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REFERENCE TITLE: motion picture production tax credits |
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State of Arizona Senate Forty-ninth Legislature Second Regular Session 2010
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SB 1409 |
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Introduced by Senators Nelson, Miranda, Verschoor; Representatives Ash, McGuire, Stevens, Tovar, Weiers JP: Campbell CL, Hendrix, Montenegro, Reagan, Tobin
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AN ACT
Repealing sections 43-1075 and 43-1163, Arizona Revised Statutes; amending title 43, chapter 10, article 5, Arizona Revised Statutes, by adding a new section 43-1075; amending title 43, chapter 11, article 6, Arizona Revised Statutes, by adding a new section 43-1163; relating to motion picture production income tax incentives.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Repeal
Sections 43-1075 and 43-1163, Arizona Revised Statutes, is repealed.
Sec. 2. Title 43, chapter 10, article 5, Arizona Revised Statutes, is amended by adding a new section 43-1075, to read:
43-1075. Credit for qualified production expenditures in Arizona for motion picture production costs; definitions
A. For taxable years beginning from and after December 31, 2010, a credit is allowed against the taxes imposed by this title for qualified production expenditures in THIS state. A production company may only receive a credit that is based on the qualified production expenditures submitted by a qualified production company and certified by the department.
B. To qualify for a credit under this section, a production company must notify the department of its intent to apply for a motion picture production tax credit at least ninety days before production is scheduled to begin and must regularly update the information based on a schedule determined by the department. The information must include:
1. The name, mailing address and telephone number of the production company.
2. The name, office address, mailing address, e-mail address and telephone number of an individual who will maintain records of expenditures in this state.
3. The location of the privately funded production facility, including the office address, mailing address, e-mail address and telephone number of an official representative of the privately funded production facility.
4. The projected first preproduction date and last production date.
5. The estimated total budget of the production.
C. To qualify for a credit under this section, a production company must:
1. Have qualified production expenditures of at least one hundred thousand dollars.
2. Except as provided in subsection D, paragraph 4 of this section, produce fifty per cent of all principal photography and postproduction within a privately funded production facility.
3. Not conduct more than twenty per cent of all principal photography and postproduction outside this state.
4. Not include property with respect to which records are required to be maintained under 18 United States Code section 2257.
D. The amount of the credit with respect to any individual production is calculated based on certified infrastructure investment of a privately funded production facility at the time of application to the department pursuant to subsection B of this section as follows:
1. If the certified infrastructure investment is seventy-five million dollars or more, the amount of the credit is twenty per cent of the qualified production expenditures.
2. If the certified infrastructure investment is at least fifty million dollars, but not more than seventy-five million dollars, the amount of the credit is fifteen per cent of the qualified production expenditures.
3. If the certified infrastructure investment is at least twenty million dollars, but not more than fifty million dollars, the amount of the credit is five per cent of the qualified production expenditures.
4. If the production does not use a privately funded production facility, the amount of the credit is as follows:
(a) Five per cent of qualified production expenditures of at least two hundred thousand dollars but not more than five hundred thousand dollars.
(b) Fifteen per CENT of qualified production expenditures of at least five hundred thousand dollars but not more than one million dollars.
(c) Twenty per cent of qualified production expenditures of at least one million dollars but not more than one million five hundred thousand dollars.
E. Within thirty days after submittal of the application, the department shall certify the value of the infrastructure investment of a privately funded production facility based on documentation submitted with the application. The privately funded production facility may voluntarily enter into a limited manage audit agreement pursuant to title 42, chapter 2, article 7 that includes an audit of its infrastructure investment. The audit must be conducted by the taxpayer's authorized representative, as defined in section 42-2301, who is an independent certified public accountant licensed in this state. The certified public accountant and the firm the certified public accountant is affiliated with shall not regularly perform services for the privately funded production facility or its affiliates. If the director accepts the findings of the audit and issues a certification of infrastructure investment value that amount accepted is not subject to further review. The director shall provide a written certificate stating the amount of the infrastructure investment. A privately funded production facility may request certification of its infrastructure investment at any time on or before December 31, 2015.
F. Within forty-five days after completion of a production the production company may apply to the department on forms prescribed by the department for the income tax credit for qualified production expenditures. The department shall process the application within forty-five days after receipt.
G. The department shall not allow a credit under this section to a taxpayer who has a delinquent tax balance owing to the department under this title or title 42.
H. The amount of the credit shall not exceed ___________ for any individual production by a qualified production company.
