Current through Register Vol. 49, No. 2, February 2024
II.
Definitions
(1) "Application for a rebate or a tax
credit" means the document required by the Film Office to begin the process for
obtaining a tax incentive under the Digital Product and Motion Picture Industry
Development Act;
(2)
"Below-the-line employees" means:
(A)
employees involved with a motion picture production including but not limited
to:
(i) Casting assistants,
(ii) Costume design,
(iii) Gaffers,
(iv) Grips,
(v) Location managers,
(vi) Production assistants,
(vii) Set construction staff, and
(viii) Set design staff.
(B) "Below-the-line employees" does not
include directors and producers;
(3) "Commission" means the Arkansas Economic
Development Commission
(4)
"DF&A" means the Department of Finance Administration;
(5) "Film" means a single media or
multi-media production that is fixed on film, digital medium, videotape,
computer disc, laser disc, or similar delivery medium;
(6) "Film and digital product" means video
images or other visual media entertainment content in digital format, film, or
videotape, provided the program meets all the underlying criteria of a
qualified production including but not limited to the following:
(A) Motion pictures,
(B) Documentaries,
(C) Long-form programs,
(D) Specials,
(E) Mini-series,
(F) Series,
(G) Music videos,
(H) Television programming,
(I) Interactive television,
(J) Interactive games,
(K) Videogames,
(L) Commercials,
(M) Digital media for distribution or
exhibition to the general public, or
(N) Trailer, pilot, video teaser, or demo
created primarily to stimulate the sale, marketing, promotion, or exploitation
of future investment;
(7) "Film Office" means the division of the
Arkansas Economic Development Commission charged with the responsibility of
promoting and assisting the digital content industry in Arkansas in order to
enhance Arkansas as a land of opportunity for digital and motion picture
filmmaking;
(8) "Film production
company" means a corporation, individual, limited liability company or
partnership that produces one (1) or more films or any part of a
film;
(9) "Financial institution"
means any bank or savings and loan in the state which carries Federal Deposit
Insurance Corporation Insurance;
(10) "Highly compensated individual" means:
(A) An individual who directly or indirectly
receives compensation in excess of five hundred thousand dollars ($500,000) for
personal services with respect to a single production.
(B) An individual receives compensation
indirectly when a production company pays a personal service company or an
employee-leasing company that pays the individual;
(11) "Interactive television" means a
television production in which the viewer's action(s) may:
(A) Affect the program being watched,
or
(B) Affect the outcome of the
production;
(12)
"Post-production" means a final stage in the production of film or digital
content occurring after the action has been filmed or videotaped, including but
not limited to:
(A) Dialogue
replacement,
(B) Sound
editing,
(C) Addition or deletion
of special effects,
(D) Editing
music,
(E) Beginning and end
credits,
(F) Negative
cutting,
(G) Soundtrack
production,
(H) Dubbing,
(I) Subtitling,
(J) Addition or deletion of sound or visual
effects,
"Post-production" does not include expenditures for
advertising, marketing, or distribution.
(13) "Post-production costs" means all
expenditures incurred in the state associated with the post-production phase of
a state-certified production within the state;
(14) "Production" means:
(A) The process of producing a type of
entertainment content and includes film and digital content product.
