Current through Rules and Regulations filed through September 23, 2024
(1)
Purpose. This regulation provides guidance concerning the implementation and administration of the tax credit under O.C.G.A. §
48-7-40.33.
(2)
Coordination of Agencies. The Department of Economic Development is the state agency responsible for certifying which projects qualify for the tax credit under O.C.G.A. §
48-7-40.33.
(3)
Definitions.
(a) As used in this regulation, the terms "musical or theatrical performance","production company","qualified production activities","qualified production expenditures","recorded musical performance","resident","spending threshold","state certified production", and "total aggregate payroll" have the same meaning as in O.C.G.A. §
48-7-40.33.
(b) The term "production site" means:
1. For a musical or theatrical performance, the site or sites where the production is developed, prepared, planned, rehearsed, or performed.
2. For a recorded musical performance, the site or sites where the production is prepared, planned, or recorded.
(4)
Qualified Production Expenditures. Qualified production expenditures include production expenditures incurred in this state on direct account of qualified production activities, including without limitation the following: set construction and operation; wardrobe, make-up, accessories, and related services; costs associated with photography and sound synchronization, expenditures (excluding license fees) incurred with Georgia companies for sound recordings and musical compositions, lighting, and related services and materials; editing and related services; rental of facilities and equipment; leasing of vehicles; costs of food and lodging; total aggregate payroll; talent and producer fees; technical fees; crew fees; per diem costs paid to employees; airfare, if purchased through a Georgia travel agency or travel company; insurance costs and bonding, if purchased through a Georgia insurance agency; and other direct costs of producing the project in accordance with generally accepted entertainment industry practices; and payments to a loan-out company.
(a) Depreciation, amortization, or other expense on qualified production expenditures with a useful life of more than one year. The costs of qualified production expenditures with a useful life of more than one year are considered "other direct costs of the qualified production activities in accordance with generally accepted entertainment industry practices." Such costs shall be included in the computation of the musical tax credit for the taxable year based upon the depreciation, amortization, or other expense included in the computation of Georgia taxable income of the production company for the applicable taxable year. Such depreciation, amortization, or other expense shall be prorated based upon the time the asset is used in qualified production activities in this state. Depreciation, amortization, or other expense on expenditures incurred before the production period shall not be included in the computation of the musical tax credit. In order to claim depreciation, amortization, or other expense, the qualified production expenditure for the asset that generated the depreciation, amortization, or other expense, must have been incurred in this state as provided in subparagraph (4)(b) of this regulation.
(b) Qualified production expenditures incurred in this state. In order to be considered to have been incurred in this state, the following rules shall apply:
1. Qualified production expenditures, which are attributable to the performance of services by individuals and companies directly at the production site in Georgia who were not employees of the production company, shall be attributed to Georgia in the same manner as salaries as provided in subparagraph (4)(c) of this regulation.
2. Except as otherwise provided in this regulation, expenditures for services which are not performed at the production site (such as insurance, service fees paid to a payroll company including workers compensation if the service fees include such, editing and related services, digital or tape editing, film processing, transfers of film to tape or digital format, sound mixing, computer graphics services, special effects services, animation services, etc.) will be allowed if the vendor is a Georgia vendor and will be attributed to Georgia if and only to the extent the service is rendered in Georgia. If the production company is unable to track the cost of services rendered in Georgia, then some other reasonable method which approximates the cost of services rendered in Georgia may be used to determine the amount attributable to Georgia but such approximation will be subject to adjustment by the Department. In the event the services are subcontracted to a company that would not otherwise qualify and/or such subcontracted company renders the services outside Georgia, the expenditure for such services shall not be considered to have been incurred in this state.
3. Purchases and rentals of property. In order to include qualified production expenditures for purchases and rentals of property, the property must have been used in Georgia and purchased or rented from a Georgia vendor. Purchase receipts, invoices, contracts, or other documentation shall be used to determine this.
4. Georgia Vendor. For purposes of this regulation, a Georgia vendor is a vendor that:
(i) Sells or rents property, which is regularly kept in their inventory, or provides a service not performed at the production site, which is the subject of the qualified production expenditure, in their ordinary course of business; and
(ii) Has a physical location in Georgia with at least one individual working at such location on a regular basis. Registering with the Georgia Secretary of State or appointing a registered agent in Georgia does not establish a physical location in Georgia.
However, a vendor that acts as a conduit to enable purchases and rentals to qualify that would not otherwise qualify shall not be considered a Georgia vendor with respect to such purchases and rentals.
