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Audits Will Be Required for Georgia Entertainment Industry Tax Credit

Georgia’s very popular film and TV tax credit has been modified in response to an audit that revealed inconsistent procedures in Georgia Department of Revenue (DOR) audits of tax credits. The new bill, which was signed into law on Tuesday (8/4), mandates audits for productions claiming the film and TV tax credit beginning in 2021, which can be performed by third parties in addition to the Georgia DOR.

The new law requires each production to obtain an independent audit and declares that the credits audited by third parties will no longer be subject to potential recapture. The Georgia Department of Revenue will maintain a list of eligible independent auditors.

The new law further addresses one area of past potential abuse of the credit by stating that productions must be “commercially distributed” in “multiple markets” to receive the maximum tax incentive of 30%. The multiple markets requirement addresses one issue raised in the state audit, which found that many productions receiving the maximum credit didn’t qualify for the final 10% based on the production’s distribution.

In other provisions, the new law changes the carryforward period for any unused credit from five years to three years.  It also disallows expenditures paid to “conduit” businesses that set up Georgia locations solely to do business on behalf of out of state vendors.

Timing

The new audit requirements will be phased in, as follows:

  • For projects certified by the Georgia Department of Economic Development (GDEcD) on or after 1/1/2021, application/final certification required if credit sought is equal to or greater than $2.5 million.
  • For projects certified by GDEcD on or after 1/1/2022, application/final certification required if credit sought is equal to or greater than $1.25 million.
  • For projects certified by GDEcD on or after 1/1/2023, application/final certification required for all credits.

Summary of Major Changes

 

Prior to 2021 2021 and Beyond
Audit requirement No Yes – by DOR or third party “eligible auditor” and reviewed by DOR
Base Credit Percentage 20% 20%
Tax Year Base Credit Assigned to Year Expenses Incurred Year of final certification by DOR
Credit Uplift Percentage 10% 10% following verification of multi-market distribution and additional certification by DOR
Tax Year Credit Uplift Assigned to Year Expenses Incurred Year multi-market distribution is verified and additional certification issued by DOR
Carryforward Period 5 years 3 years
Risk of Recapture from Third Party Audit Yes No

There are some outstanding questions related to exactly how the new rules will be carried out. We expect these questions to be addressed through regulations adopted by the Department of Revenue in the coming months.

About the Author

Charli Traylor is a Principal in Frazier & Deeter’s tax practice and the leader of the firm’s Entertainment Practice. She can be reached at charli.Traylor@frazierdeeter.com.

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