In the State’s continued quest to become the top film industry spot in the U.S., the Georgia Legislature in early 2017 expanded the film credit, this time for postproduction activities. The thought is that, not only do state leaders want companies to film movies in Georgia, they also want to capture some of the business of computer editing and readying films for final release, activities that involve high quality desk jobs.
“Postproduction” refers to tasks that must be done after the filming ends, including the editing of raw footage to cut scenes, the insertion of transition effects, and the inclusion of music, voice, and other sound. The Department of Revenue has released needed guidance on how the postproduction credit works with examples of how it applies to these activities.
Physical Location Required
Under the new rules, postproduction companies qualify for the credit if they have a physical location in Georgia and have an aggregate payroll of $250,000 or more for employees working within the state in the taxable year that the company claims the credit. Smaller companies also can qualify if they spend at least $100,000 but less than $500,000 on postproduction activities and have an aggregate payroll of at least $100,000 for employees working within the state during the taxable year. These requirements are designed to ensure that the work is being done in the state. Postproduction credits have been criticized in the past because of the difficulty of proving where the work is actually being done. It is easy to perform the work remotely by computer.
If a company hires another postproduction company to do the Georgia work, the hiring company must certify on Form IT-PC that the hired postproduction company is a Georgia company employing workers in this state and that the work on the postproduction is solely in Georgia.
Qualified Postproduction Expenditures
“Qualified postproduction expenditures” include expenses for footage shot either inside or outside of Georgia and cover the following costs:
● costs associated with photography and sound synchronization
● expenditures 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
● digital or tape editing, film processing, transfers of film to tape or digital format, sound mixing, computer graphics services, special effects services, and animation services
● total aggregate payroll
● airfare, if purchased through a Georgia travel agency or travel company
● insurance costs and bonding, if purchased through a Georgia insurance agency
● other direct postproduction costs reflecting generally accepted entertainment industry practices.
The Georgia Postproduction Credit
Georgia bill HB 199 created a new tax credit for film and television post-production activities. The credit equals 20% of qualified costs plus an additional 10% if the original production was in Georgia. Another 5% credit is possible if the post-production expenditures are made in Tier 1 or 2 counties. (Georgia’s county Tier rankings are based on per capita income and the unemployment rate.) This credit has a minimum spending requirement of $500,000. The bill also has a lower expenditure threshold of $100,000 for small post-production companies. These credits expire after 2022.
Companies can get pre-approval for their credits by filing Form IT-PC-AP or Form IT-SPC-AP for small companies. Unused credits may be carried forward for five years. For passthrough entities, such as LLCs, partnerships and S Corporations, the postproduction film tax credit will pass to members, shareholders, or partners based on their year ending profit/loss percentage.
Selling Unused Credits
Unused postproduction credits may be sold to other Georgia companies within the five-year carryover period. A credit can only be sold once and may not be resold once it has already been transferred, however, credit amounts can be divided up and sold to several different taxpayers.
Example: A postproduction company earns a $500,000 credit in Year 1. In Year 2, the postproduction company sells $200,000 of the credit to Taxpayer 2 and $50,000 to Taxpayer 3. In Year 3, the postproduction company sells the remaining $250,000 of the credit to Taxpayer 4. However, Taxpayer 2, Taxpayer 3, and Taxpayer 4 are not allowed to resell the credit, since a credit can only be sold one time.
Taxpayers who bought a credit can take it for the year the seller originally claimed the credit or during any later tax year before the five-year carry forward associated with that tax credit ends.
Example: A postproduction company claims the credit in calendar year 2019. The company sells the postproduction film tax credit to a calendar year Georgia taxpayer in 2020. The transferee Georgia taxpayer may claim the purchased credit on either their 2019 return (original transferee’s tax year) or their 2020, 2021, 2022, 2023, or 2024 return (during any later tax year before the five-year carry forward associated with that tax credit ends).
Credit Allocation Subject to Cap
Tax credits are allowed on a first-come, first-served basis, under maximum per-year credit allocations. No one company can receive more than 20% of the total aggregate statewide credit cap in a given year. The maximum amount of credits budgeted by the State are capped at $10 million per year for 2018-2022. If the caps are not reached for any year, the unclaimed amount rolls over to the next year. After 2022, the postproduction credit expires.
The enactment of the Georgia postproduction credit rounds out the State’s hefty film credit incentive should encourage production companies to stay around a little longer.