I. A motion picture production company, at its expense, may voluntarily enter into a limited managed audit agreement pursuant to title 42, chapter 2, article 7 that includes an audit of its production costs and other requirements prescribed by this section to confirm the amount of any credit under this section. The request to enter into the audit must be made after the motion picture production company notifies the department of its intent to use the motion picture production tax credit pursuant to subsection B of this section. The audit must be conducted by the taxpayer's authorized representative, as defined in section 42-2301, who is an independent certified public accountant licensed in this state. The certified public accountant and the firm the certified public accountant is affiliated with shall not regularly perform services for the motion picture production company or its affiliates. If the director accepts the findings of the audit and issues a notice of determination pursuant to section 42-2303 and the taxpayer timely files its income tax return with the appropriate credit claim forms, the credit amount accepted is not subject to recapture, disallowance, reduction or denial with respect to the motion picture production company. The director's notice of determination shall include a written certificate to the taxpayer stating the amount of the credit and that the credit is not subject to recapture. This subsection does not prohibit the recapture of a credit from a motion picture production company if the company failed to disclose material information during the audit or falsified its books or records or otherwise engaged in an action that prevented an accurate audit.
J. Co-owners of a motion picture production company, including partners in a partnership, members of a limited liability company and shareholders of an s corporation as defined in section 1361 of the internal revenue code, may allocate the credit allowed under this section among the co-owners on any basis without regard to their proportional ownership interest. The total of the credits allowed all such owners of the motion picture production company may not exceed the amount that would have been allowed for a sole owner of the company.
K. If the allowable tax credit for a taxpayer exceeds the taxes otherwise due under this title on the claimant's income, or if there are no state income taxes due on the claimant's income, the amount of the claim not used as an offset against income taxes shall be paid to the taxpayer in the same manner as a refund under section 42-1118. Refunds made pursuant to this subsection are subject to setoff under section 42-1122.
L. The department of revenue shall maintain annual data on the total amount of monies credited pursuant to this section and the total amount of qualified production expenditures submitted by motion picture production companies and anticipated future credit and qualified production expenditure amounts based on the information submitted pursuant to subsection c of this section, and, notwithstanding title 42, chapter 2, article 1, shall provide the information to the department of commerce film office, the governor, the president of the senate and the speaker of the house by october 15 each year.
M. A taxpayer who claims a credit for motion picture production expenditures under this section shall not claim a credit under section 43‑1075.01 for the same costs.
N. The credit allowed by this section is in lieu of any allowance for state tax purposes of a deduction of those expenses allowed by the internal revenue code.
O. For the purposes of this section:
1. "Privately funded production facility" means a permanent facility in this state of one or more sets or stages used primarily:
(a) By any PRODUCTION company or companies and any land, permanent buildings and capital equipment that is in or adjacent to, and is necessary for the operation of the facility, including permanent facilities used to complement production needs.
(b) For staging and filming motion pictures and any land, permanent buildings or capital equipment that is in or adjacent to, and is necessary for the operation of the facility, including permanent facilities used to complement motion picture production needs and complement the motion picture production.
2. "Production company" means any person primarily engaged in the business of producing entertainment content created in whole or in part within the state, including motion pictures, documentaries, long-form productions, specials, series, miniseries, sound recordings, videos and music videos and interstitials, television programming, interactive television, interactive games, VIDEOGAMES, commercials, infomercials, any format of digital media, including an interactive website, created for distribution or exhibition to the general public, and any trailer, pilot, video teaser or demo created primarily to stimulate the sale, marketing, promotion or exploitation of future investment in either a product or a qualified production by any means and media in any digital media format, film or videotape. production company does not include any ongoing television program created primarily as news, weather or financial market reports, a production featuring current events, sporting events and awards show or other gala event, a production whose sole purpose is fundraising, a long-form production that primarily markets a product or service, a production used for corporate training or in-house corporate advertising or other similar productions for which records are required to be maintained under 18 United States code section 2257.
3. "Qualified production expenditure" means the following expenditures directly related to a production by a production company:
(a) Ten per cent of wages paid to residents of this state for work performed in this state.
(b) Material purchased in this state for construction of sets, special effects and other purposes.
(c) Equipment rented or leased in this state.
(d) Equipment acquired or otherwise purchased in this state.
(e) Facilities leased for preproduction, production and postproduction in arizona.
(f) Hotel and lodging in this state.
(g) Catering and food expenses purchased in this state.
(h) Location fees in this state.
(i) Post production expenses in this state.
(j) Fuel purchased in this state.
(k) Vehicles rented in this state.
Sec. 3. Title 43, chapter 11, article 6, Arizona Revised Statutes, is amended by adding a new section 43-1163, to read:
43-1163. Credit for qualified production expenditures in Arizona for motion picture production costs; definitions
A. For taxable years beginning from and after December 31, 2010, a credit is allowed against the taxes imposed by this title for qualified production expenditures in this state. A production company may only receive a credit that is based on the qualified production expenditures submitted by a qualified production company and certified by the department.