(B) "Production" shall not include:
(i) News reports;
(ii) Weather reports;
(iii) Current events;
(v) Sporting events;
(vi) Fundraising events;
(vii) Gala events;
(viii) Marketing a product or
service;
(ix) Corporate
training;
(x) Corporate
advertising;
(xi) Non-scripted
reality show;
(xii) A production
containing any material or performance that is obscene; or
(xiii) Sexually explicit productions as
defined in
18 U.S.C §
2257, as it existed on January 1,
2009;
(15)
"Production company" means a corporation, partnership, limited liability
company, or other business entity engaged in the business of producing
qualified productions and is registered with the Arkansas Secretary of State to
engage in business in Arkansas;
(16) "Qualified production costs" means costs
associated with the development, preproduction, production, or postproduction
of a qualified production within the state, including but not limited to:
(A) Per diem expenditures by the cast or crew
for meals and lodging when accompanied by receipts, signed by the production
company and the cast or crew member, evidencing payment of the per
diem,
(B) Costs associated with
original music compositions produced by an Arkansas resident to be used as
incidental music, the score, or the soundtrack in film or video
games,
(C) Arkansas residents for
labor, wages, fees, talent or management,
(D) Arkansas businesses for personal
services,
(E) The story and
scenario used in the production,
(F) Set construction,
(G) Set operations,
(H) Wardrobe and accessory
services,
(I)
Photography,
(J) Sound,
(K) Lighting,
(L) Editing related services,
(M) Rentals of equipment and
facilities,
(N) Leasing of motor
vehicles,
(O) Chartering of
aircraft through an Arkansas-based businesses for in-state transportation
attributed to the production,
(P)
Commercial airfare purchased for travel to and from Arkansas attributed to the
production,
(Q) Insurance and
bonding costs,
(R) Costs to option
or purchase intellectual property, including without limitation books, scripts,
music, or trademarks relating to the development or purchase of a script,
screenplay, or format if:
(i) The intellectual
property was produced primarily in Arkansas or the creator of the intellectual
property is a resident of Arkansas;
(ii) At least seventy-five percent (75%) of
the subsequent film or digital content is produced in Arkansas; and
(iii) The production expenses or costs for
the optioning or purchase are less than twenty-five percent (25%) of the
production expenses or costs incurred in Arkansas. The expenses or costs
include all expenditures associated with the optioning or purchase of
intellectual property, including option money, agent fees, and attorney fees
relating to the transaction, but do not include deferrals, deferments,
royalties, profit participation, or recourse or nonrecourse loans which the
eligible production company may negotiate in order to obtain the rights to the
intellectual property;
(S) Other costs of the production in
accordance with generally accepted entertainment industry practices,
(T) Fringe contributions being paid for work
performed in Arkansas, including:
(i) Health
benefits,
(ii) Pension
contributions,
(iii) Welfare
contributions,
(iv) Stipends,
and
(v) Living
allowances.
(U) Food
catering services. When a production company hires a food catering service
company that is located outside the state, payments otherwise allowable that
are made by the out-of-state food catering service to food businesses located
in Arkansas shall be allowed as eligible expenditures,
(V) "Qualified production costs" does not
include:
(i) The optioning or purchase of
intellectual property that is not used in the production project;
(ii) Media buys, promotional events, or gifts
or public relations associated with the promotion or marketing of any qualified
production;
(iii) Deferred,
leveraged, or profit participation costs relating to any and all personnel
associated with any and all aspects of the production, including, without
limitation, producer fees, director fees, talent fees, and writer
fees;
(iv) Amounts paid to persons
or businesses as a result of their participation in profits from the
exploitation of the qualified production; and
(v) Payments for penalties or fines, payments
to nonprofit organizations, and payments to federal and state entities that do
not pay state taxes;
(17) "Resident" means natural persons and
includes; for the purpose of determining eligibility for the rebate incentive
provided by this program, a person domiciled in Arkansas and who maintains a
permanent residence within the state and spends at least six (6) months of the
taxable year within the state;
(18)
"Season" means production of at least six (6) episodes of a television
series;
(19) "State-certified
production" means a qualified production produced by an eligible production
company that is:
(A) In compliance with the
established rules of the Digital Content and Motion Picture Industry
Development Act;
(B) Authorized by
the Film Office to conduct business in this state; and
(C) Approved by the executive director of the
Commission as qualifying for a discretionary production tax incentive under
this section;
(20) "Tax
Incentive" means a rebate under A.C.A. §
15-4-2008
or a tax credit under § 15-4-2012;
(21) "Television mini-series" means a limited
run program of more than three (3) hours of programming or half-season block
associated with serial or series programming;
(22) "Television programming" means a long-
or short-form narrative production of a television series, television
mini-series or television special that is intended for commercial
broadcast;
(23) "Television series"
means at least six (6) hours of television programming exhibited by a
television station or network;
(24)
"Television specials" means major dramatized presentations broadcast during
times normally occupied by episodes of one or more weekly television
series.
(25) "Veteran" means an
individual who:
(A) Was honorably discharged
from a tour of active duty, other than active duty for training only, with the
United States Armed Forces; or
(B)
Has served honorably in the National Guard or reserve forces of the United
States Armed Forces for at least (6) years, regardless of whether the
individual has been discharged;
(26) "Veteran-owned small business" means a
business:
(A) With profits of less than one
million dollars ($1,000,000);
(B)
In which at least one (1) veteran owns more than fifty percent (50%) of the
business; and
(C) That has its
principal place of business or its headquarters in Arkansas.
III.
Registration
Requirements
A production company, which plans to operate within Arkansas
shall register with the Film Office of the Commission on the prescribed forms
before beginning operations in Arkansas. The production company shall designate
a representative of the production company to work with the Commission on the
reporting of expenditures and other information necessary to qualify for the
tax incentive.
