Post on 17-Jan-2016
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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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