B. To qualify for a credit under this section, a production company must notify the department of its intent to apply for a motion picture production tax credit at least ninety days before production is scheduled to begin and must regularly update the information based on a schedule determined by the department. The information must include:
1. The name, mailing address and telephone number of the production company.
2. The name, office address, mailing address, e-mail address and telephone number of an individual who will maintain records of expenditures in this state.
3. The location of the privately funded production facility, including the office address, mailing address, e-mail address and telephone number of an official representative of the privately funded production facility.
4. The projected first preproduction date and last production date.
5. The estimated total budget of the production.
C. To qualify for a credit under this section, a production company must:
1. Have qualified production expenditures of at least one hundred thousand dollars.
2. Except as provided in subsection D, paragraph 4 of this section, produce fifty per cent of all principal photography and postproduction within a privately funded production facility.
3. Not conduct more than twenty per cent of all principal photography and postproduction outside this state.
4. Not include property with respect to which records are required to be maintained under 18 United States Code section 2257.
D. The amount of the credit with respect to any individual production is calculated based on certified infrastructure investment of a privately funded production facility at the time of application to the department pursuant to subsection B of this section as follows:
1. If the certified infrastructure investment is seventy-five million dollars or more, the amount of the credit is twenty per cent of the qualified production expenditures.
2. If the certified infrastructure investment is at least fifty million dollars, but not more than seventy-five million dollars, the amount of the credit is fifteen per cent of the qualified production expenditures.
3. If the certified infrastructure investment is at least twenty million dollars, but not more than fifty million dollars, the amount of the credit is five per cent of the qualified production expenditures.
4. If the production does not use a privately funded production facility, the amount of the credit is as follows:
(a) Five per cent of qualified production expenditures of at least two hundred thousand dollars but not more than five hundred thousand dollars.
(b) Fifteen per CENT of qualified production expenditures of at least five hundred thousand dollars but not more than one million dollars.
(c) Twenty per cent of qualified production expenditures of at least one million dollars but not more than one million five hundred thousand dollars.
E. Within thirty days after submittal of the application, the department shall certify the value of the INFRASTRUCTURE investment of a privately funded production facility based on documentation submitted with the application. The privately funded production facility may voluntarily enter into a limited manage audit agreement pursuant to title 42, chapter 2, article 7 that includes an audit of its infrastructure investment. The audit must be conducted by the taxpayer's authorized representative, as defined in section 42-2301, who is an independent certified public accountant licensed in this state. The certified public accountant and the firm the certified public accountant is affiliated with shall not regularly perform services for the privately funded production facility or its affiliates. If the director accepts the findings of the audit and issues a certification of infrastructure investment value that amount accepted is not subject to further review. The director shall provide a written certificate stating the amount of the INFRASTRUCTURE investment. A privately funded production facility may request certification of its infrastructure investment at any time on or before December 31, 2015.
F. Within forty-five days after completion of a production the production company may apply to the department on forms prescribed by the department for the income tax credit for qualified production expenditures. the department shall process the application within forty-five days after receipt.
G. The department shall not allow a credit under this section to a taxpayer who has a delinquent tax balance owing to the department under this title or title 42.
H. The amount of the credit shall not exceed ___________ for any individual production by a qualified production company.
I. A motion picture production company, at its expense, may voluntarily enter into a limited managed audit agreement pursuant to title 42, chapter 2, article 7 that includes an audit of its production costs and other requirements prescribed by this section to confirm the amount of any credit under this section. The request to enter into the audit must be made after the motion picture production company notifies the department of its intent to use the motion picture production tax credit pursuant to subsection B of this section. The audit must be conducted by the taxpayer's authorized representative, as defined in section 42-2301, who is an independent certified public accountant licensed in this state. The certified public accountant and the firm the certified public accountant is affiliated with shall not regularly perform services for the motion picture production company or its affiliates. If the director accepts the findings of the audit and issues a notice of determination pursuant to section 42-2303 and the taxpayer timely files its income tax return with the appropriate credit claim forms, the credit amount accepted is not subject to recapture, disallowance, reduction or denial with respect to the motion picture production company. The director's notice of determination shall include a written certificate to the taxpayer stating the amount of the credit and that the credit is not subject to recapture. This subsection does not prohibit the recapture of a credit from a motion picture production company if the company failed to disclose material information during the audit or falsified its books or records or otherwise engaged in an action that prevented an accurate audit.
J. Co-owners of a motion picture production company, including corporate partners in a partnership, may allocate the credit allowed under this section among the co-owners on any basis without regard to their proportional ownership interest. The total of the credits allowed all such owners of the motion picture production company may not exceed the amount that would have been allowed for a sole owner of the company.