A production company must also complete all steps required by
DF&A to register for a Sales & Use tax number.
Upon registration and signing a financial incentive agreement,
the production company shall include the Arkansas Film Office logo, or an
alternative approved by the Film Office, in the credits.
IV.
Application for Project Approval
Requirements
(A) A production company
seeking a tax incentive under this program shall submit an application to
receive the benefit as a rebate or an application to receive the benefit as a
tax credit to the Commission. A production company that is seeking the tax
credit incentive benefit must include an income tax account number on the
application provided to the Commission.
(B) The application must include an estimate
of the production expenditures and shall be filed with the Commission and
approved by the executive director prior to incurring any production costs or
post-production costs in Arkansas.
(C) The application shall include the name,
phone number and address of a representative to work with the Commission and
the Film Office on the reporting of expenditures and other information
necessary to qualify for the tax incentive.
(D) Upon approval of the application by the
executive director, the production company and the executive director shall
sign a financial incentive agreement.
(E) The financial incentive agreement shall
define the provisions of the program, which shall include the:
(i) Effective date of the
agreement;
(ii) Terms of the
agreement;
(iii) Incentive for
which the production company may qualify;
(iv) Investment threshold requirements
necessary to qualify for eligibility;
(v) Production company's responsibilities for
certifying eligibility requirements;
(vi) Production company's responsibilities
for failure to meet or maintain eligibility requirements; and
(vii) Whether the tax incentive in the
agreement will be issued as a rebate or a tax credit.
V.
Production Tax
Incentive
To qualify for a tax incentive for post-production
expenditures, a production company shall spend at least two hundred thousand
dollars ($200,000) within a six-month period in connection with the production
of one (1) project.
Upon approval of the application by the executive director, a
production company may receive a discretionary tax incentive on all qualified
production costs in connection with the production of a state-certified film
project.
The amount of the tax incentive shall be twenty percent (20%)
on all qualified production costs associated with the post-production of a
state-certified film project.
If the executive director approves a project for a rebate or
tax credit of qualified production costs, the production company shall also
receive an additional rebate or tax credit of ten percent (10%) for:
(A) The payroll of below-the-line employees
involved in the production who are:
(i)
Full-time residents of Arkansas; or
(ii) Veterans;
(iii) If a production company hires a payroll
service company to handle the payroll of a production company, the payroll
payments and otherwise allowable shall be allowed an eligible expenditure if
all eligible income payment to employees and independent contractors done
through the payroll service are subject to Arkansas state income
taxes.
(iv) If approved by the
executive director, the employment incentive shall include the first five
hundred thousand dollars ($500,000) of a highly compensated individual's
salary.
(B) Expenditures
paid to a veteran-owned small business for qualified production costs.
To receive the enhanced ten percent (10%) incentive, a
production company must provide to the Film Office the following completed
forms for each individual or business that qualify:
* Declaration of Arkansas Residency form provided by the
Commission;
* Declaration of Veteran Status or Veteran-Owned Business
Status form provided by the Commission.
A production tax incentive shall not be processed until the
production company has met in full all obligations to each Arkansas institution
and vendor owned for products and services in the state.
VI.
Post-production Tax
Incentive
To qualify for a tax incentive for post-production
expenditures, a production company shall spend at least fifty thousand dollars
($50,000) within a six-month period in connection with the production of one
(1) project.
Upon approval of the application by the executive director, a
production company shall receive a tax incentive of twenty percent (20%) on all
qualified production costs associated with the post-production of a
state-certified film project.
An additional incentive of ten percent (10%) shall be granted
for:
(A) The aggregate payroll of
salaries and wages of below the line employees who are:
(i) Full-time residents of Arkansas;
or
(ii) Veterans;
(iii) If a production company hires a payroll
service company to handle the payroll of a production company, the payroll
payments and otherwise allowable shall be allowed an eligible expenditure if
all eligible income payment to employees and independent contractors done
through the payroll service are subject to Arkansas state income
taxes.
(iv) If approved by the
executive director, the employment incentive shall include the first five
hundred thousand dollars ($500,000) of a highly compensated individual's
salary.
(B) Expenditures
paid to a veteran-owned business for qualified production costs associated with
the state-certified post-production.
To receive the enhanced ten percent (10%) incentive, a
production company must provide to the Film Office the following completed
forms for each individual or business that qualify:
* Declaration of Arkansas Residency form provided by the
Commission;
* Declaration of Veteran Status or Veteran-Owned Business
Status form provided by the Commission.
