Rules Proposed for Claiming Georgia Musical Tax Credits
Rules Proposed for Claiming Georgia Musical Tax Credits
On October 5, 2017, the Georgia Department of Revenue proposed rules for implementing O.C.G.A. § 48-7-40.33, entitled the Georgia Musical Investment Act (“the Act”). Signed into law by Governor Nathan Deal on May 8, 2017, the Act provides that a production company investing in a qualified musical or theatrical performance or a recorded musical performance produced within the state will be allowed an income tax credit if the production company's qualified production expenditures equal or exceed the following spending thresholds:
- $500,000 for a musical or theatrical performance which includes a concert, musical tour, ballet, dance, opera, live variety entertainment, or a series of any such performances that originates, is developed, and has its initial public performance before a live audience within the State of Georgia;
- $250,000 for a recorded musical performance which is incorporated into or synchronized with an approved movie, television, or interactive entertainment production; and
- $100,000 for any other recorded musical performance.
The tax credit is calculated and allowed as follows:
- A production company is allowed a tax credit equal to 15 percent of such production company's qualified production expenditures; and
- A production company is allowed an additional tax credit equal to 5 percent for such production company's qualified production expenditures incurred in a county designated as tier 1 or tier 2 by the Commissioner of Community Affairs under O.C.G.A. 48-7-40.
The tax credits are subject to the following limits:
The aggregate credits for all taxpayers are capped at $5 million for calendar year 2018, $10 million for calendar year 2019, and $15 million for calendar years 2020 through 2022. The maximum allowable tax credit for a single production company and its affiliates may not exceed, in any single taxable year, 20 percent of the aggregate amount of tax credits. The production company must apply for preapproval to the Department. The credit can be claimed against withholding taxes incurred by the production and there is a five year carry forward.
The rules proposed by the Department of Revenue include guidance on the following:
- Scope of Project – The rules make clear that a musical or theatrical performance or a recorded musical performance which occurs over two or more years is considered a single project and the tax credits will become available when the applicable spending threshold is met even though production expenditures did not exceed that threshold in any single taxable year. This is a welcome clarification because the statute is ambiguous on this point.
- Production Sites – For a musical or theatrical performance, the production sites are where the performance is developed, prepared, planned, rehearsed or performed; for a recorded musical performance the production sites are where the performance is prepared, planned, or recorded.
- Qualified Production Expenditures – Qualified production expenditures must be incurred in Georgia on direct account of production activities.
- On Direct Account –In determining whether an expenditure is considered to be “on direct account” of qualified production activity the Department of Revenue will consider “the proximity of the expenditure to the activity as well as the causal relationship between the expenditure and the activity” and any rules or determinations made by the Department of Economic Development.
- Incurred in Georgia - In order to be considered incurred in Georgia, expenditures for services not performed at the production site (editing and related services, film processing, sound mixing, computer graphics, special effects, etc.) must be for services performed in Georgia by a vendor with a physical location in Georgia and at least one individual working at that location.
- Calculation of Payroll Costs – Payroll costs for production expenditures include bonuses, incentive pay, and other compensation included on employee Forms W-2, the employer portion of payroll taxes, and employee benefits related to qualified services performed in Georgia, but not more than $500,000 for any single employee on any single production. All payments to a legal entity in which an employee has any direct or indirect ownership interest is considered made to that employee.
- Applying for Credits – A production company must apply for pre-certification from the Department of Economic Development before obtaining pre-approval of the credits from the Department of Revenue.
- Allocation of Credits – Credits will be allocated by the tax Commissioner annually up to the statutory limit on a first-come, first-served basis.
- Assignment of Credits – Credits may be assigned by the production company to an affiliated company and would then become available to offset the income tax but not withholding tax liabilities of the affiliate. This is another welcome clarification because the statute states that the credits are not “refundable, transferable or saleable."
- Pass-thru of Credits – If a production company is operating as a Partnership, LLC, S Corporation or other pass-thru entity, the credits will be available to offset income tax but not withholding tax liabilities of the partners, members, or shareholders of the pass-thru production company.
Taxpayers and their representatives have an opportunity to submit comments on the proposed rules on or before November 8, 2017.