(c) Salaries. Total aggregate payroll, as such term is used in this regulation, includes bonuses, incentive pay, and other compensation paid to an employee which is included in the employees Form W-2 "Wage and Tax Statement". Reimbursed expenses, per diems, or employer paid benefits and taxes are not included in aggregate payroll unless such amounts are included as wages, tips, or other compensation in the employee's Form W-2 "Wage and Tax Statement". For purposes of this regulation, the term "employee" means any officer of a corporation or any individual who, under the Internal Revenue Service rules applicable in determining the employer-employee relationship, has the status of an employee. Guaranteed payments to partners do not qualify for the musical tax credit and are not included in total aggregate payroll. Except as otherwise provided in this paragraph, if the production company is unable to track the actual time spent by an employee in Georgia, the production company may calculate the total aggregate payroll in Georgia by some other reasonable method which approximates the actual time spent in Georgia but such approximation will be subject to adjustment by the Department. For all individuals who are paid a separate amount for production, the amount that is incurred in Georgia shall be based on the amount paid for such period and prorated based on the actual time spent in Georgia by the employee in such period. If the production company is unable to track the actual time spent by the individual in Georgia, the production company may calculate the total aggregate payroll in Georgia by some other reasonable method which approximates the actual time spent in Georgia for such period but such approximation will be subject to adjustment by the Department.
(d) Fringe Benefits. The following benefits are attributed to Georgia in the same manner as salaries as provided in subparagraph (4)(c) of this regulation:
1. SUI (state unemployment insurance);
2. FUI (federal unemployment insurance);
3. FICA (employer portion);
4. Pension and welfare if the amounts are paid as part of pension, health, and welfare plans (these would not be required to be paid to a Georgia vendor);
5. Health insurance premiums if these amounts are paid as part of pension, health, and welfare plans (these would not be required to be paid to a Georgia vendor);
(i) Other Fringe Benefits. The following fringe benefits are attributed to Georgia as follows:
1. Meal per diems, as set forth by United States General Services Administration, if incurred in Georgia; and
2. Hotel per diems, as set forth by United States General Services Administration, if incurred in Georgia.
(e) Direct account. A production company may only claim qualified production expenditures on direct account of a qualified production activity. In determining whether a production expenditure is on direct account of a 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 the applicable rules of the Department of Economic Development and any determination made by the Department of Economic Development regarding whether a qualified production expenditure is on direct account of a qualified production activity.
(5)
Credit Amount. A production company that meets or exceeds $500,000 in qualified production expenditures in a taxable year for a musical or theatrical performance; or $250,000 in qualified production expenditures in a taxable year for a recorded musical performance which is incorporated into or synchronized with a movie, television, or interactive entertainment production; or $100,000 in qualified production expenditures in a taxable year for any other recorded musical performance, as provided in O.C.G.A. §
48-7-40.33 and this regulation, shall be allowed a tax credit of 15 percent of the qualified production expenditures; and an additional 5 percent shall be allowed for qualified production expenditures incurred in a tier 1 or tier 2 county as designated by the Commissioner of Community Affairs under O.C.G.A. §
48-7-40.
(6)
Credit Cap for Production Companies and Affiliates. In no event shall the aggregate amount of tax credits allowed under O.C.G.A §
48-7-40.33 for production companies and their affiliates which are production companies exceed the following amounts:
(a) For taxable years beginning on or after January 1, 2018 and before January 1, 2019, the aggregate amount of tax credits allowed under O.C.G.A. §
48-7-40.33 for production companies shall not exceed $5 million. The maximum credit amount allowed for any production company and its affiliates which are production companies shall not exceed 20 percent of the aggregate amount of tax credits available for such taxable year;
(b) For taxable years beginning on or after January 1, 2019 and before January 1, 2020, the aggregate amount of tax credits allowed under O.C.G.A. §
48-7-40.33 for production companies shall not exceed $10 million. The maximum credit amount allowed for any production company and its affiliates which are production companies shall not exceed 20 percent of the aggregate amount of tax credits available for such taxable year;
(c) For taxable years beginning on or after January 1, 2020 and before January 1, 2023, the aggregate amount of tax credits allowed under O.C.G.A. §
48-7-40.33 for production companies shall not exceed $15 million per taxable year. The maximum credit amount allowed for any production company and its affiliates which are production companies shall not exceed 20 percent of the aggregate amount of tax credits available for such taxable years; and
(d) The musical tax credit shall not be available for taxable years beginning on or after January 1, 2023.
(7)
Preapproval. Before requesting preapproval from the Department, the production company must apply for pre-certification from the Department of Economic Development to ensure that the project meets the requirements of O.C.G.A. §
48-7-40.33. Any production company seeking preapproval to claim tax credits under paragraphs (6) of this regulation, must submit the appropriate forms to the Department through the Georgia Tax Center as provided in this paragraph.