K. If the allowable tax credit for a taxpayer exceeds the taxes otherwise due under this title on the claimant's income, or if there are no state income taxes due on the claimant's income, the amount of the claim not used as an offset against income taxes shall be paid to the taxpayer in the same manner as a refund under section 42-1118. Refunds made pursuant to this subsection are subject to setoff under section 42-1122.
L. The department of revenue shall maintain annual data on the total amount of monies credited pursuant to this section and the total amount of qualified production expenditures submitted by motion picture production companies and anticipated future credit and qualified production expenditure amounts based on the information submitted pursuant to subsection c of this section, and, notwithstanding title 42, chapter 2, article 1, shall provide the information to the department of commerce film office, the governor, the president of the senate and the speaker of the house by october 15 each year.
M. A taxpayer who claims a credit for motion picture production expenditures under this section shall not claim a credit under section 43‑1075.01 for the same costs.
N. The credit allowed by this section is in lieu of any allowance for state tax purposes of a deduction of those expenses allowed by the internal revenue code.
O. For the purposes of this section:
1. "Privately funded production facility" means a permanent facility in this state of one or more sets or stages used primarily:
(a) By any PRODUCTION company or companies and any land, permanent buildings and capital equipment that is in or adjacent to, and is necessary for the operation of the facility, including permanent facilities used to complement production needs.
(b) For staging and filming motion pictures and any land, permanent buildings or capital equipment that is in or adjacent to, and is necessary for the operation of the facility, including permanent facilities used to complement motion picture production needs and complement the motion picture production.
2. "Production company" means any person primarily engaged in the business of producing entertainment content created in whole or in part within the state, including motion pictures, documentaries, long-form productions, specials, series, miniseries, sound recordings, videos and music videos and interstitials, television programming, interactive television, interactive games, VIDEOGAMES, commercials, infomercials, any format of digital media, including an interactive website, created for distribution or exhibition to the general public, and any trailer, pilot, video teaser or demo created primarily to stimulate the sale, marketing, promotion or exploitation of future investment in either a product or a qualified production by any means and media in any digital media format, film or videotape. production company does not include any ongoing television program created primarily as news, weather or financial market reports, a production featuring current events, sporting events and awards show or other gala event, a production whose sole purpose is fundraising, a long-form production that primarily markets a product or service, a production used for corporate training or in-house corporate advertising or other similar productions for which records are required to be maintained under 18 United States code section 2257.
3. "Qualified production expenditure" means the following expenditures directly related to a production by a production company:
(a) Ten per cent of wages paid to residents of this state for work performed in this state.
(b) Material purchased in this state for construction of sets, special effects and other purposes.
(c) Equipment rented or leased in this state.
(d) Equipment acquired or otherwise purchased in this state.
(e) Facilities leased for preproduction, production and postproduction in arizona.
(f) Hotel and lodging in this state.
(g) Catering and food expenses purchased in this state.
(h) Location fees in this state.
(i) Post production expenses in this state.
(j) Fuel purchased in this state.
(k) Vehicles rented in this state.
Sec. 4. Effect on preexisting tax credits
This act does not affect the validity of income tax credits granted under prior law. Taxpayers, including transferees, who qualified for credits under sections 41-1517, 41-1517.01, 43-1075, 43-1075.01, 43-1163 and 43‑1163.01, Arizona Revised Statutes, in effect before the effective date of this act, may use any applicable amounts of those credits, including allowed carryovers, against income tax liabilities for subsequent taxable years as provided by law in effect before the effective date of this act.
Sec. 5. Purpose
Pursuant to section 43-223, Arizona Revised Statutes, the legislature enacts sections 43-1075 and 43-1163, Arizona Revised Statutes, as added by this act, to encourage development in this state of a strong capital and infrastructure base for motion picture production and related activity to achieve an independent, self-supporting industry. This objective is divided into immediate and long-term objectives as follows:
1. Attract private investment for the production of motion pictures in this state.
2. Develop a tax and capital infrastructure that encourages private development.
3. Develop a system using income tax credits to encourage investments in a qualified production facilities.
4. Create high quality employment opportunities within this sector, and increase this state's global competitiveness by fully using economic development tools within the motion picture and digital media industry.
5. Encourage spin-off development such as educational programs to provide a labor force trained in all aspects of film and digital production.
Sec. 6. Review of income tax credits
Notwithstanding section 43-222, Arizona Revised Statutes, in 2010 the joint legislative income tax credit review committee shall not review the income tax credits in sections 43-1075, 43-1075.01, 43-1163 and 43-1163.01, Arizona Revised Statutes.
Sec. 7. Effective date
Sections 1, 2 and 3 of this act are effective and apply to taxable years beginning from and after December 31, 2010.