A post-production incentive shall not be processed until the
production company has met in full all obligations to each Arkansas institution
and vendor owed for products and services in the state.
VII.
Weekly Expenditure
Reports
(A)
(i) Within two (2) weeks after principal
photography begins, the production company shall begin filing weekly
expenditure reports.
(ii) Failure
to file weekly expenditure reports may result in a delay in the disbursement of
the tax incentive provided in §§
15-4-2005
and
15-4-2006.
(B) The weekly expenditure report
shall be filed in accordance with but shall not be limited to the following:
(i) Direct cash payments by the production
company to Arkansas vendors, businesses, or citizens hired as cast or crew that
are accompanied by receipts shall be allowed if the sum of that cash payments
does not exceed forty percent (40%) of the total verifiable
expenditures;
(ii) Per diem
expenditures by cast or crew, or both, for lodging, when accompanied by
receipts, signed by the production company and cast or crew member, evidencing
payment of the per diem, shall be allowed as eligible expenditures;
and
(iii) Expenditure reports shall
include without limitation:
(a) Check
identification number;
(b) Date of
payment
(c) Name of
payee;
(d) Address of
payee;
(e) Amount paid;
and
(f) Other information the
division deems necessary to ensure compliance with this subsection.
VIII.
Production Costs Certification
Within one hundred eighty (180) days after the last production
costs are incurred, the production company shall apply to the Commission for a
production rebate certificate or a tax credit certificate and provide a final
expenditure report that includes the amount of the company's production
expenses or costs. Expenditure reports also shall include information as
required by the Revenue Division of DF&A to ensure compliance with §
15-4-2001
et seq.
The Commission will forward the Final Expenditure Report with
supporting documents with its recommendation for a tax incentive to the Revenue
Division of DF&A.
Upon receipt of the Final Expenditure report and supporting
documents from the Commission, the Revenue Division of DF&A will review the
Commission's recommendation and verify the amount of the tax incentive
recommended.
IX.
Application to Receive Program Incentive
Upon completion of filming or production, or both, in Arkansas,
the production company shall file an application for the tax incentive allowed
under A.C.A.§
15-4-2001
et seq. The application shall include a proof of performance expenditure list
that provides the total amount of expenditures that were made in the state in
connection with the filming or production, or both, of a film and digital
product that complies with this part. The production company shall provide
documentation for expenditures in accordance with these rules promulgated by
the Commission.
(A) The Revenue
Division of DF&A shall upon receipt of an application for a tax incentive,
including a proof of performance expenditure report from the Commission:
(i) Calculate the total expenditures of the
relevant production company for which there are documented receipts for funds
expended in the state;
(ii)
Calculate the incentive benefit to which the applicant is entitled subject to
any conditions of the approved financial incentive agreement; and
(iii) Within one hundred twenty (120) days of
the date the Final Expenditure Report was submitted to the Commission, the
Revenue Division of DF&A will certify to the Secretary of DF&A the
amount of tax incentive due to the production company.
X.
Issuance of Tax
Incentive
(A) If the production company
has opted to receive the incentive as a rebate:
(i) Within ten (10) working days after the
receipt of the certification from the Revenue Division, the Secretary of
DF&A shall issue the rebate to:
(a) The
production company;
(b) At the
option of the production company, the full amount or a specified amount noted
by the production company to:
1. The National
Film Preservation Foundation;
2.
Motion Picture Retirement Fund; or
3. Digital Product and Motion Picture Office
Fund.
(ii)
The amount of the rebate is limited to the amount specified in the approved
financial incentive agreement;
(iii) Rebates to be awarded from the Digital
Product and Motion Picture Office Fund may be payable from any source of funds
allocated for their rebates.
(B) If the production company has opted to
receive the incentive as a tax credit:
(i)
Within ten (10) business days after the receipt of the certification from the
Revenue Division, the Secretary of DF&A shall instruct the division to
issue a tax credit certificate to the production company in the amount
certified.
(ii) Tax credits issued:
1. Shall be issued promptly after the
division completes its review of documents provided as listed in Section IX of
this rule;
2. Are allowed as a
credit against the income tax imposed by the Income Tax Act of 1929, §
26-51-101 et
seq;
3. Are not refundable;
and
4. May be carried forward in
part or in whole for five (5) consecutive taxable years to apply against the
taxpayer's income taxes due.