(a) Application. A production company seeking preapproval to claim the tax credits under paragraph (6) of this regulation must electronically submit Form IT-MC-AP and their pre-certification from the Georgia Department of Economic Development through the Georgia Tax Center. A production company may request preapproval from the Department before meeting the requirements of the musical tax credit. Such production company must estimate their credit amounts on Form IT-MC-AP. The amount of tax credit claimed by the production company on the production company's applicable Georgia income tax return must be based on the actual musical tax credit earned under O.C.G.A. §
48-7-40.33 and this regulation and cannot exceed the amount preapproved. If the production company is preapproved for an amount that exceeds the amount that is calculated using the actual numbers when the return is filed, the excess preapproved amount cannot be claimed by the production company nor shall such excess preapproved amount be assigned to any other taxpayer or added to the credit cap under paragraph (6) of this regulation. If the production company is a disregarded entity then such information should be submitted in the name of the owner of the disregarded entity.
(b) Notification. The Department will notify each production company of the tax credits preapproved or denied to such production company.
(c) Allocation of Tax Credit. The Commissioner shall allow the tax credits on a first-come, first-served basis. The date the Form IT-MC-AP is electronically submitted shall be used to determine such first-come, first-served basis.
(d) Applications received on the day the maximum credit amount is reached. In the event that the credit amounts on applications received by the Commissioner exceed the maximum aggregate limit in paragraph (6) of this regulation, then the tax credits shall be allocated among the production companies who submitted Form IT-MC-AP on the day the maximum aggregate limit was exceeded on a pro rata basis based upon amounts otherwise allowed under O.C.G.A. §
48-7-40.33, and this regulation. Only credit amounts on applications received on the day the aggregate credit cap was exceeded will be allocated on a pro rata basis.
(e) Once the credit cap is reached for a taxable year, production companies who meet the requirements of the musical tax credit during such taxable year shall no longer be eligible for a credit under O.C.G.A. §
48-7-40.33. If any Form IT-MC-AP is received after the taxable year preapproval limit has been reached, then it shall be denied and not be reconsidered for preapproval at any later date.
(f) In the event it is determined that the production company has not met all the requirements of O.C.G.A. §
48-7-40.33 and this regulation, then the amount of credits shall not be preapproved or the preapproved credits shall be retroactively denied. With respect to such denied credits, tax, interest, and penalties shall be due if the credits have already been claimed.
(8)
Musical or Theatrical Performance or Recorded Musical Performance with Qualified Production Expenditures in More Than One Year. A musical or theatrical performance or recorded musical performance which occurs over two or more years shall be considered a single project. The production company should request preapproval for the year the applicable spending threshold is met, and if necessary must request preapproval for any later year with qualified production expenditures.
(a) Example 1: A production company has $700,000 in qualified production expenditures during two years (they spend $300,000 in year 1 and $400,000 in year 2) producing one musical or theatrical performance. The production company may aggregate their qualified production expenditures over the two years for this single project to achieve the $500,000 spending threshold. The production company must request preapproval in year 2 for $700,000 (the year the $500,000 spending threshold is met), and if preapproved, claim the credit on their applicable year 2 Georgia income tax return.
(b) Example 2: A production company has $800,000 in qualified production expenditures during two years (they spend $600,000 in year 1 and $200,000 in year 2) producing one musical or theatrical performance. The production company may aggregate their qualified production expenditures over the two years for this single project to achieve the $500,000 spending threshold. The production company must request preapproval in year 1 for $600,000 (the year the $500,000 spending threshold is met) and in year 2 the production company must request preapproval for $200,000 of production expenditures (the later year). If preapproved for year 1, the production company must claim the $600,000 on their applicable year 1 Georgia income tax return and if preapproved for year 2 the production company must claim $200,000 on their applicable year 2 Georgia income tax return.
(9)
Qualified Production Expenditures Not Eligible for the Musical Tax Credit. Any qualified production expenditures for which a production company claims the tax credit under O.C.G.A. §
48-7-40.26 are not eligible for the musical tax credit under O.C.G.A. §
48-7-40.33 and this regulation.
(10)
Claiming the Musical Tax Credit. A production company claiming tax credits under paragraph (6) of this regulation must attach Form IT-MC, and their final certification from the Georgia Department of Economic Development to its Georgia income tax return for each tax year in which the credit is claimed.
