will be needed.
 

Many production incentive statutes are limited in duration. The statute will have a termination date or "sunset date" after which the benefits are no longer available. Will your project be qualified before the incentive expires?