5. May
be transferred, sold, or assigned by the owner in whole or in part under A.C.A.
§ 15-4-2012.
(iii)
The amount of the tax credits issued shall not exceed the amount approved by
the Commission in the financial incentive agreement.
(iv) The Commission shall not approve
applications for tax credits under this program for more than four million
dollars ($4,000,000) in any (1) fiscal year.
(v) A taxpayer must attach the tax credit
certificate to their income tax return in order to claim the credit.
XI.
Transfer of
Tax Credit Earned
(A)
(i) An owner of a tax credit earned under the
Digital Products and Motion Picture Industry Development Act may transfer,
sell, or assign some or all of the amount of the tax credit certified as
outlined at A.C.A. § 15-4-2013.
(ii) A subsequent holder of some or all the
amount of the tax credit may transfer, sell, or assign some or all of the
remaining tax credit.
(B) A transferee from an original, approved
applicant may use the tax credit earned under this program only to the extent
the tax credit is available to and has not been previously used by the
transferor.
(C) If a transferee of
a tax credit earned under this program seeks to use the tax credit, they shall
obtain and attach to their income tax return for the years the tax credit is
claimed a certified statement from the transferor stating the:
(i) Name and address of the original
purchaser and all transferees;
(ii)
Tax identification number of all persons entitled to any portion of the
original tax credit;
(iii) Original
date the tax credit was approved;
(iv) Amount of the tax credit that was
transferred; and
(v) Remaining
amount of the tax credit that is available for use by the transferee.
(D) The amount of the tax credit
received by the transferee may be carried forward in whole or in part for five
(5) consecutive taxable years, beginning from the taxable year in which the tax
credit originated, to apply against the taxpayer's income taxes due.
(E) If any subsequent audits or adjustments
are made to a tax credit issued under this program that reduce the amount of
the tax credit, the transferor that originally received the tax credit shall
refund the difference between the original amount and the reduced amount to
DF&A.
(F) If an owner or holder
assigns some or all of a tax credit earned under this program, the owner shall:
(i) Notify DF&A in writing within thirty
(30) calendar days following the effective date of the transfer; and
(ii) Provide any information DF&A
requires to administer and carry out the transfer and ensure proper tracking of
the ownership of the unused tax credit.
XII.
Supplemental Tax Credits
(A) If the executive director of the
Commission receives an application for tax credits under this program that
would exceed the amount of tax credits remaining to be issued in a fiscal year,
the executive director of the Commission may request that the Secretary of the
Department of Commerce and the Secretary of DF&A approve supplemental
credits to be issued in excess of the $4,000,000 annual cap as stated at A.C.A.
§ 15-4-2014.
(B) The
supplemental credits shall not exceed the amount in the Arkansas Supplemental
Digital Product and Motion Picture Industry Development Trust Fund, created at
A.C.A. § 19-5-1157, as certified by the Secretary of the Department of
Commerce and the Secretary of DF&A.
(C) The Secretary of the Department of
Commerce and the Secretary of DF&A may jointly approve supplemental credits
to be issued if a cost-benefit analysis demonstrates the issuance of the
credits benefits the State in an amount greater than its cost to the
State.
(D) The cost-benefit
analysis conducted shall be:
(i) Performed by
the executive director of AEDC or his or her designee; and
(ii) Confirmed by the Secretary of DF&A
or his or her designee.
(E) Supplemental credits issued under this
section shall be considered tax credits for the purposes of A.C.A. §§
15-4-1212
and
15-4-1213.
XII.
Production Costs
Limitations
Production companies are encouraged to make payments for
production and postproduction expenses from a checking account from an Arkansas
financial institution.
Direct cash payments by a production company to Arkansas
vendors, businesses, or citizens hired as cast or crew, which are accompanied
by receipts, shall not exceed forty percent (40%) of the total verifiable
expenditures.
XIII.
Penalties
A production company that intends to apply for the tax
incentive and does not register as required by §
15-4-2004
may be enjoined from engaging in production activities in the state by any
court of competent jurisdiction until the production company has
registered.
A production company that intends to apply for the tax
incentive and fails to comply with any provisions of the Digital Product and
Motion Picture Industry Development Act may be denied future participation in
this incentive program and shall be subject to penalty in accordance with
applicable state or federal law.
XIV.
Rulemaking Authority
The Commission has authority, at A.C.A. §
15-4-2010, to
promulgate rules necessary to implement Act 816 of 2009, as amended and to
prevent abuse.