(a) Withholding Tax. The production company may claim any excess musical tax credit against its withholding tax liability or the withholding tax liability of its payroll service providers provided such withholding tax liability is with respect to the employees of the production company and is attributable to withholding for such employees for withholding periods approved in subparagraph (10)(a)3. of this regulation. The withholding tax benefit may only be applied against the withholding tax account used by the production company or its payroll service provider for payroll purposes. In the event the production company is a single member limited liability company that is disregarded for income tax purposes, the withholding tax benefit may only be applied against the withholding tax liability that is attributable to wages paid by the single member limited liability company or against the withholding tax liability of its payroll service providers provided such withholding tax liability is attributable to wages paid by its payroll service provider with respect to the individuals providing services to the single member limited liability company and is attributable to withholding for such employees for withholding periods approved in subparagraph (10)(a)3. of this regulation. Any production company that qualifies to take all or a part of the musical tax credit against withholding tax otherwise due the Department of Revenue, must make an irrevocable election to do so as a part of its notification to the Commissioner required under this subparagraph. When this election is made, the excess musical tax credit will not pass through to the shareholders, partners, or members of the production company if the production company is a pass-through entity.
1. Notice of Intent. To claim any excess musical tax credit not used on the income tax return against the production company's withholding tax liability, the production company must file Revenue Form IT-WH Notice of Intent through the Georgia Tax Center within (30) days after the due date of the Georgia income tax return (including extensions) or within thirty (30) days after the filing of a timely filed Georgia income tax return, whichever occurs first. Failure to file this form as provided in this subparagraph will result in disallowance of the withholding tax benefit. However, in the case of a credit which is earned in more than one taxable year, the election to claim the withholding credit will be available for the credit earned in such subsequent year.
2. Review Period. The Department of Revenue has one hundred twenty (120) days from the date the applicable Form IT-WH under subparagraph (10)(a)1. of this regulation is received to review the credit and make a determination of the amount eligible to be used against withholding tax.
3. Letter of Eligibility. Once the review is completed, a letter will be sent to the production company stating the musical tax credit amount which may be applied against withholding and when the production company or its payroll service provider may begin to claim the musical tax credit against withholding tax. The Department of Revenue shall treat this amount as a credit against future withholding tax payments and will not refund any previous withholding payments made by the production company or its payroll service provider.
(b) Use of Other Tax Credits. Production companies claiming the musical tax credit may not claim the job tax credit, headquarters tax credit, or quality jobs tax credit for employees whose wages are used to calculate the musical tax credit.
(c) Assignment of Credit to Affiliates. Once the production company establishes the amount of the musical tax credit by filing the tax return for the taxable year in which the credit was earned, the credit may then be assigned to the production company's affiliates under the provisions of O.C.G.A. §
48-7-42. When a musical tax credit is assigned to an affiliated entity, the affiliated entity may apply the credit solely against its own income tax liability. The affiliated entity may not claim any excess musical tax credit against its withholding tax. Any unused credit may be carried forward by such affiliated entity until the credit is used or it expires, whichever occurs first.
(11)
Carry Forward. Any credit that is claimed but not used in a taxable year may be carried forward for five years from the close of the taxable year in which the qualified production expenditures were made and the production company established the amount of the musical tax credit for that taxable year.
(a) Musical tax credits may not be carried back and applied against a prior year's income tax liability.
(12)
Audits. Any Department of Revenue audit triggered by a production company's use of a musical tax credit will require the production company to reimburse the Department of Revenue for all costs associated with the audit. The Department of Revenue will inform the production company that the audit is a musical tax credit audit and thus subject to this clause prior to the commencement of the audit. Routine audits of the taxpayer's activity in Georgia are not subject to this provision.
(13)
Pass-Through Entities. When a production company generating a musical tax credit is a pass-through entity, and has no income tax liability of its own, the musical tax credit will pass to its members, shareholders, or partners based on the year ending profit/loss percentage. The credit forms will initially be filed with the tax return of the production company that incurred the qualifying production expenditures to establish the amount of the musical tax credit available for pass through. The credit will then pass through to its shareholders, members, or partners to be applied against the tax liability on their income tax returns. The shareholders, members, or partners may not claim any excess musical tax credit against their withholding tax liabilities or against the withholding tax liabilities of their payroll service providers. The credits are available for use as a credit by the shareholders, members, or partners for their tax year in which the income tax year of the pass-through entity ends. For example: A partnership earns the credit for its tax year ending January 31, 2019. The partnership passes the credit to a calendar year partner. The credit is available for use by the partner beginning with the calendar 2019 tax year.
(14)
Effective Date. This regulation shall be applicable to taxable years beginning on or after January 1, 2018.
O.C.G.A. §§
48-2-12, 48-7-40.33.
